8.7.2 Deduction modalities for investments made in the Canary Islands

As we have seen in the previous section, regarding the deduction regime for investments in the Canary Islands, article 94 of Law 20/1991, of June 7, establishes that on the general deduction regime of article 26 of Law 61/1978 , of December 27, increased deduction percentages will be applied, provided that the investment is made in the Canary Islands.

Article 26 of Law 61/1978 was repealed by Law 43/1995, of December 27, on Corporate Tax, which introduced in its place, deductions to encourage the performance of certain activities in Chapter IV of Title VI. (currently regulated in Chapter IV of Title VI of the LIS ).

In relation to article 94 of Law 20/1991, the fourth transitional provision of Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands, establishes in its first paragraph that in the event of suppression of the General Regime of Deduction for Investments regulated by Law 61/1978, of December 27, on Corporate Tax, its future application in the Canary Islands, as long as an equivalent replacement system is not established, will continue to be carried out in accordance with the regulations in force in the time of deletion.

For these purposes, the increased deduction percentages of article 94 of Law 20/1991 only apply to the new system of deductions established in Chapter IV of Title VI of the LIS, where it is equivalent to the deductions of article 26 of Law 61/1978. Therefore, the increased percentages do not apply to all deductions in Chapter IV of Title VI of the LIS.

These increased deduction percentages will be applied to the deductions included in Chapter IV of Title VI of the LIS as long as they are equivalent to article 26 of Law 61/1978, respecting the limit of 60 percent of the full quota, reduced by deductions to avoid international double taxation and bonuses (key [00582] "Positive adjusted full quota" on page 14 of form 200).

However, this joint limit will be raised to 90 percent when the amount of the deduction provided for in article 35 of the LIS, which corresponds to expenses and investments made in the tax period itself, exceeds 10 percent of the full tax, reduced in deductions to avoid international double taxation and bonuses.

With effect for the tax periods that begin on or after November 7, 2018, for the islands of La Palma, La Gomera and El Hierro, these joint limits of 60 percent and 90 percent on the liquid quota of the period, they rise to 70 percent and 100 percent, respectively.

Likewise, where this equivalence is not met, the regime in force at the time of the suppression of article 26 of Law 61/1978 will continue to apply.

For this reason, the increased percentages and other specialties of article 94 of Law 20/1991 continue to apply to the deduction for the acquisition of new fixed assets, although it is not included among the deductions of Chapter IV of Title VI of the LIS. 

To the deduction for the acquisition of new fixed assets, the joint limit of 50 percent of the full quota reduced in the deductions to avoid international double taxation and bonuses is applied (key [00582] "Positive adjusted full quota" of the page 14 of model 200).