doing business in the canaries

7/28/2019 Doing Business in the Canaries

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Doing Business in the CanariesA guide to investing, working and living in the Canary


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Contents

2. BUSINESS OPPORTUNITIES 29

2.1. Bio-technology and Health Sciences 31

2.2. Renewabl e Energies and Clean Energies 32

2.3. Information and Communications Technologies (ICTs) 33

2.4. Outsourcing 35

2.5. Audio-visual Sector 36

2.6. O pt ics, A st roph ysics and S pace Tech nologi es 38

2.7. Logistics and Transport 402.8. Advanced Tourist Services 42

3. INCENTIVES AND FINANCING 45

3. 1. E co nomic an d Fi sc al Reg ime Ge ne ra l (RE F) 46

3.2. Economic and fiscal regime of the canary islands (REF):

investment incentives 48

3. 2.1 .The Ca na ry I sl and s Spe cia l Zone (ZE C) 50

3.2.2.The Reserve for Investments in the Canary Islands (RIC) 52

3.2.3.Deduction for investments in the Canary Islands 59

3.2.4.Deduction for Production of Tangible Assets

in the Canary Islands 64

3.2.5.Fiscal advantages of the Indirect Canarian Tax 67

3.2.6.Special Register of Ships and Shipping Companies 69

3.2.7.Canarian Free Trade Areas 71

4. HOW TO SET UP IN THE CANARY ISLANDS 75

4.1. Institutional support 76

4.2 Legal forms in Spain 78

4. 3. Ste ps re qu ir ed to s et u p a bu sine ss a ct ivi ty 84

4.4. Work and residence permits 88

4.5. Employment regime 90

4.6 Complementary information 91

5. LIFE IN THE CANARY ISLANDS 93

5.1 The warmth of nature 94

5.2 Cosmopolitan culture 96

5.3 Leisure and sports 98

5.4 Health 100

5.5 Education 101

5.6 Largest overseas communities in the Canary Islands 102

6. ADDRESSES OF INTEREST 111

1. INTRODUCING THE CANARY ISLANDS 7

1.1. The Canary Islands, a strategic enclave between continents 8

1.2. Reasons for investing in Canaries 10

1.2.1 Market acces 11

1.2.2 The best Tax Regime in Europe 18

1.2.3 Access to talent 20

1.2.4 Access to knowledge 22

1.3. Macro-Economic Data 241.3.1 Canary Island GDP 24

1.3.2 Population. Socio-economic data 26

1.3.3 Labour market 26

Doing Business in the CanariesA guide to investing, working and living

in the Canary Island


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1Introducing the Canary Islands


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The Canary Islands are one of the seventeen autonomous

regions of Spain and as such, they are part of the

European Union (EU) and the Euro Zone.

Just over 1,000 kilometres from the Spanish Mainland and

about 100 km from Africa, the Canary Island Region is set

in the Atlantic Ocean as a strategic enclave between three

continents: Europe, Africa and America.

From an administrative point of view, they are divided into

two provinces: Las Palmas, made up of the islands of Gran

Canaria, Fuerteventura and Lanzarote, and Santa Cruz de

Tenerife, consisting of Tenerife, La Gomera, La Palma and

El Hierro. Capital status is shared between the cities of

Las Palmas de Gran Canaria and Santa Cruz de Tenerife.

Their unique natural conditions have maintained the

Canary Islands as a top-flight holiday destinations for

decades, bringing over 10 million foreign and 1,5 million

Spanish tourists a year to visit the islands, attracted by

the weather and the kind and friendly people.

The Canary Islands, a strategicenclave between continents

1.1

8 9

1. INTRODUCING THE CANARY ISLANDS


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11

Market access

a) Location and tiesTheir ideal geographic position as the southern Gateway to the European

Union and tri-continental bridge between America, Africa and Europe, ma-

kes the Islands a magnificent platform for trade and business.

Historically and culturally, the Islands have close ties with Latin America and

they also have strong trading and institutional links with West Africa.

They make an excellent platform for trade, logistics and transferring servi-

ces and technology between continents as they are on the main internatio-

nal trading routes. This enables investors to use the Canary Islands for

tackling strategic projects in West Africa and Latin America, with all the le-

gal security implicit in basing their business in Europe.

1.2.1

Santa Cruzde La Palma

Valverde

San Sebastinde La Gomera

Santa Cruzde Tenerife

Las Palmasde Gran Canaria

Puerto delRosario

Arrecife

LANZAROTE

FUERTEVENTURA

GRAN CANARIA

TENERIFE

LA PALMA

LA GOMERA

EL HIERRO

Provincia de Sta. Cruz de Tenerife Provincia de Las Palmas

The combination of all these characteristics together with

one of the highest standards of quality of life in Europe,

the special tax regulations and other features listed below,

make the Canary Islands a business centre with enormous

potential:

Geo-strategic situation and ties

Investment incentives

Qualified and competitive human resources

Excellent services and communications infrastructure

State-of-the art technological research

Reasons for investing in Canaries1.2

10

Total surface area 7,447 km

1,114 km of coastline

257 km of beaches

Average annual temperature Min. 15C- max. 24C

Official language Spanish

Local time GMT

Currency Euro

G.D.P. 2011 41,732,626 m

G.D.P. per capita 2011 19,806

Population 2011 2,126,769

Population density 285,59 hab/km2

Tourist arrivals 2011 13,750,092

Working Week 40 hour weekMinimum wage 2011 641,40 / month

Retail Price index 2011 2%

Facilities:

Airports 8 (6 International)

Commercial Ports 10

Marinas 12

Road network 4,261 km


Canarias

GENERAL DATA


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b) Excellent transport and communications facilities

Airports. The Canary Islands have eight airports, six of which areinternational, receiving over 34 million passengers a year. These

allow for around 1,500 direct flights a week to all the main Europe-

an cities with the leading international airlines, including low-cost

companies that have been booming in recent years. By way of

example, in 2009, the Canary Islands had 467 direct flights a week

to the United Kingdom and 334 to Germany.

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12

Reasons for investing in Canaries

No direct weekly flights

(main destinations):

UNITED KINGDOM 467

REST OF SPAIN 448

GERMANY 334

SWEDEN 45

NORWAY 41FINLAND 31

BELGIUM 29

Source: ISTAC, INE, AENA

Passenger traffic in CanaryIsland airports in 2011

TOTAL 30,052,550

Source: AENA


13

Ports. There is an extensive network of commercial and fishing har-bours and marinas in the Canary Islands, with the Port of La Luz y Las

Palmas (Gran Canaria) and the Port of Santa Cruz de Tenerife amongthe leading ports of Spain in passenger and cargo traffic, both betwe-

en the Islands and from and to the rest of the world. It is worth men-

tioning that the Canary Islands are on all the shipping routes between

Europe, America, Africa and, in recent decades, Asia too, making it a

strategic ship supply and repair station in the Mid Atlantic.

Canary Island ports in figures for 2011

PASSENGER TRAFFIC 6,197,785

CARGO TRAFFIC 38,322,368

Shipping connections with Africa include routes to: Angola, Benin, Cape

Verde, Cameroon, Congo, Ivory Coast, Gabon, Gambia, Ghana, Guinea

Bissau, Guinea Conakry, Liberia, Mauritania, Morocco, Nigeria, Sene-

gal, Sierra Leone, South Africa and Togo.

Connections with Africa, onthe other hand, include 38flights a week to thefollowing destinations:

- Agadir / Al Massira (Morocco)

- Casablanca (Morocco)- Dakhla (Morocco)

- El Aain (Morocco)

- Goulimime (Morocco)

- Marrakesh (Morocco)

- Praia (Cape Verde)

- Nouadhibou (Mauritania)

- Dakar (Senegal)

Connections with Americainclude flights to thefollowing destinations:

- Caracas (4 flights a week)

Cargo traffic in CanaryIsland airports in 2011(kilograms)

TOTAL 49,328,894

1. Morocco:Port of Casablanca, Port of Agadir,Port of Tarfaya, Port of Dakhla,Port of Layoun

2. Mauritania:Autonomous port of NouakchottAutonomous port of Nouadibou

3. Senegal:Autonomous port of Dakar

4. Gambia:Port of Banjul5. Guinea Bissau:

Port of Guinea Bissau6. Guinea Conakry:

Autonomous port of Conakry7. Sierra Leona:

Freetown Port8. Liberia:

Port of Monrovia9. Cte dIvoire:

Port of San PedroAutonomous port of Abidjan

10. Ghana:Port of TemaPort of Takoradi

11. Togo:Autonomous port of Lom

12. Benin:Autonomous port of Cotonou

13. Nigeria:Port of LagosPort Harcourt

14. Cameroon:Autonomous port of Douala

15. Guinea Ecuatorial:Port of Malabo / Port Bata

16. Gabon:Port of Libreville

17. Congo:Autonomous port of Point Noir

18. Angola:Autonomous port of LuandaAutonomous port of Lobito

19. Namibia:Port of Walvis Bay

20. Cabo Verde:Puerto GrandePort of Mindelo

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3

4

5 6

78 9 10

1112 13

14

15

16

17

18

19

20


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Canary Island ports are connected to over 500 ports throughout the

world by some thirty-odd shipping lines. They have spacious, modern

docks and large storage and operations capacity, apart from many con-tainer terminals in constant expansion, vehicle terminals, large cold

storage capacity and high quality facilities for passengers and cruise

ships.

On the other hand, the Islands have an extensive inter-island air and

sea transport network, with a large number of connections that are ide-

al for carrying both passengers and cargo. This facilitates business bet-

ween the islands, which in turn, have an extensive road network. This

allows fast and effective distribution for the supply chain of products

and services.

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14


15

Telecommunications . The Canary Islands are the ideal place for set-ting up and operating any kind of information and communication tech-

nology-related activity, as you can see from the wide satellite cover(around 50 satellites provide services in Canaries) and their fibre optic

submarine cable connections.

As for mobile telephone services, they are no different from the rest of

Spain and Europe as mobile phone use is similar to that of the Spanish

Regions with the highest Gross Domestic Product (GDP) and it is on a

par with the European Union average.

Several international telecommunications companies operate in the Is-

lands, with a high degree of deregulation and with the latest generation

technologies in information transmission. As for mobile telephone ser-

vices, there is full GSM service cover, UMTS multi-media networks are

in place, as is ADSL technology for high-speed internet connections.

With regard to hard-wired networks, the growth of ADSL services and

fibre optic lines is the result of all the modernisation that the Canary Is-lands have been through in recent years. High-speed, broad-band in-

ternet connections offer enhanced security and standards in line with

the rest of Spain and Europe.


Transport infrastructure in the Canary Islands 2011

AIRPORTS 8 (6 international)

COMMERCIAL PORTS 10-State ports

17-General Interest (Reg. Govt.)

14-Harbours and jetties (Reg. Govt.)

MARINAS 17+1 Dock (Reg. Govt.)

2 State Ports

ROAD NETWORK 4,467 km

Source: ISTAC, AENA, PUERTOS DEL ESTADO, INE, GOBIERNO DE CANARIAS


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There are currently 11 submarine cables connecting the Canary Islands

with the Spanish Mainland and countries such as South Africa, Portu-

gal and Italy, and regions such as South East Asia and America. In2011 started a new fibre-optic underwater cable, Pencan 8, which in-

creased the reliability and power of the existing cables with its capacity

of 5,12 Tbps.

The 2,000 kilometres of submarine cable network that connectCadiz with Tenerife, Gran Canaria and La Palma, was installed inthe first six months of 2011, after the singing of the contract between

Alcatel Lucent and Canalink. This network will cover the exponen-tial growth in demand for greater broadband internet connec-tivity in the Canary Islands. In this context, the new amenities supportsfor new IP applications and services, high speed data centres used in

green energy research, for telecommunications services, the public ad-

ministration and the academic and research community, especially with

the connection of the telescopes located at Roque de los Muchachos,

on the island of La Palma.

D-ALIX Connection

The submarine cable network will also support the D-ALIX data centre,

an essential component of ALIX, which is located in Granadilla de Abo-

na (Tenerife), making the Canary Islands a high availability, reliable

connectivity point with West Africa. The network of this infrastructure

has been designed to meet high quality and robustness criteria to co-

ver the technical and service requirements demanded by all telecom-

munications operators providing their services in Spain. These are also

necessary in order to effectively bridge the digital divide between the

Canary Islands and the rest of Europe.

1.2

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The best Tax Regime in Europe

Traditionally, the Canary Islands have always had a different and stable

tax and economic regime to off-set the island factor, fragmentation and

distance in comparison with the rest of Spain and Europe. To this end,

they have their own Economic and Tax Regime (REF, from the Spanish)

under Spanish legislation and with the full authorisation of the Europe-

an Union (EU).

The REF contains a series of tax breaks for setting up and operating bu-

siness activities, including:

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18


19

The table below shows how the Companies Tax rate levied on compa-

nies registered in the Special Canary Island Zone is the best in Europe.


1.2.2

The chance topay less inCompany Tax

Manyexemptions fromINDIRECTTAXES

Set up in FREEPORTS withamazing economicadvantages

Flat 4% tax rate on ZEC companies

Up to 90% reduction on the taxbase for undistributed net profits

50% rebate on the production of

tangible goods

More beneficial tax deductions on

investments than in the rest of Spain

For setting up a company

For increasing capital

For acquiring capital goods

Economic advantages for inporting

and exporting and for actively

processing goods

Company TaxRates 2010

(Source:

Consorcio de la ZEC)

France

Italy

Spain

Germany

United Kingdom

Portugal

Finland

Netherlands

Greece

Average

Ireland

Canary Islands

Poland

34,4%

31,4%

30,0%

29,8%

28,0%

26,5%

26,0%

25,5%

24,0%

23,2%

19,0%

12,1%

4,0%


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1. INTRODUCING THE CANARY ISLANDS1.2

20 21

1.2.3


Access to talent

The Canary Island population is younger than the national average for

Spain, but highly qualified and offers more competitive labour costs than

in the rest of Spain. The low turnover of staff also means that companies

can win the loyalty of their employees to a greater extent, something

that does not occur elsewhere in the European Union. Furthermore, ac-

cording to data from the National Statistics Office (INE, from the Spa-

nish), the average labour cost per employee in the Canary Islands in

third quarter of 2011 amounted to 2,077.86/month compared with an

average of 2,456.91 /month for the rest of Spain, putting the Canary

Islands below the national average.

The Canary Islands have two public universities, one on each of the two

main islands: the University of La Laguna, in Tenerife, and the Univer-

sity of Las Palmas de Gran Canaria, in Gran Canaria. Between the two of

them, they had a total of 50,562 students enrolled in 2011, over half ofwhom were studying science and technology. Nearly 5,000 students

graduate from these universities every year.

The Tenerife borough of La Orotava, on the other hand, is immersed in

the process of creating the first private university in the Islands, the Eu-

ropean University of the Canary Islands which is set to start classes in

September 2013.

The linguistic abilities of the Canary Islanders is generally

striking, basically due to the high percentage of foreign

residents in the Islands, the long-standing tourist tradition

of the Islands and the fact that there is a large number of

bilingual schools.

Number of bilingual schools:

3 French schools

7 Ger ma n s choo ls 1 Japanes e s choo l

1 A me rica n s choo l 1 N or we gian s choo l

16 British s choo ls 2 S we dish s choo ls


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Access to knowledge

The Canary Islands are the Spanish region with the highest increa-

se in total R+D+i spending in recent years. In line with the current

European Union (EU) policy, the Canary Island Government allots

major resources to developing the Islands as a technological and

business centre with a view to diversifying their economy and pro-

moting sectors that generate high value added.

Support to innovation in the Autonomous Region of the Canary Is-

lands is provided by the two public universities and institutes of

technology, which provide the highly qualified human resources ne-

cessary for developing the range of business activities and turn the

Islands into a genuine R+D+i laboratory. The Canary Islands have

state-of-the-art scientific facilities and a large number of excellent

applied research centres, particularly in areas such as bio-techno-

logy, robotics and telemetry, food and marine technology, environ-mental management and renewable energies, plus the universities

own research institutes, which have gained broad international pro-

jection from some 150 research groups that work in each of these.

1.2

22


23

These centres make Canaries

a springboard to the cutting

edge as they make it possible

to carry out high quality tech-nological research with well

trained professionals, institu-

tional support and facilities

t hat me et a l l t he r e qu ire -

ments with every guarantee

of success.

1.2.4


Scientific facilities in the Canary Islands

MARINE RESEARCH

Canary Island Oceanographic Centre Canary Island Institute of Marine Sciences

(ICCM, from the Spanish)

Applied Algology Centre

Spanish Algae Bank (BEA, from the Spanish)

ASTROPHYSICS AND TECHNICAL RESEARCH

Canary Island Astrophysics Institute (IAC, from the Spanish)

Canary Island Institute of Technology (ITC, from the Spanish)

Technological Institute of Renewable Energies

(ITER, from the Spanish)

HEALTH RESEARCH

Canary Island Institute of Tropical Diseases

(ICET, from the Spanish)

Institute of Bio-medical Technologies (ITB, from the Spanish) Canary Island Research and Health Foundation

(FUNCIS, from the Spanish)

BIOLOGICAL AND AGRICULTURAL RESEARCH

Antonio Gonzlez University Institute of Bio-organics

Institute of Natural Products and Agro-biology

(IPNA, from the Spanish)

Canary Island Institute of Agro-food Research

(ICIA, from the Spanish)


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Macro-Economic Data1.3

24 25


Canaries

Spain

EU-27

Distribution of GDPat marketprices by sectorsof activity 2011 (%)

Sources: INE, ISTAC

9%4%3%1%83%

Agriculture

Energy

Industry

Construction

Services

Canary Island GDP

The ideal position of the Canary Islands keeps this region in constant

contact with the outside world. It also makes them a key intermediating

point between countries, with their finger firmly on the pulse of the pre-

sent down-turn in the world economy.

Over the last ten years, the Canary Island economy has seen its GDP

grow faster than the European average and in the last five years, ex-

cept for 2010, it has outgrown Spanish national GDP. This translates

into an economy that is both more dynamic and more sensitive to

cycles than that of the rest of Spain, due to its dependence on the main

European markets.

The Canary Islands on the other hand, have always had a growing mar-

ket that has actively attracted the working population.

Gross DomesticProduct at marketprices (%)

Sources: INE, EUROSTAT

(Euros)

CANARIES 19,806

SPAIN 23,271

EUROPE 26,166

PER CPITA GDP2011

Source: INE, EUROSTAT

1.3.1

The services sector, and tourism in particular, is the sector that directly

and indirectly generates most of the GDP, as this graph clearly shows.

The energy sector, on the other hand, has gained weight in recent ye-ars, thanks to the fact that the institutions have enhanced their promo-

tion of alternative energies. Industry focuses basically on the energy

sector and water, food products, tobacco-related activities and some

other light industries (chemicals, paper and cardboard, etc.). Construc-

tion, very important in recent years, has been especially hard hit by the

economic slow-down.

Geographic factors and the climate determine the productive structure

of the Canary Island region in the services sector, which is focused abo-

ve all on the tourist sector as has already been mentioned. In the case

of the Canary Islands, unlike other Spanish regions, this has proved to

be highly resilient to the economic crisis and possible oscillations in

flows of tourists over the course of the year.

The high hotel occupancy rate is striking at 13 points above the Spanishaverage, which, together with the high quality of the tourist amenities

and the services available, make the Canary Islands Spains favourite

destination and a benchmark in Europe. The average stay exceeds the

average stay of tourists in the rest of Spain by more than three days.

These indicators confirm the structural nature of tourism in the Islands.

TOURIST ARRIVALS 13,750,092

HOTEL BEDS 237,900

SELF-CATERING BEDS 193,300

Tourism 2011

Sources:

INE, ISTAC

-5

-3

-2

-4

-1

1

2

0

3

4

2008 2009 2010

0,9 0 ,9 0 ,3

5

- 4, 2 - 3, 7 - 4, 3 - 0, 3 - 0, 1 2 2 ,1 0 ,7 1 ,5

2011


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Population. Socio-economic data.

The rapid growth in the population has been part of the expansion of

the Spanish economy from 1994 to 2007, and the Canary Islands have

benefited from this expansion in both economic and demographic

terms.

At 1st of January 2011, The Census in the Canary Islands showed a po-

pulation of 2,126,769 habitants.

1.3

26


27

Labour market

The labour market behaves differently in the Canary Islands from the

rest of Spain and Europe in terms of specialisation, turnover and sa-

laries.

1.3.3

1.3.2

Macro-Economic Data

Labour costs inSpain incomparison withEurope.

Labour cost/hour(2011)

Spain has lower costs

than the rest of the

EU-27

(Source: Eurostat)

Population density 2011 Population growth in the Canary Islands

285.59 hab./km 2003: 1,894,868 hab.

2011: 2,126,769 hab.Source: INE

One of the characteristics of the population structure in the Canary Is-lands in terms of age and sex is the lower degree of ageing. At the 1st

of January 2011, the ageing rate was 13.41%, compared with the Spa-

nish average of 16.6%, showing that the population structure of the Is-

lands is younger than that of the both the rest of Spain and Europe.

Source: Ministry of Science and Innovation.

This distribution of the population, and the wide variety of the resident

foreign population, has led to the Canary Islands being chosen as an in-

ternational benchmark for testing products before they are marketed

commercially.

Labour costs inCanaries incomparison withthe rest of Spain.2011

The Canary Islands

have the lowest

labour costs in Spain

(Source: INE)

Minimum Wage 2011 Working week

641.40 euros/month 40 hours/week

Belgium

Sweden

DenmarkFrance

Luxembourg

Netherlands

Germany

Finland

Austria

UE-27

United Kingdom

Cyprus

Slovenia

Portugal

Spain

0 5 10 20 25 35 4015 30

Basque country

Navarre

Madrid

Catalonia

Asturias

Aragon

Balearics

Cantabria

Andalusia

Castilla y Len

Murcia

GaliciaValenciancommunity

La Rioja

0 5 10 15 20 25

Extremadura

The Canaries

Castilla-La Mancha


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2Business Opportunities


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Bio-technology and Health Sciences are two important sectors in the area of

R+D+i, which is why there are top-flight lines of research in these fields.

Thus, the Canary Islands are considered a macro-laboratory with vast reser-ves of natural resources and one of the richest bio-diversities in the world. In this

sense, it is worth pointing out that this small island region of the Canary Archipe-

lago contains 80% of all Spains bio-diversity, with over 14,000 land species, 600

endemic plants and 5,500 marine species recorded.

The region has pioneered research on, and the use of, marine bio-technology

since the 1990s. The Spanish Algae Bank, founded in 1998, has a catalogue ofover 150 strains. The private sector includes the BIOAgramar Foundation, which

has a collection of almost 1,500 varieties.

Furthermore, there are large numbers of highly qualified professionals working in

one of the three Faculties of Marine Sciences in Spain, which is located in the Ca-

nary Islands.

The Institute of Natural Products and Agro-biology (IPNA-CSIC) was na-med as one of the best in the world in its field by a committee of experts from the

European Science Foundation. This is the first Spanish centre of its kind and it is

destined to become a benchmark in Europe.

On the other hand, the Canary Islands are leaders in the field of minimally inva-sive surgery and image-guided medicine in Spain. There are also important in-itiatives in the field of bio-engineering, rolled out by the Canary Island Agency

for Research, Innovation and Information Society (ACIISI, from the Spanish), theCanary Island Research and Health Foundation (FUNCIS, from the Spanish), the

Universities of Las Palmas de Gran Canaria and La Laguna, the University Hospi-

tal of the Canary Islands (Tenerife), the Doctor Negrin University Hospital and the

Materno-Infantil Hospital Complex (Gran Canaria).

30 31

Bio-technology and Health Sciences

2 2. BUSINESS OPPORTUNITIESThe Canary Islands have highly qualified and

trained professionals in many fields of science

as the Islands are an excellent laboratory for

experimenting and developing Research,

Development and Innovation (R+D+i).

Furthermore, the Islands have highly specific

natural conditions and a rich and varied bio-

diversity, making them an excellent place to

invest in knowledge.

Hence, the technological R+D+i sectors

represent one of the cornerstones of the Canary

Island Governments development policies for

economic diversification.

Below is a presentation of the sectors with the

greatest business potential in the Canary Islands

because of both their strategic nature and their

capacity for growth here.

2.1


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Renewable Energies and Clean Energies

The natural conditions of the Canary Islands make them unique for developing

wind, solar, wave and tide energy. The Canary Islands are on the leading edge in

water and clean energy technologies:

G World leaders in sea-water desalination technology with an installed capacitythat can produce over 600,000 m3 of desalinated water per day. The first des-

alination plant in Spain was opened on the island of Lanzarote in 1965. The Ca-

nary Islands currently top the rankings in the development of this kind of

technology.

G The Canary Islands offer a high return per square metre on investments in sec-tors such as wind, solar photo-voltaic and wave energy and applied rese-arch is well advanced. By way of example:

G Solar energy: over 2,500 hours of sunlight a year, with a radiation of 5-6

KWh/m2 a day. Photo-voltaic facilities are powered by over 1,700 hours.

G Wind energy: constant winds with average velocities of 6 to 8 m/s offer

wind farms the equivalent of between 3,000 and 4,000 hours. The Canary

Island Energy Plan is set to install 1,025 MW of wind power, increasing

the 137 MW currently installed almost ten-fold.

G Some islands could become self-sufficient by using energy from underground

(geo-thermal energy) as they are volcanic. The Canary Islands have enor-mous potential in this field, putting them at the head of Europe together with Ice-

land. The main advantage of this kind of renewable energy is its continuity,

whereas the more conventional forms, such as solar and wind power, dependon the cycles of day and night and the wind respectively.

G El Hierro 100% Sustainable Project : the island of El Hierro is part of an am-bitious project that will make it the first island in the world to be supplied by cle-

an energy. This will be done by building a 10MW hydro-wind plant that will

come on line in mid 2011. A later phase of the project plans to introduce elec-

tric vehicles and all fossil-fuels will practically disappear from the island. El Hie-

rro is being used as a macro-laboratory for experimentation with a view to

rolling out new renewable energy formulae based on sustainable development

models.

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2. BUSINESS OPPORTUNITIES

33

G The Canary Island Oceanic Platform (PLOCAN) is one of the major key-note projects of Spanish science. The objective is that it will act as a base for

testing and implementing international projects in the area of marine technolo-

gies. Thus, PLOCAN contributes to the development of new and emerging tech-

nologies and to bringing them to the market.

The fragmented nature of the Islands has fostered an intensive development of

the communications sector. The need for constant communication with the rest of

the world has driven the Canary Island public and private sectors to sign up to am-

bitious plans and projects to keep the Islands connected to the rest of the world.

Hence, the Regional Government has developed a specific programme for rolling

out new technologies in the field of ICTs for the period 2007-2013. Companies in

this field that want to set up or move their facilities to the Canary Islands are eli-

gible for a wide range of benefits.

Facilities and resources available:

G There are several top-flight international research centres that can testify to the

drive that the Islands intend to give to R+D+I policies.

2.2

Information and CommunicationTechnologies (ICTs)

2.3


17/60

G There are three Science-Technology Parks, which intend to harness thesynergies generated by the cluster of technology-based companies in one pla-

ce. Tech-based investment projects implemented in the Islands have the full sup-

port of the Regional Government as they are determined to promote economic

diversification in the Canaries.

G The Canary Island Astrophysics Institute (IAC) and the Canary Island Institute of

Technology (ITC), both leading-edge research agencies, manage two of theten most powerful super-computers in Spain. These are the La Palma andthe Atlante super-computers, which belong to the Spanish Super Computing

Network (RES, from the Spanish) created by the Ministry of Science and Inno-

vation to drive a range of different scientific projects.

G The Canary Islands have qualified professionals, engineers and specialised vo-cational training, with wages below the Spanish average.

Other interesting opportunities in the Canary Islands include:

G Digital Cable Television (TDT, from the Spanish). Fully operational sinceApril 2010, when analogue television broadcasting was phased out, it has ope-

ned up new broadcasting frequencies.

G Auxiliary Mobile Services. With an above-average penetration rate for mo-bile telephones and a fiercely competitive market, telephone companies and

operators have to differentiate and segment their products.

G Open Source Software. Spain, and the Canary Islands in particular, offers anunrivalled setting for developing business models based on open source softwa-

re, with a growing market and strong support from the public sector.

2

34


The Canary Islands are highly attractive and offer real opportunities for com-

panies in the field of outsourcing. The main advantages of outsourcing in the

Canary Islands is the availability of offices, the time difference between the is-

lands and most of the rest of Mainland Europe, qualified labour with langua-

ge skills and lower set-up costs.

One of the features of the labour market is the large segment of young, highlyqualified people. The Canary Islands have one of the highest employment ra-tes of any region in Spain (60.79%) with one of the lowest turnover rates and

the best indicators for language skills (22 bilingual schools).

The two public universities in Canaries, the different VT specialities focusing

on call-centre operations and the large number of research centres, generate

highly competitive human resources. Moreover, salaries and turnover of em-

ployees are lower than in the rest of Spain and the EU.

On top of all this, there are generous tax breaks for R+D+I activities (up to82% in the Canary Islands and a maximum of only 27% in the rest of Spain).

Their geo-strategic position as a springboard to North West Africa, where ma-

jor projects in the areas of consultin g and integration systems are starting to

emerge, give the Canary Islands a competitive edge.

Outsourcing2.4


18/60

Audio-visual Sector

Canaries are the perfect setting for films. The variety and versatility of the lands-

capes attract countless audio-visual productions every year. Over 200 local and

foreign audio-visual productions are made in the Islands every year (feature films,

television programmes, video clips spots, photo-shoots, etc.). The potential of the

Canary Islands as a film location is vast and the Canary Island Government provi-

des strong support for the sector. Evidence of this is the declaration signed by the

Canary Island Parliament on the 22nd of May 2009, considering the industry a

strategic sector for the Canary Islands.

The main advantages of the Islands in this area are:

G Unbeatable tax breaks: the deduction on Companies Tax for Canary Islandproductions amounts to 38%. Furthermore, there is a regional funding plan that

puts out a call for projects every year (between May and June), with a budget

of over one million euros.

G Since 2007, funds from the Canary Island Investment Reserve (RIC, from the

Spanish) can be invested in audio-visual productions made in Canaries that ob-

tain the obra canaria (Canary Island work) label granted by the Canary Island

Government.

2

36


37

G The incipient Canary Island audio-visual industry has already reaped successin the cinema due to the existence of experienced, highly professional compa-nies to provide all kinds of support services or to implement large scale projects

on their own. On the other hand, the highly developed tourist industry provides

benefits that include complete accommodation, transport and catering services.

The Canary Islands are a niche in providing value added to cartoon produc-tions in the phase of editing and polishing the raw work done in Asia. Thisrepresents a business opportunity for cartoon productions in both pre and post-

production phases.

G Movies filmed in the Canary Islands include One millions years B.C., byDon Cheffey, starring Raquel Welch (1966), Los abrazos rotos, by Pedro Al-

modvar, starring Penelope Cruz (2008), or the more recent Clash of the Ti-tans, by Louis Leterrier, starring Ralph Fiennes and Liam Neeson.

G As for local talent, the Islands can boast not only of being the birth place of ac-tors of the calibre of Javier Bardem, but also of graphic animators such as Car-

los Baena, who brought life to the leading players of Pixars recent hits Rata-

touille and Wall-E, or directors such as Juan Carlos Fresnadillo, director of

Intacto and 28 weeks later, or Mateo Gil (Alejandro Amenabars co-screen-

writer) who is currently directing Blackthorn with Sam Shepard and Eduardo

Noriega.

2.5


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Optics, Astrophysics and Space Technologies

The Canary Islands are the headquarters of the Canary Island AstrophysicsInstitute (IAC), a highly international Spanish research centre that is also res-ponsible for operating the Teide Observatories (Izaa, Tenerife) and the Roque de

los Muchachos Observatory (Garafia, La Palma).

The extraordinary astronomic quality of the skies up in the mountains of the Ca-

nary Islands, protected by law, and a series of international agreements, have en-

abled these observatories to attract telescopes and other instruments from over

70 scientific institutions from 19 countries.

Much of the technology used in their research is developed by the IAC itself,Thanks to their experience and the knowledge accumulated from pioneering spa-

ce projects in Spain, the IAC has attained a leading position in the most important

areas of know-how and technology for developing advanced instrumentation.

This experience has been enhanced recently with the launch of what is currently

the largest and most advanced telescope for optical infrared astrophysics: theGran Telescopio CANARIAS, or Great Canary Island Telescope (GTC). This pro-

ject h as al so ad vanced skill buildi ng i n the se tech nologies among Spanish compa-

nies. The installation of this telescope in the Roque de los Muchachos

Observatory keeps the Canary Islands on the leading edge internationally.

2

38


39

Apart from participating in the GTC, the IAC also plays a highly active role in

the leading international projects and initiatives in the field of astrophysics.

This is the case of the European Optical Infrared Co-ordination Network for As-

tronomy - OPTICON; the project to build the European Extremely Large Teles-

cope (E-ELT) and two of its possible future instruments; the instrumentation for

the HERSCHEL, PLANCK and IMAX VLTs; and the conceptual design study for

the future European Solar Telescope (EST); among others.

The IAC is currently a powerful technological research and development cen-

tre, among the best of its kind in the world, capable of championing the scien-

tific, technological and cultural resources of the Canary Island skies to the

benefit of all. It has proved a useful instrument, not just for facilitating the use

of the observatories by the national and international scientific community, but

also for optimising Spains scientific and technical development.

As for space technology, the National Aerospace Institute (INTA)s Ca-nary Island Space Centre (CEC, from the Spanish) is located in the southof the island of Gran Canaria. According to experts in these matters, it is ide-

ally placed to provide support for launching satellites, the remote control of sa-

tellites, acquiring Earth observation satellite data, detecting and locating

emergency alerts picked up by the Cospas-Sarsat satellites for saving human

lives, as well as for communications with geo-stationary satellites. The Space

Centre has provided support for many international space missions.

2.6


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Logistics and Transport

Locating in the Canary Islands means being closer to Africa and America wi-

thout leaving Europe. The Archipelago is 100 kilometres from the west coast

of Africa and just over 1,000 kilometres from Mainland Spain. This makes it a

key business platform that facilitates trade and the transfer of services and

technology between continents.

Business success is helped by the modern infrastructure of the Canary Is-

lands. There are 8 airports, 6 of which are international. The two busiest of

these (Gran Canaria and Tenerife North) handled over 35 million passengers

each and almost 50,000 tonnes of cargo in 2011. There are 1,500 weekly con-

nections to destinations in Europe and many direct flights to Africa, Latin

America and North America. Madrid is just a two-and-a-half hour flight away;

London, Frankfurt and Rome, four hours and Caracas, eight hours away.

Concerning sea transport, the Islands are connected with almost 500 ports

throughout the world, with over thirty shipping lines, including the main logis-

tics operators. The Canary Islands are known as the largest supply, ship re-

pair and bunkering station in the Mid Atlantic and one of the top three for

hydro-carbon logistics distribution.

2 2. BUSINESS OPPORTUNITIES

41

Some references:

G UNICEF and the International Red Cross have chosen the Canary Islands toset up their logistics operations base for emergency humanitarian relief to Afri-

ca; one of only four facilities of this kind in the world.

G The Islands Port Authorities form part of important international institutions in

the industry, such as, for example, the International Cargo Handling Co-or-dination Association (ICHCA), which intends to foster co-operation amongthe main ports of the west coast of Africa and the Canary Islands through the

Canary Islands/Africa Regional Chapter.

G The Canary Islands are seeking to become one of the largest bunkering centres

in Europe for low-sulphur fuels in order to seize the opportunity represented by

the SECA Area coming into effect in the Mediterranean in 2011.

G In the Spanish national rankings, the Canarian ports are:

G Number three in container handling.

G Number four in passenger traffic.

2.7


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Advanced Tourist Services

The Canary Islands, a top flight holiday destination :

Around 12.5 million tourists choose the Canary Islands as their holiday destination

every year. Innovative projects in this field, such as management software and

ICT projects, renewing the accommodation stock, alternative leisure products and

other advanced services, offer excellent opportunities.

2

42


Market niches for products

G A range of services to reinforce the product clubs that the

Canary Islands are promoting abroad: Wellness Delight, Family

Welcome, Water Sports Experience and Volcanic Experience.

G Scientific tourism: The Canary Islands has great capacity for

hosting scientific conferences of all kinds, but especially in the

fields of astrophysics and marine sciences. It has two observa-

tories for the former, which have hosted over 600 astronomers

over the last 30 years, while for the latter, there are many fa-

cilities devoted to marine research so it is fast becoming the

most important dedicated oceanic platform for all sea-related

research.

G Adventure sports: surfing, windsurfing, kite surfing, diving,

rambling, climbing, sky diving, bungy jumping, caving, etc.

G Travel mentors and holistic holidays: There is a range of

health and alternative therapy centres attracting those looking

for an oasis of peace in the Canary Islands.

Market niches for tourism services

G ICT-based technological services: development of manage-

ment and marketing tools for tourism services and ICT-based

services (Wi-Fi, Wi-Max, etc.) for tourist areas.

G Other technological services: development of energy

saving or energy efficiency services, domotic systems,

sustainable construction materials, efficient lighting, etc.which can be applied to tourist resorts and businesses.

G Other services: high-value services such as design, in-

terior design, alternative transport, gastronomic servi-

ces, etc.

2.8

G The Canary Island Tourism Cluster was founded in 2009 to bring together all the

stakeholders in the industry: companies, institutions and other players who

make up this community. The Cluster has helped to promote and reinforce many

regional groups, products, etc.

G The Canary Islands offer key opportunities both to add new tourism products to

broaden the main sun, sea and sand product and in advanced tourism serviceswith the development of technological applications. Hence, the Canary Island

Government has used the Canary Island Agency for Research, Innovation and

Knowledge Society to roll out its programme of innovative actions in tou-rism aimed at promoting R+D+I in the industry.

Aver ag e a nnua l t empe ra tu re Min. 15C - Max. 24C

Foreign tourist arrivals 10,187,690

Domestic tourist arrivals 3,562,402

Hotel beds 237,900

Self-catering beds 193,300

Occupancy rate 64,16%

Tourism Data

2011(Source: Istac e INE)


22/60

Incentives and financing 3


23/60

3. INCENTIVES AND FINANCING

47

Corporate andPersonal IncomeTax

In Spain the tax system differences when the incomes are gained by an

individual, personal income tax (IRPF), or a company or legal entity,

corporate tax (IS). Another difference is between resident and non-re-

sident, when it will apply the Non-Resident Income Tax. It is considered

as fiscal resident in Spain, if stays more than 183 days in the natural

year within the country, or when the base or core of its economical ac-

tivities are in Spain.

For more detailed information look at: www.investinspain.org

The main directly applicable taxes in Spain are:

G Corporate Tax (IS)

G Individual Income Tax (IRPF)

G Tax on Incomes of Non-Residents (IRNR)

The Spanish fiscal system is modern and competitive. The fiscal pres-

sure in Spain (measured as the percentage of taxes and national insu-

rance in the GDP) is approximately four points below that of the

countries around it as it can be seen in the graphic below. It has to be

outlined that the Canary Islands are below the Spanish average due to

its specific Fiscal and Economic Regimen, which includes exemptions

and reductions up to 4% of the corporate Tax if its approved in the Ca-

nary Islands Special Zone (ZEC).

3.1

46

General Fiscal Regime

Fiscal pressure in Europe, 2009 (Taxes / Percentage of GDP)

Source: Eurostat 2011

Sweden

France

Italy

Germany

Euro-zone

UE-27

Netherlands

United Kingdom

Czech Republic

Portugal

Spain

Poland

Ireland

Greece

0 10 20 30 40 50 60


24/60

49

The question of the compatibility of the Canarian fiscal regime with

the community regulations arises because certain help, whether direct

or indirect, granted by the States or with state funds, may falsify or

threaten free competition, favouring certain companies or productions.

Any uncertainty in this respect has been dispelled by the Decision of

the European Commission of 16th December 1997, which con-

firms that the fiscal incentives set out in the REF are forms of help

which can be considered to be compatible with the common mar-

ket in accordance with the Treaty of the European Union and the

EEC Agreement.

The Decision considers that the fiscal incentives set out in the REF

constitute indirect help to investment and the exploitation of the com-

panies in the Canaries, and justifies their existence provided that it is

subject to limits set down by the community regulations themselves

and the conditions set down in the Decision.

The Royal Decree Act 13/1996 of 26th January, Act 13/1996 of30th December, Royal Decree Act 7/1998 of 19th June and Ro-

yal Decree Act 2/2000 of 6th July (Approval of the Canary Is-

lands Special Zone), Royal Decree Act 12/2006, of 29th

December, by means of which Act 19/1994, of 6th July, in Modi-

fication of the Economic and Fiscal Regime of the Canary Islands

is modified, and Royal Decree Act 2/2000, of 23rd June, have in-

troduced all the appropriate modifications which adapt the fiscal incen-

tives of the REF to the provisions set down in the community Decision,

achieving the full adaptation to the community regulations.

Definitively, the recognition of the outlying nature of the Canary

Islands and the need to compensate for the costs involved in being is-

lands and the territorial distance have been successively expressed inthe Treaty of Accession of Spain to the European Community (Proto-

col II), in the POSEICAN programme, in the REGIS II community initia-

tive, in article 299 of the Treaty of Amsterdam, article 349 in the Treaty

of Lisboa, and in all the Community Decisions which have been appro-

ved since then, which guarantees the stability of their fiscal pecu-

liarity, although it is subject to the conditions and controls of the

European Commission, the institution responsible for ensuring respect

for community law.

Are the fiscalincentives of thecurrent REFcompatible withcommunityregulations?

Is the continuityof the Canarian

fiscal peculiarityguaranteed?

Historical Background

Past, present and future of the REF:a special and stable regime

From the 15th Century to the present time, the Canary Islands have

enjoyed a fiscal and commercial peculiarity caused by their situation

as islands and their geographical distance. These historical rights

have been manifested in the form of an almost free-trade regime in the

framework of a more or less pronounced form of protectionism accor-

ding to the period.

In the mid-19th Century, this peculiarity became a system of free ports

which lasted until the Spanish civil war. During the following years, the

system has evolved with the introduction of interventionist elements

which culminated in Act 30/1972 on the Fiscal and Economic Regi-

me of the Canary Islands (REF) in which it was intended to establish

a set of measures with the final objective setting the basis to promote

the economic and social development of the Islands.

The need to make this fiscal peculiarity in the Canary Islands compati-

ble with the community regulations in the matter of competition and the

internal market and the changes that the world economic reality has

undergone in these last two decades have led to the Canarian fiscal re-

gime, by maintaining its objective of developing the territory, adapting

to the new demands of the environment.

For this reason, Act 19/1994 in Modification of the Economic and

Fiscal Regime of the Canary Islands , in which the fiscal measures

with direct incidence on the REF are set down, as well as the regulation

of the so-called Canary Islands Especial Zone (ZEC), an instrument ofpromotion of the economic and social development of the Islands was

approved.

3.2

48

From whattime is itpossible tospeak of aFiscal andEconomicRegime in

the CanaryIslands?

How has theREF beenadapted to theaccession ofSpain to the

EuropeanUnion?

What legislationgoverns thecurrent REF?

Economic and Fiscal Regimeof the Canary Islands (REF):

Investment incentives



25/60

51

1. It must be a newly-created entity with its registered address and

place of effective management in the geographical ambit of the

ZEC.

2. At least one member of the administration must reside in the Ca-

nary Islands.

3. It must make a minimum investment of 100,000 euros (in Gran Ca-

naria and Tenerife) or 50,000 euros (in the rest of the islands) in fi-

xed assets related with the activity within the first two years, fo-

llowing registration in the ROEZEC (Official Registry of ZEC

Entities).

4. It is necessary to create, at least, five jobs (in Gran Canaria and

Tenerife) or three (on the other islands) during the first six months

following registration in the ROEZEC and this average must be

maintained during the time that the benefits are enjoyed.

5. It is necessary to conduct activities that are permitted in the ZEC.

6. It is necessary to present a descriptive Report of the economic ac-tivities to be carried on, which justifies their solvency, viability,

competitiveness and its contribution to the economic and social

development of the Canary Islands.

These entities will have the following advantages:

G ZEC entities are subject to Corporate Tax in force in Spain but at a

reduced rate of 4% applicable (compared to 25% which is the

European average).

G They are exempt from withholding of dividends from ZEC subsi-

diaries to their parent companies in other country in the Europe-

an Union thanks to the Parent-Subsidiary directive and to other

countries with which Spain has signed an agreement so as to

avoid double taxation (over fifty countries).G Exemption from Capital transfer Tax and Stamp Duty.

G Exemption from the Canarian Indirect General Tax (IGIC) (equiva-

lent to IVA/VAT) for the provision of goods and services between

ZEC entities, and on imports.

The ZEC covers all the territory of the Canary Islands with certain pe-

culiarities:

G In the case of companies whose object is the provision of servi-

ces, they may be established anywhere in the territory.

The Canary Islands Special Zone

(ZEC)The Canary Islands Special Zone (ZEC) is an economic instrument cre-

ated with the purpose of promoting the economic and social develop-

ment of the Islands and the diversification of their productive structure.

The actual ZEC regimen period will expire on 31st December 2019, and

can be extended with the prior authorisation of the European Commis-

sion. Companies may register up to 31st December 2013.

The requirements which must be fulfilled by the companies to gain ac-

cess to the ZEC are the following:50

What fiscaladvantages do

the Canaryislands offer?

3.2.1

Economic and Fiscal Regimeof the Canary Islands (REF)

The opportunity

to pay less inCorporate Tax

Multipleexemptions in

INDIRECTTAXATION

Installation in FREETRADE AREAS withspecial economicadvantages

Fixed tax rate of 4% for ZEC

Companies A reduction of up to 90% of the net

undistributed profits from the Tax

Base (RIC)

Deductions for investments in

strategic sectors that are more

advantageous than those of the rest

of Spanish territory

Fiscal bonus of 50% of the profits

obtained from the sale of tangible

goods produced in the Canary Islands

For the incorporation of the company

For capital increase For the acquisition of capital goods

Economic advantages from the

practice of export and import and

from the active perfecting of goods

3.2 3. INCENTIVES AND FINANCING

The mentioned fiscal incentives will be explained as stated below:


26/60

53

wer to make contracts, on behalf of and on account of the non-residentperson or body is understood.

Application and calculation of the RIC.

The RIC makes it possible to reduce the taxable base, up to 90% of the

Undistributed Profits (BND), in Corporation Tax for the amount that

the establishments situated in the Canary Islands devote from

their profits to the contribution to the Reserve for Investments in the

Canary Islands.

Undistributed profits are understood to mean those devoted to increa-sing the reserves of the company. The calculation of this variable is theresult of deducting from the Gross Accounting Profit for the fiscal year

in which the RIC has been contributed to, the Legal Reserve (RL) and

the dividends to be distributed (D).

The RIC can be likewise applied in individual Income Tax. In this case,

it would involve a deduction in the total tax liability for IRPF for the net

profits of operation devoted to the RIC. The calculation is effected by

applying the average rate of tax to the contribution to the RIC 1.

What are the fiscaladvantages of theRIC?

What is understoodas UndistributedProfits in thecalculation of the

limit of the fiscaladvantage?

G W hen i t i s a m at ter of com pani es w h ose object i s t he

prodution,transformation, manipulation and/or marketing of

goods, their area of establishment will be restricted to the limited

areas designated to this purpose.

The Reserve for Investments in theCanary Islands (RIC)

Definition of the Reserve for Investments in the Canary Islands.

The Reserve for Investments in the Canary Islands, hereinafter RIC, is

instrumented with the objective of stimulating investment activity char-

ged against shareholders equity, that is to say, self-financing of the in-

vestments of the companies which conduct their activity in the Canary

Islands.

Ambit of application of the Reserve for Investments in the Ca-

nary Islands.

Contribution to the RIC represents fiscal advantages of which, in rela-tion to the activity carried out in establishments located in the Ca-nary Islands, the following may make use:

G All companies and other legal entities subjectto Corporation Tax.

G Those individuals who are subject to Income Tax, both in their net

profits from business activities as professionals and it is estimated by

the method of direct estimation.

Nevertheless, Royal Decree Act 7/1998 sets down the inapplicability of

all fiscal incentives to the productive activities which are within the sen-

sitive sectors (naval construction, synthetic fibres, the automobile in-

dustry, iron and steel and the coal industry).

The indispensable condition in order to take advantage of the RIC, is

that the company, independently of where it is located, must have a

permanent establishment in the Canary Islands. By permanent esta-

blishment, all the installations or places of work, in which, in a continualand habitual manner, all or part of the activity is undertaken, with po-

52

What is theReserve forInvestments inthe CanaryIslands?

Who canmake use ofthe RIC?

PBT= Profit Before Tax

Accounting Profit

Undistributed

profits

Base for the RICcalculation

Corporation Tax

Distribution of Profits

Legal Reserve

Voluntary Reserve

Reserve for investments in the

Canary Islands

1 In this final case, the deduction may not be greater than 80% of the total tax liability which co-rresponds proportionally to the amount of the net profits of operation from the establishments of thecompany situated in the Canary Islands.

What isunderstood by apermanentestablishment inthe CanaryIslands?

3.2.2

Economic and Fiscal Regimeof the Canary Islands (REF)3.2



27/60

55

The requirements of the RIC.

The necessary requirements for the effective practice of the fiscal be-

nefit, both for companies and for the individuals are the following:1. Materialising the reserve.

In general, the quantities which are devoted to the RIC have to be ma-

terialised in the purchase of fixed assets, new or used, within any of the

following investments:

A. Initial investment

B. Creation of jobs

C. Acquisition of corporate assets that do not form part of the

initial investment.

D. Subscription of shares or stockholdings in companies by in-

corporation or increase of capital and canarian public debt.

2. Maximum period to materialise the reserve.

The fiscal use of the contribution to the RIC must be within the maxi-

mum period of three years counted from the date of payment of the

tax, corresponding to the financial year in which it has been contribu-

ted to.

3. Minimum period of time of existence of the materialization.

The minimum period that the goods in which the reserve was materia-

lised must remain in operation in the company depends on the kind of

investment chosen:

G Investment in Fixed Assets: at least five years or during the

useful lifetime of the elements if this is less. For these purpo-

ses, the duration corresponding to the maximum period of amor-

tization assigned in the officially approved amortization tables.

G Other Investments: 5 years

54

Whatrequirementsare set in orderto be able toenjoy the fiscalbenefit derivingfrom the RIC?

What is theperiod of timeto materialisethe RIC?

Is there anyobligation onthe part of thecompany tomaintain the

goods involvedin the RIC?


Type ofinvestment

Conditions that must be fulfilled in order to obtain the fiscal benefit

Acquisition ofNew or UsedFixed Assets

A.Initialinvestment

Conditions demanded fornew and used Fixed Assets

They must be located or

received in the Canary Islands

They must be used in the

Canary Islands

They must be necessary for the

conduct of the business activity

or they must contribute to the

improvement and protection of

the environment in the Canary

Islands.

Investments made by tenants in

buildings and those devoted tothe rehabilitation of a fixed asset

Additional conditions forUsed Fixed Assets

They may not have benefited

previously from the RIC.

They must represent a

technological improvementfor the company

Minimum duration of the

lease must be five years

Costs of establishment /incorporation

Rights of Transfer, Patents, Brands

Computer Applications

Audiovisual productions

Buildings, Premises and Land (included in the legally accepted cases)

Technical installations, Machinery and Tools

Other Installations, Tools and Furniture

Computer Equipment

Elements of Transport

Guarantees and Deposits (registration of supplies)

Other investments

In the case of used goods, this is only applicable for small-sized enter-

prises (ERD), where it is demanded that the goods acquired have not en-

joyed this incentive previously.



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5756


B.Creation of

employementposts

Related with A and which are to be produced within the space of six

months from the coming into operation of the investment.

It will be determined by the average increase in the staff of the company

arising in the said period with regard to the average staff for the previous

twelve months.

It must be maintained for five years (ERD 3 years)

The RIC is materialised for the first two years of the average costs of gross

salaries and social contributions which correspond to the said increase.

It will not be possible to reduce the existing average number of staff exis-

ting in the financial year previous to the subscription during the four fo-

llowing years.

D.Subscriptionof shares orstockholdings

in companiesthroughincorporationor increase ofcapital andcanarianpublic debt.

A) Indirect materialisation: subscription of shares or participation

in societies. Only companies that carry on their activity in the Islands

and fulfil the following requirements:

1. Indirect investments in elements of groups A and B

2. Period of materialization of the company is the same as that which

contributed to the RIC

3. The RIC will consider not the capital subscribed but that capital paid up

to be a RIC materialization (including the issue premium)

4. The investments made by the company in which stock is held will not

give rise to the application of any other fiscal incentive, except Article

25 Capital Transfer Tax and Stamp Duty

D.Subscription

of shares orstockholdingsin companiesthroughincorporationor increase ofcapital andcanarianpublic debt.

5. A reciprocal system of information is established between both

companies

6. In the subscription of shares or stockholdings in ZEC entities :

The amount of the issue or capital increase must be greater than

750,000

At least 10% of the issue or increase will not be suitable for a RIC

Materialisation

The subscribing body may not transfer or cede the use of the affected

assets existing in the previous financial year nor in the following four,

except for certain exceptions

7. In shares or stockholdings of companies and venture capital funds and

in investment funds, provided that:

These companies invest a quantity equivalent in shares or stockhol-

dings representative of the capital of the companies referred to in theforegoing points of this group D.

Obligations of reciprocal communication are set down

The investments made by the company in which there is a holding by

the venture capital body or by the investment fund will be incompati-

ble with any other incentive except article 25 Capital Transfer Tax and

Stamp Duty.

A) Subscriptions of canarian public debt and cases with similar

aims.

1. Securities of the Public Debt of the Canarian Autonomous Community,

from the Local Corporations of the Canary Islands, from its public

companies or its autonomous organisations with the limit of 50% of

the amount paid each financial year.

2. Securities issued by public organisations for the construction or ex-

ploitation of infrastructures or equipment of public interest. Limit 50%

3. Securities issued by entities that come from construction or exploita-

tion of infrastructures or equipment of public interest for the Canarian

Public Administrations once the administrative concession is obtained.

Limit 50%.

C.Acquisition ofcapital assets

In acquisition of elements of material or immaterial fixed assets which

are not part of the initial investment, which contribute to the improve-

ment and protection of the environment and to R+D costs (e.g.: projects

with universities , public research organisations or centres of innovation

and technology)

In vehicles for passenger transport by sea or road: public services of ge-

neral interest.

In materialization of land: leases of apartments protected by the promoter,

conductof industrial activities and commercial areas in declining touristzones.



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G The freedom of amortization for investments which generate

employment (R.D. Act 7/1994 of 20th June).

G

Exemptions in Capital Transfer Tax and Stamp Duty for assetpurchases of goods

G The Special Regime of Deduction for investments in the Canary

Islands, although in the physical sense, that is to say, the taxpayer

may not simultaneously make use of both fiscal benefits on the same

capital goods. This limitation disappears if the fractioning of the

goods is possible.

Penalization for breach of requirements.

The taxpayer will be penalised for infringing the requirements deman-

ded by the regulations for the use of the fiscal benefit. The penaliza-

tion will consist of integrating in the taxable base for the financial year

in which the said breach occurs, the strict amount of the sum in breach.

On the amount of the breached derived sum, the corresponding dela-

yed interest will be paid. Furthermore, if it constitutes a tax breach, the

corresponding tax sanctions will be imposed.

Deduction for investments in theCanary Islands

The special regime of Deduction for investments in the Canary

Islands.

The Deduction for Investments in the Canary Islands is a fiscal incenti-ve, equivalent in its operation with that on Spanish territory , but

with considerable advantages with respect to the intensity of the fiscal

benefit.

This special regime of deduction for investments in the Canary Islands

is applicable to the following persons and entities:

G All companies and other legal entities subject to Corporation Tax

for the investments they make which remain in the Canary

Islands, provided that:

Nevertheless, it is necessary to make the following qualifications about

the attached table:

a) In the case of used fixed assets, they may not have benefited pre-viously from the regime set down in this article, and it must involve

a technological improvement for the company

b) Technological improvement is understood to mean those invest-

ments which have one of the two following effects:

G It reduces the cost of unit production of the goods or service

G It improves the quality of the goods or service

c) Regarding the option of subscribing shares, the current regulations

do not demand that the company in which there is a holding

should have its registered address in the Canary Islands. Like-

wise, it only obliges that it carries on its activity on Canarian terri-

tory. This relaxation of the demands offers new possibilities formaking use of the RIC and a range of formulas of funding of invest-

ments in the Canary Islands.

4. Accounting of the reserve.

The RIC must feature on the balance sheet with an absolute separation

and an appropriate title. It is not possible to make use of the account

where is deposited the RIC up to the end of the obligatory period of

maintenance of the investment.

5. Form of payment of the materialization of the RIC.

The taxpayer may use any form of payment it wishes to materialise theRIC: in cash, outside financing or leasing, provided that in this final

case there is no doubt about the exercise of the purchase option.

Compatibility of the RIC with other fiscal instruments.

The RIC is compatible with the fiscal benefits deriving from specific in-

centives of the Economic and Fiscal Regime of the Canary Islands and

those of the General Regime of Corporation Tax:

G Tax Allowance for Production of Tangible Goods58

Can the RIC bematerialised in aused asset forwhich other fiscalbenefits havebeen received?

How are thetechnologicalimprovementsto be evaluated?

Is there anyspecific rule toaccount for theRIC?

Must thematerializationof the RIC becarried out bymeans of a cashpayment?

Are the fiscalbenefits derivedfrom the RICcompatible withother fiscalincentives?

What happens ifthe criteria ofmaterializationof the RIC arenot obeyed?

What similarity isthere with thededuction of the

Company Tax inSpanish territory?

3.2.3


Who may takeadvantage of thedeductions forinvestments in theCanary Islands?



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1. The rates applicable on the investments made will be greater by

80% than those of the general regime, with a minimum differen-

tial of twenty percentage points.

2. With regard to the limit applicable, it will be 80 per cent greater than

that set down in the general regime, with a minimum differential of

35 percentage points.

3. The deduction for investment in the Canary Islands may be made li-

kewise in elements of used fixed assets, provided that: they have not

previously enjoyed the deduction for investments of the general regi-

me and that they are a technological improvement for the company.

There is an added advantage: the deduction for investments in the Ca-

nary Islands can by used by those elements of used fixed assets which

would previously have used the RIC.

The deductions for investments under Act 20/1991, of 7th June, in mo-

dification of the fiscal aspects of the Economic and Fiscal Regime of the

Canaries, coming from different modalities or taxation periods of chap-

ter IV of title VI of the Act of the Company Tax will be applied with the

particularities set down in Act 20/1991, respecting the limit of 70 per

cent on the total tax liability, reduced by the deductions so as to prevent

double taxation and the allowances (key [582]).

Notwithstanding the foregoing, the said joint limit of 70 per cent will be

raised to 90 per cent when the amount of the deduction for activities of

scientific research and technological innovation set down in article 35

of the Company Tax Act, together with the amount of the deduction to

foment technologies of information and communication from Article 36

of the above-mentioned Act, and which correspond to costs and invest-

ments made in the same taxation period, exceeds 10 per cent of the to-

tal tax liability, reduced by the deductions to avoid internal and interna-

tional double taxation and the allowances.On the other hand, in accordance with the provisions of the fourth tran-

sitory provision of Act 19/1994, in the Canary Islands, the deduction for

investments in elements of the material fixed assets continues to be

applied, with the deduction corresponding to 2009 having an indepen-

dent limit of 50 per cent of the above-mentioned quota (key [582]).

On the following page, the types of deduction and the limits applicable

in this regime are summarised.

What are therates of deductionapplicable toinvestments in theCanary Islands?

They have their registered address in the Canary Islands

If they do not, they must at least have a permanent establishment in

the Islands.G The individuals that carry on business and professional activities

in the Canary Islands, provided that they fulfil the conditions impo-

sed by the regulations of Income Tax for the application of the incen-

tives to the investment set down in Corporation Tax.

Application of the special regime of Deductions for Investments

in the Canary Islands.

The deduction for investments in the Canary Islands constitutes a fiscal

stimulation measure which operates, just as occurs in the general regi-

me set down by the Company Tax Act of 1995, as one more reduction

of the total tax liability after the application of the deductions for

double taxation and possible allowances. In a generic manner, the

amount of the deduction is calculated in each case by applying the per-

centage of deduction stipulated legally for each modality of investment

over the total amount of the investments made.

The Canarian regime presents considerable advantage compared

with the general:

G A greater intensity of the fiscal benefit, thanks to a higher per-

centage of deduction applicable and a wider limit on the total amount

of the sum that is finally deductible.

G The Canarian special regime has a character of permanence, which

the general regime lost with the approval of Act 43/1995, the Com-

panies Act, given that since then it is the General Budget Act of the

State that determines its existence every year.

The greater intensity of the fiscal benefit of the special Canarian regi-

me of deduction for investments is expressed in the following charac-

teristics which differentiate it from the general regime:

60

How are thedeductionscalculated forinvestments inthe CanaryIslands?

Why does thisincentive makeinvestments inthe CanaryIslands moreattractive thanthose on the restof the MainlandSpain?




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(1) In accordance with the provisions of thefourth transitory provision of Act 19/1994, in

the Canary Islands, the deduction for invest-

ments in elements of the tangible fixed assets

continues to be applied.The used fixed assets

which give a right to a deduction must belong

to one of the following categories:

G Machinery, installations and tools.

G Equipment for information processing.

G Elements of internal and external transport,

excluding vehicles that are susceptible to per-

sonal use by persons linked directly or indi-

rectly to the company.

Likewise, the acquisition of the of the used fi-

xed asset element must involve a clear tech-

nological improvement for the company, and

this circumstance must be accredited, in the

case of verification or research into the tax si-

tuation of the taxpayer, by means of the justi-

fication that the element which is the object of

the deduction is going to produce or has pro-

duced any of the following effects:

G Reduction of the unit cost of production of

the goods or service.

G Improvement of the quality of the goods or

service.

Finally, the taxpayer must keep at the disposal

of the Tax Administration the certification is-

sued by the transferor in which it is recorded

that the element that is the object of the trans-

fer has not previously enjoyed the deductionfor investments or the regime of the Precau-

tionary Fund for Investments.

(2) The maximum limit of deduction on the to-tal tax liability reduced by the deductions to

avoid double taxation and the allowances is in-

dependent of that which is allowed for the in-

vestments under the general regime of the

Tax.

(3) The financial co-producer may only makeuse of this deduction when he participates in a

Spanish production of a full-length film and

will have as a limit, apart from the joint limit of

70 per cent (or 90 per cent, if applicable), 5

per cent of the income for the period deriving

from the said investments.

MODALITIES OF DEDUCTION DEDUCTION LIMIT (2)

Investments in elements of tangible fixed assets, excluding land, affected 25 per cent 50 per cent

by the development of the economic exploitation of the entity (1)

Inv estm en ts i n goods f rom t he t an gi ble asset s d ev ot ed t o t he p rotect ion of t he 2 4/ 25 p er cen t

environment

Creation of employment for handicapped workers 6,000 euros a person/ year of increase

Gtos. Research and developmentResearch and development 45/75, 6/28 per cent + 37 per cent (additional)

and technological innovationTechnological Innovation 28 per cent

Technological investments of information and communication 26 per cent

Deductions in measures of support for the transport sector 24 per cent

Creation of branches or permanent establishments abroad, as well as

the purchase of stockholdings of foreign companies or the constitution

o f s ub si di ar ie s d ir ec tl y r el at ed w it h t he e xp or t a ct iv it y o f g oo ds o r s er vi ce s 2 6 p er c en t

or the contracting of tourist services in Spain, provided that the stockholding is,

at least, of 25 per cent of the corporate capital of the subordinate

Costs of advertising and propaganda of pluri-annual projection for product launches,

opening and prospecting of markets abroad and attending fairs, 26 per cent

exhibitions and other analogous manifestations, including

in this case those held in Spain with an international character.l

Goods of cultural interest 30 per cent

Producer of the film 38 per cent Investments in cinema

productions Financial co-producer(3) 25 per cent

Investments in book publishing 24 per cent

Costs of vocational training 22/24 per cent

Business contributions to employment-related pension plans, MPS, to plans24 per cent

of National Insurance or for contributions to protected properties

Investments and costs in kindergartens for workers children 24 per cent

70/90per cent



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G They must have a permanent establishment or branch in the Canary

Islands, independently of the place where they are domiciled.

G

They must devote themselves directly to the production of tangiblegoods in the Islandswhich are those proper to agricultural activities,livestock, industrial and fishing, provided that in this case, the deep

sea fishing:

Is carried out with Spanish ships, and

The fish are disembarked, handled or transformed in the Canary

Islands.

Nevertheless, the R.D. Act 7/1998, determines that the productive acti-

vities included in the sectors considered as sensitive by the Europe-

an Union, naval construction, synthetic fibres, the automobile industry,

iron and steel and the coal industry, cannot take advantage of the fiscal

benefits of the allowance for production.

Application of the Allowance for Production of Tangible goods.

What fiscal benefit does the allowance for production give?

This incentive is an allowance of 50% of the total tax liability which

proportionally corresponds to the profits deriving from the sale of tan-gible goods produced in the Canary Islands with the above-mentionedrequirement.

Allowance = 50% x 30% x Profits from the Sale of Tangible goods

produced in the Canary Islands.

The same allowance is applicable to the Income Tax taxpayers who

carry on the same activities and with the same requirements de-

manded from the taxpayers of company tax. This allowance is applied

to the total tax liability, which corresponds proportionally to the profits

deriving from the above-mentioned productive activities.

Allowance = 50% x Average Rate x Profits from the Sale of Tan-

gible goods produced in the Canary Islands

Compatibility of the Allowance for Production with other fiscal

instruments.

This instrument is compatible with other fiscal incentives. In parti-

cular, any company that benefits from the Allowance for Production of

What fiscalbenefit does theallowance forproduction give?

Can a companybenefit at thesame time fromthe RIC and fromthe rest of thefiscal advantagesof the REF?

Compatibilities of the especial regime of deduction for invest-

ments in the Canary Islands with other fiscal incentives.

The entities which are in a position to benefit from the special regimeof deduction for investments in the Canary Islands may simultaneously

enjoy the following fiscal advantages:

G Exemption for purchase of goods of the Capital Transfer Tax

and Stamp Duty

G Deduction for Investments made in the rest of Spain (Invest-

ments under the General Regime)

G Allowance for Production of Tangible Goods

G Reserve for Investments in the Canary Islands, although in the

physical sense as described above.

The deduction for investments in the Canary Islands may be applied to

the purchase of used fixed assets provided that:

1. they have not previously enjoyed the deduction elsewhere on Spa-nish territory

2. they amount to a clear technological improvement for the company

Deduction for Production of TangibleGoods in the Canary Islands

Definition of the deduction for production of tangible goods in

the Canary Islands.

This is a fiscal incentive wh

doing business in the canaries

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