8.7.2 Types of deductions for investments made in the Canary Islands

As we have seen in the previous section, regarding the deduction regime for investments in the Canary Islands, article 94 of Law 20/1991, of June 7, establishes that on the general deduction regime of article 26 of Law 61/1978, of December 27, increased deduction percentages will be applied, provided that the investment is made in the Canary Islands.

Article 26 of Law 61/1978 was repealed by Law 43/1995, of December 27, on Corporate Tax, which introduced in its place, deductions to encourage the performance of certain activities in Chapter IV of Title VI (currently, regulated in Chapter IV of Title VI of the LIS ).

With regard to article 94 of Law 20/1991, the fourth transitional provision of Law 19/1994, of July 6, amending the Economic and Tax Regime of the Canary Islands, establishes in its first paragraph that in the event of the abolition of the General Regime of Deduction for Investments regulated by Law 61/1978, of December 27, on Corporate Tax, its future application in the Canary Islands, as long as an equivalent substitute system is not established, will continue to be carried out in accordance with the regulations in force at the time of the abolition.

For these purposes, the increased deduction percentages of article 94 of Law 20/1991 only apply to the new deduction system established in Chapter IV of Title VI of the LIS, where it is equivalent to the deductions of article 26 of Law 61/1978. Therefore, not all deductions in Chapter IV of Title VI of the LIS are subject to the increased percentages.

These increased deduction percentages will be applied to the deductions included in Chapter IV of Title VI of the LIS as long as they are equivalent to article 26 of Law 61/1978, respecting the limit of 60 percent on the full quota, reduced by deductions to avoid international double taxation and bonuses (code [00582] "Positive adjusted full quota" on page 14 of form 200).

However, this joint limit will be raised to 90 percent when the amount of the deduction provided for in article 35 of the LIS, which corresponds to expenses and investments made in the tax period itself, exceeds 10 percent of the total amount, reduced by deductions to avoid international double taxation and bonuses.

With effect for tax periods beginning on or after 7 November 2018, for the islands of La Palma, La Gomera and El Hierro, these joint limits of 60% and 90% of the net tax rate for the period are raised to 70% and 100%, respectively.

Likewise, where this equivalence is not met, the regime in force at the time of the repeal of article 26 of Law 61/1978 will continue to apply.

For this reason, the increased percentages and other special provisions of Article 94 of Law 20/1991 continue to apply to the deduction for the acquisition of new fixed assets, although it does not appear among the deductions in Chapter IV of Title VI of the LIS. 

The joint limit of 50 percent of the full quota reduced by deductions to avoid international double taxation and bonuses is applied to the deduction for the acquisition of new fixed assets (key [00582] "Positive adjusted full quota" on page 14 of form 200).