Special tax regime of the Balearic Islands

With effect for tax periods beginning between January 1, 2023 and December 31, 2028, the Seventieth Additional Provision of Law 31/2022, of December 23, introduces the special tax regime of the Balearic Islands, in recognition of the specific and differential fact of its insularity.

This special regime allows taxpayers of the Corporate Tax and Non-Resident Income Tax to apply the following tax benefits :

• Reserve for investments in the Balearic Islands

  Taxpayers will be entitled to a reduction in the tax base of the amounts that, in relation to their establishments located in the Balearic Islands, they allocate from their profits to the investment reserve.

  This reduction will apply to the allocations made to the investment reserve in each tax period up to the limit of 90 percent of the portion of profit obtained in the same period that is not subject to distribution, insofar as it comes from establishments located in the Balearic Islands.

  In no case may the application of the reduction determine that the tax base is negative.

  The amounts allocated to the reserve for investments in the Balearic Islands must be materialised 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 for, in the realisation of one of the investments included in the regulations.

  In addition, taxpayers may make advance investments, which will be considered as the materialization of the investment reserve that is allocated from profits obtained in the tax period in which the investment is made or in the three subsequent periods, provided that the required conditions are met.

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

• Special regime for industrial, agricultural, livestock and fishing companies

  A bonus of 10 percent of the full quota corresponding to the income derived from the sale of tangible goods produced in the Balearic Islands by themselves, typical of agricultural, livestock, industrial and fishing activities, is established.

  Those persons or entities domiciled in the Balearic Islands or in other territories that are dedicated to the production of such goods in the archipelago, through a branch or permanent establishment, may benefit from this bonus.

  This bonus may be increased up to 25 percent in those tax periods in which there has been an increase in the average workforce of no less than one with respect to the average workforce of the previous tax period and said increase is maintained for at least a period of three years from the date of completion of the tax period in which this increased bonus is applied.

You can consult the specific details of this special regime in Chapter 13 of this Practical Manual.