c) Investments where the amounts destined for the RIC must be materialized

Regulations: Art. 27.4 and Fifteenth Additional Provision of Law 19/1994, of July 6, amending the Economic and Fiscal Regime of the Canary Islands

The amounts allocated to the investment reserve in the Canary Islands must be invested in one of the following investments:

• Article 27.4.A: Initial investments consisting of, among others, the acquisition of new tangible or intangible fixed assets as a result of:

  - The creation of an establishment.

  - The expansion of an establishment.

  - The diversification of an establishment's activity for the production of new products.

  - The substantial transformation in the production process of an establishment.

  Under no circumstances may the reservation for investments in the Canary Islands be used for the acquisition of properties intended for holiday housing, in its non-hotel modality, in accordance with its specific regulation by Decree 142/2010, of October 4, and Decree 113/2015, of May 22, which approves the Regulation of holiday housing in the Autonomous Community of the Canary Islands.

  Investments in land, whether built or not, are also considered initial investments, provided that they meet the requirements established in the aforementioned legal provision.

  In the case of taxpayers who meet the conditions of article 101 of the LIS to be considered small entities, in the tax period in which the profit against which the reserve is provided is obtained, the investment may consist of the acquisition of used fixed assets, provided that the assets acquired have not previously benefited from the reserve regime for investments in the Canary Islands. In the case of land, the conditions provided for in this letter A of article 27.4 of Law 19/1994 must be met in all cases.

  Regarding the LIS see Law 27/2014, of November 27, on Corporate Tax.

  Specialization in the case of specific investments in housing rentals

  When dealing with any of the actions listed in point A of section 4 of article 27, mentioned above, for the purpose of considering the existence of initial investments, the amounts allocated to the reserve for investments in the Canary Islands may be materialized in real estate located in the Canary Islands, provided that they are used in a novel way for the rental of housing, with or without an option to purchase, and there is no direct or indirect link with the lessee in the terms defined in section 2 of article 18 of the LIS.

  For these purposes, housing shall be understood to mean the building or part of it, of a private nature, intended for residence and habitation of persons, when it is used for that purpose effectively, continuously and stably by the tenant, constituting his habitual residence. Those excluded by Article 5 of Law 29/1994, of November 24, on Urban Leases, will not be considered residential leases. Housing rental will be considered to take place in a novel way when the property acquired has not been transferred under this regime within the year prior to the date of acquisition.

  It will be an essential requirement that the dwelling is effectively rented within 6 months after the date of its acquisition or when it is made habitable. If the dwelling has been made habitable after the acquisition of the property, the date of that urban planning situation must be proven by providing the administrative documents that justify the first occupancy, in accordance with the provisions of the current legislation on planning and quality of the building.

  The property will be considered to be effectively rented from the date shown in the lease agreement. In order to prove this date, proof of effective collection of the amounts due from the landlord upon signing the contract must be provided, including, in any case, the amounts corresponding to the payment of the first two monthly installments.

  Anti-avoidance clause: Taxpayers who do not meet the conditions of Article 101 of the LIS, in the tax period in which the profit is obtained from which the reserve is funded, will not be able to realize the RIC properties used for housing rental when they have previously benefited from:

  • of the regime provided for in this provision, or

  • of the general regime regulated in article 27 of this Law, provided that it corresponds to allocations that have been made against profits obtained in tax periods starting from 1 January 2021.

  • of the deduction regime for investments in the Canary Islands.

• Article 27.4.B: Creation of jobs directly related to the investments provided for in letter A), which occur within a period of six months from the date of entry into operation of said investment and meet certain requirements for increasing staff.

• Article 27.4.B bis: Creation of jobs carried out in the tax period that cannot be considered as an initial investment for not meeting any of the requirements established in letter B of article 27, with a limit of 50% of the allocations to the Reserve made by the taxpayer in the tax period.

  Likewise, with effect from 1 January 2025, the materialization of the reserve through the creation of jobs directly linked to investments in real estate intended for housing rental is permitted, under the terms provided for in the Fifteenth Additional Provision, section 5 of Law 19/1994. In this case, the conditions set out in letters B or B bis of paragraph 4 of Article 27 must also be met.

• 27.4.C: Acquisition of tangible or intangible fixed assets that cannot be considered as initial investment due to not meeting any of the conditions established in letter A) above, as well as investment in assets that contribute to the improvement and protection of the environment in the Canary Islands, as well as those research and development expenses that are determined by regulation.

  Under no circumstances may the reservation for investments in the Canary Islands be used for the rehabilitation or renovation of properties intended for holiday housing, according to its regulation as an extra-hotel modality in Decree 142/2010, of October 4, which approves the Regulation of Tourist Accommodation Activity and modifies Decree 10/2001, of January 22, which regulates tourist standards, and in Decree 113/2015, of May 22, which approves the Regulation of holiday homes of the Autonomous Community of the Canary Islands.

  Application to the special housing rental regime: it will be possible to materialize RIC in real estate by making investments that cannot be considered initial investments because they were not made as a result of the creation or expansion of an establishment, or the diversification or substantial transformation of production, provided that the assets are affected by the development of the housing rental activity defined in the Fifteenth Additional Provision of Law 19/1994.

• Article 27.4.D: The subscription of the following securities:

  1. Shares or interests in the capital issued by companies as a result of their incorporation or capital increase that carry out their activity in the archipelago, provided that the requirements established in the aforementioned legal provision are met.

  Within the framework of the special regime for the materialization of the Reserve for Investments in the Canary Islands provided for in the Fifteenth Additional Provision of Law 19/1994, the subscription of shares or participations in the capital of companies that carry out their activity in the Canary Islands is also allowed, provided that said entities make investments related to housing rental in the terms established in the aforementioned provision and in letter D.1 of article 27.4.

  See section 6 of the Fifteenth Additional Provision.

  2. Shares or interests in the capital issued by entities in the Canary Islands Special Zone as a result of their incorporation or capital increase, provided that the legally established requirements and conditions are met.

  3. Any financial instrument issued by financial entities provided that the funds raised for the purpose of creating the Reserve are used to finance private or public-private partnership projects in the Canary Islands, whose investments are eligible in accordance with the provisions of this article, provided that the issues are supervised by the Government of the Canary Islands, and have a binding report from the State Tax Administration Agency.

  4. Public debt securities of the Autonomous Community of the Canary Islands, of the Canary Islands Local Corporations or of their public companies or autonomous bodies, provided that it is intended to finance investments in infrastructure and equipment or for the improvement and protection of the environment in the Canary Islands territory or, from 1 January 2025, to finance the promotion of protected housing intended for rent, or the rehabilitation of housing intended for rent in favor of persons registered in the Public Register of applicants for Protected Housing of the Canary Islands, in accordance with the provisions of the Order of 24 September 2009, which regulates the registration, operation and structure of said Register with the limit of 50 percent of the allocations made in each year.

  5. Securities issued by public bodies that proceed to the construction or operation of infrastructure or facilities of public interest for the Public Administrations in the Canary Islands, when the financing obtained with said issuance is exclusively destined for such construction or operation, and, from 1 January 2025 as in the previous point, when it is destined for the rehabilitation of protected housing intended for rental in favor of persons registered in the Public Register of Applicants for Protected Housing of the Canary Islands, with the limit of 50 percent of the allocations made in each year.

  6. Securities issued by entities that proceed to the construction or operation of infrastructure or facilities of public interest for the Public Administrations in the Canary Islands, once the corresponding administrative concession or enabling administrative title has been obtained, when the financing obtained with said issue is exclusively destined for such construction or operation, with the limit of 50 percent of the allocations made in each year and under the terms provided for by regulation. The issuance of the corresponding securities will be subject to prior administrative authorization by the competent Administration for the granting of the corresponding administrative title of inhabitant.

Note: Please note that sections 2, 4.A) and C), 5, 8 and 12 of article 27 of Law 19/1994, of July 6, were modified, for tax periods beginning on or after November 7, 2018, by article one.Thirty-four of Law 8/2018, of November 5, which modifies Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands ( BOE of November 11).