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Form 100. Personal Income Tax Return 2021

Reserve allocation for investments in the Canary Islands

Taxpayers who carry out economic activities and determine their net income using the direct estimation system will be entitled to a deduction from the total tax for the net operating income that is allocated to the Reserve for Investments in the Canary Islands, provided that these come from economic activities carried out through establishments located in the Canary Islands.

Amount of deduction

The deduction will be calculated by applying the average aggregate tax rate (state and regional) to the annual allocations to the reserve that come from the net operating income of the year.

Limit

The deduction for contributions to the Reserve for Investments in the Canary Islands may not exceed 80% of the part of the full tax rate that proportionally corresponds to the amount of net operating income from establishments located in the Canary Islands.

Requirements

  1. The taxpayer must determine the net income of its economic activities using the direct estimation method.

  2. The income must come from economic activities carried out through establishments located in the Canary Islands.

  3. The Investment Reserve must appear on the balance sheets with absolute separation and appropriate title, and will be unavailable as long as the assets in which it has been materialized must remain in the company.

  4. The amounts allocated to said Reserve must be materialized within a maximum period of three years from the date of accrual of the tax corresponding to the year in which it was provided for.

    In the case of provisions with profits obtained in tax periods beginning in 2016, the period is extended by one more year, becoming 4 years.

    Furthermore, as a result of the health crisis caused by COVID-19, the deadline for realizing the investment was suspended from March 14 to May 30, 2020.

  5. The assets in which the investment is made must be located in the Canary Islands, used therein, and affected by and necessary for the development of the taxpayer's economic activities, except in the case of those that contribute to the improvement and protection of the Canary Islands environment.

    The investments that can be materialized are those provided for in article 27.4 of Law 19/1994, of July 6, modifying the economic and fiscal regime of the Canary Islands (BOE of July 7).

  6. When the investment reserve is materialized in fixed assets, these must remain in operation in the company of the same taxpayer for at least five years without being transferred, leased or assigned to third parties for their use.

    If its useful life is less than this period, this requirement will not be considered to be breached when another asset is acquired before or within the six-month period that meets the required conditions and completes this period.

    If it materializes in securities, these must remain in the taxpayer's assets for five uninterrupted years. In the case of land, the term is 10 years.

  7. Taxpayers who engage, through economic exploitation, in the leasing or transfer of fixed assets to third parties for their use may benefit from the investment reserve regime, provided that there is no direct or indirect link with the lessees or transferees of said assets and that the operations are not financial leasing.

    The deduction for the Investment Reserve in the Canary Islands is incompatible for the same assets and expenses with the deduction for investments in article 68.2 of the Personal Income Tax Law, with the deductions to encourage the performance of certain regulated activities in the Corporate Income Tax Law, and with the deduction for investments regulated in article 94 of Law 20/1991, of June 7, modifying the fiscal aspects of the Economic Fiscal Regime of the Canary Islands.

The use of the investment reserve before the investment maintenance period or for investments other than those planned, as well as the failure to comply with any other of the established requirements, will result in the loss of the deductions made, and the taxpayer will be obliged to add to the state net quota and the autonomous or complementary net quota accrued in the year in which the requirements were not met, the amounts unduly deducted, plus the corresponding late payment interest.

Anticipated investments of future endowments

Taxpayers may make advance investments of future allocations to the investment reserve, provided that they meet the remaining requirements established therein and the aforementioned allocations are made from profits obtained in the tax period, or in the three subsequent periods.

However, the deadline will be four years (instead of three years) for advance investments made in 2017. Furthermore, as a result of the health crisis caused by COVID-19, the deadline for realizing the investment was suspended from March 14 to May 30, 2020.

The aforementioned materialization and its financing system will be communicated together with the personal income tax return for the tax period in which the advance investments are made.