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Practical Handbook for Companies 2021

Requirements

Regulation:Article 27.3 and 27.4 Law 19/1994.

  1. The investment reserve shall be shown in the balance sheets with absolute separation and appropriate title and shall be unavailable as long as the assets in which it was materialised are to remain in the company.

  2. The amounts allocated to the RIC must be used within a maximum period of three years, counted from the date of accrual of the tax corresponding to the financial year in which it was allocated, in the realisation of any of the following investments which, by way of summary, are detailed below:

    A tener en cuenta:

    With effect from 30 December 2020, the eighth transitory provision of Law 19/1994, of 6 July, amending the Canary Islands Economic and Fiscal Regime, establishes that the maximum period of three years referred to in article 27.4 of said Law and mentioned in point 2 above, will be four years for the amounts allocated to the reserve for investments in the Canary Islands endowed, in the terms indicated in its regulatory regulations, with profits obtained in tax periods beginning in 2016.

    1. Article 27(4)(A)

      Initial investments consisting of the acquisition of new tangible or intangible assets as a result of:

      • The creation of an establishment.
      • Expansion of an establishment.
      • The diversification of an establishment's activity for the development of new products.
      • The substantial transformation in the production process of an establishment.

      Likewise, will be considered initial the investments in land, built or unbuilt, provided that they have not previously benefited from the reserve regime and are affected:

      • To the development of subsidised housing, when this qualification is appropriate in accordance with the provisions of Decree 27/2006, of 7 March, which regulates the actions of the Canary Islands Housing Plan, and they are intended for rental by the developer company.

      • The development of industrial activities included in divisions 1 to 4 of the first section of the rates of the Tax on Economic Activities, approved by Royal Legislative Decree 1175/1990, of 28 September, approving the rates and instruction of the Tax on Economic Activities.

      • Social and health care activities, residential centres for the elderly, geriatric homes and neurological and physical rehabilitation centres.

      • To commercial areas undergoing redevelopment.

      • To tourist activities regulated in Law 7/1995, of 6 April 1995, on the Regulation of Tourism in the Canary Islands, the acquisition of which is for the purpose of refurbishing a tourist establishment.

      For the sole purpose of including in the amount of the materialisation of the Reserve the value corresponding to the land, the actions aimed at the renovation, extension or improvement of tourist establishments will be considered rehabilitation works, provided that they meet the necessary conditions to be incorporated into the tangible fixed assets as an increase in the value of the property.

      With effect for the tax periods beginning on or after 7 November 2018, the reserve for investments in the Canary Islands cannot be used for the acquisition of property intended for tourist accommodation.

    2. Article 27(4)(B)

      The creation of jobs directly related to the investments foreseen in letter A above, which takes place within a period of six months from the date of entry into operation of said investment, with the requirements developed in this precept.

    3. Article 27(4)(B bis)

      The job creation carried out in the tax period that cannot be considered as initial investment because it does not meet any of the requirements established in point B above, up to a limit of 50 per cent of the allocations to the Reserve made by the taxpayer in the tax period.

    4. Article 27(4)(C)

      The acquisition of tangible or intangible fixed assets that cannot be considered as an initial investment because they do not meet any of the conditions established in letter A above, investment in assets that contribute to the improvement and protection of the environment in the Canary Islands, as well as those expenses for research and development that are determined by regulations.

      In the case of , whether built-up or not, the land must be affected by the conditions referred to above in Article 27.4 A) of Law 19/1994.

      For the sole purpose of including in the amount of the materialisation of the Reserve the value corresponding to the land, the actions aimed at the renovation, extension or improvement of tourist establishments will be considered rehabilitation works, provided that they meet the necessary conditions to be incorporated into the tangible fixed assets as an increase in the value of the property.

      With effect for the tax periods beginning on or after 7 November 2018, the reserve for investments in the Canary Islands in the refurbishment or renovation of properties used for tourist accommodation cannot be used .

    5. Article 27(4)(D)

      The subscription of:

      • 1º. Shares or holdings 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 set out in this legal precept are met.

      • 2º. Shares or holdings in the capital issued by Canary Islands Special Zone Entities as a consequence of their incorporation or increase in capital,, provided that the requirements and conditions established in the previous indent of this letter D and those laid down in Chapter I of Title V of Law 19/1994 are met, provided that they fulfil the conditions set out in this legal precept.

      • 3º. Any financial instrument issued by financial institutions provided that the funds raised for the purpose of materialising the reserve are used to finance private 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, under the terms established in the regulations.

      • 4º. 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 they are used to finance investments in infrastructure and equipment or to improve and protect the environment in the Canary Islands, up to a limit of 50 per cent of the allocations made in each financial year.

      • 5º. Securities issued by public bodies that proceed to the construction or operation of infrastructures or facilities of public interest for the public administrations in the Canary Islands, when the financing obtained with said issue is used exclusively for such construction or operation, with the limit of 50 per cent of the allocations made in each financial year.

      • 6º. Securities issued by entities that proceed with the construction or operation of infrastructures or equipment of public interest for the public administrations in the Canary Islands, once the corresponding administrative concession or authorising administrative title has been obtained, when the financing obtained with this issue is used exclusively for such construction or operation, with the limit of 50 percent of the allocations made in each financial year and under the terms established in the regulations.The issuance of the corresponding securities shall be subject to prior administrative authorization by the competent authority for the granting of the corresponding administrative title enabling.

  3. The assets in which the investment is made must be located or received in the Canary Islands, used in the Canary Islands, used 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 environment in the Canary Islands.

  4. Materialisation shall be deemed to have occurred, even in the case of acquisition by means of financial leasing, at the moment when the assets become operational.

  5. The assets and liabilities in which the investment reserve referred to in letters A and C of Article 27.4 of Law 19/1994, as well as those acquired by virtue of the provisions of letter D of the same paragraph, must remain in operation in the acquirer's company for at least five years, without being transferred, leased or assigned to third parties for their use.If it has been in operation for less than this period, this requirement shall not be deemed not to have been met when another asset is acquired to replace it at its net book value, prior to or within 6 months of its removal from the balance sheet, which meets the requirements for the application of the reduction provided for in this article and which remains in operation for the time necessary to complete this period.In the case of the acquisition of land, the period shall be ten years.

    In the event of loss of the asset it must be replaced in accordance with the terms set out in the previous paragraph.

    Taxpayers engaged in the economic activity of leasing or transferring fixed assets to third parties for their use may benefit from the investment reserve system, provided that there is no direct or indirect relationship with the lessees or transferees of said assets, as defined in article 18.2 of the LIS, nor are they involved in financial leasing operations.For these purposes, it shall be understood that the rental of real estate is carried out as an economic activity only when the circumstances provided for in Article 27.2 of the Law of IRPF are met.

    In the case of leasing of real estate, in addition to the conditions set out in the previous paragraph, the taxpayer must be considered a tourist company in accordance with the provisions of Law 7/1995, of 6 April, on the Management of Tourism in the Canary Islands, the leasing of protected housing by the developer, real estate used for the development of industrial activities included in divisions 1 to 4 of the first section of the rates of the Tax on Economic Activities, approved by Royal Legislative Decree 1175/1990, of 28 September, which approves the rates and instruction of the Tax on Economic Activities, or commercial areas located in areas whose tourist offer is in decline, requiring integrated interventions of rehabilitation of urban areas, according to the terms defined in the guidelines for the management of tourism in the Canary Islands.

  6. The investments in which the reserve is used may be financed by means of leasing contracts, in which case the reduction in the tax base will be conditional upon the effective exercise of the purchase option.