In Dompick, we always write about Spain’s geographical variety. In previous articles, we wrote about the peculiarities of the Balearic Islands, more specifically of the characteristics of the island of Mallorca. Now, we are going to write about its second island region: the Canary Islands.
We are not going to focus on the geography and physical characteristics of the island but on the privileged tax treatment that it receives due to its insular condition. It is a legal prerogative that goes back to the sixteenth century when it is incorporated into the Corona de Castilla.
What is it?
The IGIC is an indirect tax that taxes consumption in the Canary Islands, in the territorial sea (less than 12 nautical miles from shore) and in its airspace.
It is the general indirect tax equivalent to the IVA (VAT) that exists in mainland Spain and in the Balearic Islands. But with the difference that their tax rate is lower and there are different types of taxes. The rest of the mainland Spain has three types of taxes while the Canary Island has five types of taxes.
Types of IGIC (CANARY ISLANDS INDIRECT TAX)
In the mainland Spain, there are three types of IVA (VAT): the ordinary rate is 21%, the reduced rate is 10%, and the super-reduced rate is 4%. In the Canary Islands there are five types of IGIC:
- Zero rate type of IGIC (0%): it applies to the delivery of water, medical devices, books, newspapers and magazines, the purchase of official subsidised housing (housing protected by the law), food and air transportation.
- Reduced rate type of IGIC (3%): it applies to mining, chemical industry, textile, timber, paper mill, ground transportation and vehicle repair. The reduced rate in the rest of Spain is 10%.
- Ordinary rate type of IGIC (7%): it is applied to the majority of products and on those that are not included in the other categories. In the rest of Spain, it is 21%.
- Increased rate of IGIC (9,5%)
- The special increased rate of IGIC (13,5%): it is applied to tobacco with a price of more than 1,8€ euros per unit, alcoholic beverages, jewelry, cartouche, leatherwork, and perfumery.
Apart from these five types, there are two special types (20% and 35%): the first of the types applies to the production of black tobacco and the second one to the blond tobacco.
Activities exempt from IGIC
These activities are exempt from tax by the IGIC: postal services, health care, social assistance service, education, services provided by sports entities, cultural companies, insurance and reinsurance operations, financial operations, and retail.
Examples of IGIC and IVA (VAT)
The IVA of the Canary Islands does not even reach half of the national IVA (VAT). This shows that it is cheaper to buy many things in this insular region. The most significant example is the tobacco.
The price of tobacco package ranges from 42 to 47 euros. As we said before, in the Canary Islands, the prices are much lower, and it really compensates because you can save up to 20 euros on each tobacco package. The airport’s security check-points are very systematic, and strict when carrying more tobacco than allowed. If you have passed the limit, it will be confiscated or you will not be able to travel.
Another example is the price of buying a new house. In the Canary Islands, the rate is 7%, while in the rest of Spain the IVA (VAT) of the purchase is 10%. If in the Canary Islands the price of buying a new house is 120.000€ and the IGIC that must be applied is 7%, i.e. plus 8.400€ that are added to the initial amount, its total price rises to 128.400€. In the rest of Spain, the total price of this house with the same initial price, applying the IVA of 10%, it would be 132.000€.
Finally, the price difference in gasoline is also noteworthy. We compared the price of the fuel of the Canary Islands with its price in Madrid. In the cheapest gas station in the Canary Islands its price is 0,998€/liter for gasoline 95 Octane, while in Madrid, at the cheapest gas station the same gasoline cost 1,229€/liter.
Although in the Canary Islands there are many products at a lower price than in the rest of Spain for the IGIC, they have other products that are sold more expensive than in the Peninsula as a result of the application of the Arbitrio a la Importación y Entrega de Mercancía en Canarias (AIEM).
This tax is paid by all canaries for products imported from the rest of Spain. The table below shows some products that are affected and what type of interest rate is applied to them. The product receives by the Canary Island from the rest of the peninsula are subject to the IVA of the peninsula, the AIEM, and its own IGIC if it has it:
Now you know the different types of IGIC in Mallorca, it’s time to find the perfect house for you. In Dompick, we can help you to find the house that best suits your needs.