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Practical Handbook for Companies 2025.

Economic and Fiscal Regime of the Canary Islands

With effects for the tax periods beginning on or after January 1, 2025Final Provision Four of Law 7/2024 introduces the following modifications to Article 27 of Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands:

  1. HE modifies he section 4 of article 27 of Law 19/1994 in the following terms:

    • For the purposes of to materialize the reserve for investments in the Canary Islands (RIC), the possibility is incorporated that:

      • Please be considerate initial investments, investments in land when they affect the rehabilitation of protected housing, in accordance with the provisions of Law 2/2003, of January 30, on Housing in the Canary Islands, intended for rental in favor of persons registered in the Public Registry of Applicants for Protected Housing in the Canary Islands, in accordance with the provisions of the Order of September 24, 2009, which regulates the registration, operation and structure of said Registry.

      • These are considered acquisitions of tangible fixed assets eligible for the realization of the investment reserve, When they cannot be considered as initial investments, investments in land that are affected by the rehabilitation of protected housing, in accordance with the provisions of Law 2/2003, of January 30, on Housing in the Canary Islands, intended for rental in favor of persons registered in the Public Registry of Applicants for Protected Housing in the Canary Islands, in accordance with the provisions of the Order of September 24, 2009, which regulates the registration, operation and structure of said Registry.

    • The indication is removed that, for the sole purpose of understanding that the value corresponding to the materialization of the reserve is included in the amount of the materialization of the reservation floor, will be considered rehabilitation works actions aimed at renewal, expansion or improvement in the case of tourist establishments.

    • The possibility is incorporated that the materialization of the RIC in the subscription of public debt securities of the Autonomous Community of the Canary Islands, the Canary Islands Local Corporations or their public companies or autonomous bodies, is allocated to finance investments of rehabilitation of protected housing intended for rental in favor of persons registered in the Public Registry of Applicants for Protected Housing of the Canary Islands.

    • The possibility is incorporated that the materialization of the reserve for investments in the Canary Islands through the subscription of securities issued by public bodies, is allocated to the rehabilitation of protected housing intended for rental in favor of persons registered in the Public Registry of Applicants for Protected Housing of the Canary Islands.

  2. HE modifies he section 8 of article 27 of Law 19/1994 to incorporate, for the purpose of implementing the reserve for investments in the Canary Islands, the possibility that it may be considered, in the cases of real estate lease, of leases of rehabilitated protected housing in favor of persons registered in the Public Registry of Applicants for Protected Housing in the Canary Islands.

Also with effects for the tax periods beginning on or after January 1, 2025Article 1 of Law 6/2025, of July 28, introduces the following modifications to Article 27 of Law 19/1994, of July 6, amending the Economic and Fiscal Regime of the Canary Islands, and adds to it a new Fifteenth Additional Provision:

  1. HE modifies Section 1 of Article 27 of Law 19/1994 to introduce the possibility that entities whose main activity is the provision of financial services or the provision of services to entities belonging to the same group of companies may enjoy the RIC, when the amounts allocated to the reserve are materialized in the investments planned for the acquisition of any financial instrument issued by financial entities under the conditions set out in point 3 of letter D of article 27.4 of Law 19/1994.

    In the case of financial entities, they may only materialize their allocations in the financial instruments referred to in the previous paragraph, when the project being financed can be classified within the investments provided for in letters A or B of said article 27.4.

  2. HE modifies Section 4 of Article 27 of Law 19/1994 in the following terms:

    • Letters A and C are modified by replacing the expression "tourist accommodation" with "holiday home", as this non-hotel accommodation modality is regulated in Decree 142/2010, of October 4, and in Decree 113/2015, of May 22.

    • In cases where the reserve for initial investments regulated in section A is materialized, or where it cannot be considered as an initial investment because it does not meet any of the conditions established in section A but is regulated in section C, regarding the promotion of protected housing intended for rentalIt is incorporated that the investment will be suitable even when a public body, entity or organization intervene in the effective formalization of the lease by acting as an intermediary between the taxpayer and the actual lessee.

    • In the event of the realization of the investment reserve through the subscription to any financial instrument issued by financial entities provided that the funds raised are destined for the financing in the Canary Islands of private projects, as set out in point 3 of letter D of article 27.4 of Law 19/1994, the possibility is added that the funds raised may be destined for the financing of public-private partnership projects.

  3. HE modifies letter d) of section 5 of article 27 of Law 19/1994, establishing that They will be considered to be located and used in the archipelago Computer applications and industrial property rights, provided that they are not mere distinctive signs of the taxpayer or their products, and are to be applied exclusively in production processes or commercial activities that take place in the Canary Islands territory, as well as intellectual property rights that are reproduced and distributed exclusively in the Canary Islands archipelago.

  4. HE modifies Section 8 of Article 27 of Law 19/1994, establishing that when it comes to the rental of protected housing by the promoting company and a public body, entity or agency intervenes in the formalization and effective management of the lease by acting as an intermediary between the taxpayer and the actual lessee, said lease will in any case have the consideration of economic activity when the taxpayer has a person employed under a full-time employment contract for said operation.

  5. A new Fifteenth Additional Provision to establish the following specialties in the investments in assets related to the housing rental activity:

    • The reserves for investments in the Canary Islands, funded from profits of fiscal years beginning before or after January 1, 2025, may be realized, provided that the maximum realization period is respected, through investments in assets related to the housing rental activity.

      For these purposes, it will in any case be considered economic activity of housing rental that operation for whose development there is a person employed with a full-time employment contract.

    • Regarding the iinitial investments The amounts allocated to the RIC, as referred to in Article 27.4 of Law 19/1994, may be materialized in real estate located in the Canary Islands, always that are allocated in a novel way to housing rental, with or without a purchase option, and there is no direct or indirect link with the lessee as defined in article 18.2 of the LIS.

      For these purposes, housing will be understood as the building or part of it, of a private nature, intended for the residence and habitation of people, when it is used for that purpose in an effective, continuous and stable manner 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.

      Likewise, it will be understood that the Housing rental takes place in a novel way when the property acquired had not been transferred under said regime within the year prior to the date of acquisition.

    • It will be an essential requirement for the proper realization of the reservation that the property is located effectively leased within the 6-month period subsequent to the date of its acquisition or its being made habitable.

      It will be understood that the dwelling is located effectively leased from the date stated 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.

      He failure to comply with the deadline of six months for the effective start of the rental of housing will have the consequences provided for in section 16 of article 27 of Law 19/1994.

    • Taxpayers who do not meet the requirements of Article 101 of the LIS to be considered small entitiesIn the tax period in which the profit is obtained from which the reserve is funded, the reserve may only be materialized through investment in used properties intended for housing rental if they have not previously benefited of the regime provided for in this provision, of the general regime regulated in article 27 of Law 19/1994, nor of the deduction regime for investments in the Canary Islands.

    • Also materialization is permitted through:

      • The realization of investments indicated in the previous sections when cannot be considered initial investments because it was not carried out as a result of the creation or expansion of an establishment, or the diversification or substantial transformation of production, provided that the assets are allocated to the development of the housing rental activity defined in the previous points.

      • Making investments in job creation directly related to the investments provided for in this provision, provided that the conditions established in letters B or B bis of article 27.4 of Law 19/1994 are met.

      • The subscription of shares or equity interests in the capital issued by companies as a result of their incorporation or capital increase that carry out their activity in the archipelago, when such entities make investments related to the development of housing rental under the terms provided for in the Fifteenth Additional Provision and in letter D 1.º of article 27.4 of Law 19/1994.

    • To determine the materialization amount, the provisions of article 27.6 of Law 19/1994 shall apply.

    • He Calculation of the operating period of the investment It will begin to be counted at the start of the effective lease. However, the transfer will not be deemed interrupted if the same dwelling is leased again within six months of vacating the dwelling. In this case, the maintenance period for the investment affecting economic activity will be extended for a period equivalent to the period during which the property would have been unoccupied.

    • In all matters not expressly regulated in the Fifteenth Additional Provision of Law 19/1994, the provisions of Article 27 of said Law shall apply. In particular, the following will apply: incompatibility regimeas provided for in paragraph 12 of said article for the same goods and expenses subject to investment.