The Canary Islands Investment Reserve (Reserva para Inversiones en Canarias -RIC-) essentially provides the possibility of reinvesting profits obtained by companies, be it physical people or legal entities, established in the Canaries. The RIC allows the reinvestment of up to 90% of the profits obtained by a company, subject to certain restrictions.

Since its creation in July 1994, the RIC has brought with it some positive and negative results which can be summarized as follows:

· It has produced an important economic development in the Canary Islands, it has promoted business expansion and development in the Canaries.
· It has created more jobs so, from a social point of view, it has been very positive.
· It has increased investment in the Canaries considerably, to heights never before reached.
· It has increased the price of the land and construction, since businessmen have, in most of the cases, invested their profits in real estate properties.
· It has considerably increased the conflicts with the Tax Administration and, in general, it has generated a permanent conflict as the Law was confusing and it could be constructed in several ways.

Because of these reasons, the need for new regulations was imperative. A development of the Law text was required to clarify the polemical factors and, on the other hand, to eliminate somehow the negative factors that this Law has always brought with it. These Law regulations were published in January 2008. Therefore, from now on, it is necessary to make clear where to invest, what to invest in, limitations, terms, etc.

REQUIREMENTS

· Profits must have been obtained in the Canaries, this reserve can not be applied to profits obtained outside the Canary Islands.
· Profits must be subject to economic activities, business or professional. They can not be used for private purposes.
· They must continue operating for at least five years.

NEW CONDITIONS

· Initial investments or establishment creation. An initial investment shall be deemed to be for the purpose of the substantial transformation in the production process, as long as the modernization, restoration or improvement of such establishment. Investment can also be done in employment creation, provided that this means an increase in the average number of employees of the company.
· Company expansion. It shall be deemed as a company expansion when (the investment) has as a consequence the increase of the total value of the assets of the company.
· Diversification of business activity: new products and business lines.
· Substantial transformation in production process: business modernization.
· Land investment is only valid in three specific cases (promotion of rent-protected housing, subject to industrial activity, and on the condition of commercial and tourist activity in areas in decline).
· Property rehabilitation is possible using RIC, as an efficient means for updating the obsolete tourist plan. Some specific tourist areas are no longer in use and the Administration wants to update them. Other tourist areas in the Canaries are desperately waiting for the renovation and modernization process to be undertaken.

INVESTMENT PLAN

One of the most important items of news regarding the new RIC law is the requirement of an investment plan and its presentation to the Treasury, at the same time each year that you file corporate taxes. Previously companies indicated profits without detailing how they were going to be invested. Now it is necessary to detail:

· The purpose of the activity to which the investment will be dedicated.
· If it requires an initial investment.
· The liquid and fixed assets or tangible assets to be invested with the amount budgeted or estimated for purchases and the predicted date of completion.
· The job positions that are going to be created, indicating the type of jobs, variation in staff, ie – how many job openings will be created, etc.

They stress the importance of investments related to the improvement and protection of the environment, This is an important factor in the Canary Islands because they are dependent on exterior energy and in the Canaries the wind and the sun can serve as important alternatives in generating energy.

CONCLUSION

Now it is much clearer how you can and cannot invest in the RIC. On the other hand, there are restrictions on what you can invest in RIC. It is necessary to carefully consult all the regulations before investing in RIC because an unintentional mistake or bad consultation can result in very severe sanctions for the businesses that do not comply with the RIC Law.