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Issues to consider when settling the Tax in 2025

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Economic and Fiscal Regime of the Canary Islands

With effect for tax periods beginning on or after 1 January 2025, Final Provision Four of Law 7/2024 introduces the following modifications to Article 27 of Law 19/1994, of 6 July, amending 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 purpose of implementing the Canary Islands Investment Reserve (RIC), the possibility is incorporated that:

      • Consider these as 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.

      • Please consider these acquisitions as acquisitions of tangible fixed assets eligible for the realization of the investment reserve, when they cannot be considered as initial investments, linvestments 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 that, for the sole purpose of including the value corresponding to the land in the amount of the reservation, rehabilitation works will be considered to be actions aimed at the renovation, 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, of the Canary Islands Local Corporations or of their public companies or autonomous bodies, is to be used to finance investments in the rehabilitation of protected housing intended for rental in favor of people registered in the Public Registry of Applicants for Protected Housing in the Canary Islands.

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

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

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

  1. Section 1 of Article 27 of Law 19/1994 is amended to introduce the possibility that entities whose main activity is Provision of financial services or the provision of services to entities belonging to the same group of companies, can 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 of Law 19/1994.

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

    • Letters A and C are modified replacing the expression "Tourist accommodation" by "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 and is regulated in section C, regarding the promotion of protected housing intended for rental, it is incorporated that The investment will be suitable even if a public body, entity or agency intervenes in the effective formalization of the lease 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 intended 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 used to finance public-private partnership projects.

  3. Letter d) of section 5 of article 27 of Law 19/1994 is amendedestablishing that Computer applications and industrial property rights will be considered to be located and used in the archipelagoprovided that they are not merely 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. Section 8 of Article 27 of Law 19/1994 is amended, establishing that when it involves the rental of protected housing by the promoting company and a public body, entity or organization is involved in the formalization and effective management of the lease by acting as an intermediary between the taxpayer and the actual lessee, said lease In any case, it will be considered an economic activity. when the taxpayer has a person employed under a full-time employment contract for said operation.

  5. A new fifteenth Additional Provision is introduced to establish the following specializations in investments in assets related to housing rental activity:

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

    For these purposes, any business for which a person is employed under a full-time employment contract will in any case be considered an economic activity of housing rental.

    • With regard to the initial investments referred to in Article 27.4 of Law 19/1994, the amounts allocated to the RIC may be invested in real estate located in the Canary Islands, provided 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 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.

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

    • It will be essential requirement for the proper materialization of the reserve that the dwelling is effectively rented within 6 months after the date of its acquisition or when it is made habitable.

    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.

    Failure to comply with the six-month period for the effective commencement of the housing lease will have the consequences provided for in section 16 of article 27 of Law 19/1994.

    • The taxpayers who do not meet the requirements of article 101 of the LIS To be considered as small-sized entities, in the tax period in which the benefit 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 from the regime provided for in this provision, the general regime regulated in article 27 of Law 19/1994, or the deduction regime for investments in the Canary Islands.

    • Materialization is also permitted through:

      • The carrying out of the investments indicated in the previous sections when they cannot be considered initial investments because they have not been 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 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 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 in 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 period of stay The operational cost of the investment 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 incompatibility regime provided for in paragraph 12 of said article will apply to the same assets and expenses subject to investment.