C. Requirements

Regulation: Article 27.3 and 27.4 Law 19/1994.

1. 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 was materialized must remain in the company.

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

   1. Article 27.4 A)

      Initial investments consisting of 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.

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

      • For the promotion of protected housing, when this qualification is appropriate in accordance with the provisions of Decree 27/2006, of March 7, which regulates the actions of the Canary Islands Housing Plan, and is intended for leasing by the promoter company.

      • 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 September 28, which approves the rates and instructions of the Tax on Economic Activities.

      • To social-health activities, residential centers for the elderly, geriatric centers and neurological and physical rehabilitation centers.

      • To commercial areas that are subject to a rehabilitation process.

      • For tourist activities regulated by Law 7/1995, of April 6, on the Regulation of Tourism in the Canary Islands, the acquisition of which has the purpose of rehabilitating a tourist establishment.

      For the sole purpose of understanding that the value corresponding to the land is included in the amount of the materialization of the Reserve, rehabilitation works will be considered to be actions aimed at the renovation, expansion or improvement of tourist establishments, provided that they meet the necessary conditions to be incorporated into tangible fixed assets as a higher value of the property.

      With effect for the tax periods beginning on or after November 7, 2018, the reserve for investments in the Canary Islands may not be used for the acquisition of properties intended for tourist purposes.

   2. Article 27.4 B)

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

   3. Article 27.4 B) bis

      The creation of jobs carried out in the tax period that cannot be considered as initial investment because it does not meet any of the requirements established in letter B above, with a limit of 50 percent 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, the 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.

      In the case of passenger transport vehicles by sea or road, they must be used exclusively for public services within the scope of functions of general interest that correspond to the public needs of the Canary Islands.

      In the case of land , whether built on or not, it must be subject to the conditions referred to above in article 27.4 A) of Law 19/1994.

      For the sole purpose of understanding the value corresponding to the land to be included in the amount of the materialization of the Reserve, rehabilitation works will be considered to be actions aimed at the renovation, expansion or improvement of tourist establishments, provided that they meet the necessary conditions to be incorporated into tangible fixed assets as a higher value of the property.

      With effect for the tax periods beginning on or after November 7, 2018, the reserve for investments in the Canary Islands in the rehabilitation or renovation of properties intended for housing for tourist purposes may not materialized.

   5. Article 27.4 D)

      Subscription of:

      • 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 set forth in this legal provision are met.

      • 2. Shares or interests in the capital issued by entities of the Canary Islands Special Zone as a result of their incorporation or capital increase, provided that the requirements and conditions established in the previous indent of this letter D and those provided for in Chapter I of Title V of Law 19/1994 are met, provided that they meet the conditions developed in this legal provision.

      • 3. Any financial instrument issued by financial institutions provided that the funds raised for the purpose of materializing the Reserve are intended for the financing of private projects in the Canary Islands, the investments of which are suitable 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, in the terms established by regulation.

      • 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 they are intended to finance investments in infrastructure and equipment or in the improvement and protection of the environment in the Canary Islands territory, with a limit of 50 percent of the provisions made in each fiscal year.

      • 5. Securities issued by public bodies that carry out the construction or operation of infrastructure or equipment of public interest for public administrations in the Canary Islands, when the financing obtained from said issue is exclusively intended for such construction or operation, with a limit of 50 percent of the provisions made in each financial year.

      • 6. Securities issued by entities that carry out the construction or operation of infrastructure or equipment of public interest for public administrations in the Canary Islands, once the corresponding administrative concession or enabling administrative title has been obtained, when the financing obtained from said issue is exclusively intended for such construction or operation, with a limit of 50 percent of the provisions made in each financial year and under the terms provided for by regulation. The issue of the corresponding securities shall be subject to prior administrative authorization by the competent Administration for granting the corresponding enabling administrative title.

3. The assets in which the investment is materialized must be located or received in the Canary Islands, used therein, affected 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. Materialization will be deemed to have occurred, even in cases of acquisition through financial leasing, at the time when the assets come into operation.

5. The assets in which the investment reserve referred to in letters A and C of article 27.4 of Law 19/1994 has been materialized, as well as those acquired pursuant to the provisions of letter D of that same section, 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. When its permanence is less than said period, this requirement will not be considered breached 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 said period. In the case of the acquisition of land , the term will be ten years.

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

   Taxpayers engaged in the economic activity of leasing or transferring to third parties for their use fixed assets may benefit from the investment reserve regime, provided that there is no direct or indirect link with the lessees or assignees of said assets, in the terms defined in article 18.2 of the LIS , nor are they financial leasing operations. For these purposes, it will be understood that the leasing of real estate is carried out as an economic activity only when the circumstances provided for in article 27.2 of the Tax Law occur.

   In the cases 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 April 6, on the Regulation of Tourism in the Canary Islands, in the case of the leasing of protected housing by the promoter company, of real estate affected to 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 September 28, which approves the rates and instructions of the Tax on Economic Activities, or of commercial zones located in areas whose tourist offer is in decline, due to the need for integrated interventions to rehabilitate urban areas, according to the terms defined in the general planning guidelines of the Canary Islands, approved by Law 19/2003, of April 14.

6. The investments in which the reserve is materialized may be financed through financial leasing contracts , in which case the reduction in the tax base will be conditional on the effective exercise of the purchase option.