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Spain: Control of state aid in Canary Islands investments


Antonio Viñuela Llanos

César Acosta Criado

The Canary Islands economic and tax regime (REF), which we have mentioned in past collaborations in reference to the tax advantages of investing into, and from, the Canary Islands, has been recognised in the Spanish Constitution and by the European Union (EU), which has authorised the REF in accordance with Community Law, considering the tax incentives of the REF as state aid.

In this context, the tax part of the REF is formed by various tax incentives applicable to both direct and indirect taxation, including the reserve for investments (RIC) in the Canary Islands, the tax credit for investments in the Canary Islands, the special Canary Island economic zone (ZEC), the reduction for the production of tangible assets in the Canary Islands, and other incentives, such as the tax credit for investments in territories of West Africa and for advertising and publicity expenses, which can, where certain requirements are met, produce effective corporate income tax rates of 2.5% or 4%.

Since its basic legislation was reformed as of January 1 2015, not only have its tax incentives improved considerably, but new mechanisms of individual taxpayer control have been established as well as certain limits on the level of aid provided when those tax incentives are applied together with others which may also lead to the constitution of state aid.

This new control system entails a change in the practical concept of the application of the tax incentives of the REF, given that not only must each one be applied correctly but certain restrictions are placed on the accumulation of aid obtained through all the incentives applicable in the context of the Canary Islands REF and any others, no matter what kind, deemed state aid, which cannot exceed certain limits.

Thus, the application of the REF and of its tax incentives is subject to an individual control procedure (and then to administrative review) of the level of accumulated aid.

On this basis, the operating procedures of the companies investing into, and from, the Canary Islands that benefit from the tax incentives of the REF should include certain control mechanisms, given that:

  • the aid obtained by the beneficiaries of that regime will be included annually in an informational return;

  • specific rules are established for computing them to determine the accumulation thereof, while specifying the limits applicable to that accumulation; and

  • the procedure for reimbursing any aids obtained in excess of those limits and rules on penalties is established.

The authority to monitor and control that accumulation of aid, no matter what kind of aid it is, pertains to the State Tax Agency, without prejudice to the authority attributed to other bodies of the public administration, in particular to the Central Government Controller's Office.

Thus, without missing the opportunity to benefit from the unquestionable advantages of the REF in the Canary Islands, an excellent territory for making investments due to its beneficial tax regime and legal certainty, and which has a low-tax system that is ideal for setting up business platforms for the whole world, rigorous control of the aids granted must be established in order to adapt the use of those tax advantages to Community legislation.

Antonio Viñuela Llanos ( and César Acosta Criado (, Canary Islands

Garrigues Canarias

Tel: +34 922 20 55 67/+34 92 822 94 79


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