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Practical manual for Income Tax 2020.

C. Deduction for investments in the acquisition of fixed assets

Regulations: Art. 94 of Law 20/1991, of June 7, amending the fiscal aspects of the Economic Fiscal Regime of the Canary Islands.

The deduction for investments in tangible fixed assets is regulated in the Twelfth Additional Provision of Law 43/1995, of December 27, on Corporate Tax, with the increased percentages and other special features established in article 94 of Law 20/1991 for the Canary Islands.

The reason for maintaining its application is that said deduction, which was included in the general deduction regime of article 26 of Law 61/1978 of December 27, is not currently among the deductions for investments in Chapter IV of Title VI of the LIS, therefore, in accordance with the fourth transitional provision of Law 19/1994 to which we referred above, since there is no equivalent deduction in the current LIS, said deduction continues to be applied in accordance with the regulations in force at the time of its abolition. In this case, in accordance with the Twelfth Additional Provision of Law 43/1995, of December 27, on Corporate Tax, which repealed and replaced Law 61/1978, of December 27, on Corporate Tax.

a. New fixed assets

Taxpayers may deduct from the total tax 25% of the amount of investments in new tangible fixed assets, excluding land, used for the development of economic activity that are made available to the taxpayer within said tax period.

In accordance with article 94.1.a) of Law 20/1991, of June 7, 1991, modifying the fiscal aspects of the Economic Fiscal Regime of the Canary Islands (BOE of the 8th), the rates applicable to investments made will be 80% higher than those of the general regime, with a minimum differential of 20 percentage points.

Investments made under a financial leasing scheme, with the exception of buildings, may be eligible for this deduction.

b. Used fixed assets

Likewise, taxpayers can deduct from the total tax 25% of the amount of investments for the acquisition of the used fixed asset item, which had not previously enjoyed this deduction for investments in tangible fixed assets.

Used fixed assets that qualify for deduction must belong to one of the following categories (Royal Decree 241/1992):

  • Machinery, facilities and tools.
  • Information processing equipment.
  • Internal and external transport elements, excluding vehicles for personal use by persons directly or indirectly linked to the company

To be eligible for this deduction, the acquisition of the used fixed asset must represent a clear technological improvement for the company, and this circumstance must be proven, in the event of verification or investigation of the taxpayer's tax situation, by proving that the item subject to the deduction will produce or has produced any of the following effects:

  • Decrease in the unit production cost of the good or service.
  • Improving the quality of the good or service.

c. Deduction base

The basis for the deduction will be the purchase price or production cost.

d. Maintaining investment

To be eligible for the deduction for investments, the items must remain in operation in the company of the same taxpayer for five years, unless their useful life according to the amortization method applied is less.

c. Justification

The taxpayer must keep available to the Tax Authority a certificate issued by the transferor stating that the item being transferred has not previously benefited from the deduction for investments or the Investment Pension Fund regime.

d. Deductions not applied due to insufficient quota

As a result of the Canary Islands continuing to apply the deduction for investments in tangible fixed assets, it must be taken into account that, as with the rest of the types of deductions for investment, the amounts not deducted for this concept (including the balances of the deductions pending application as of January 1, 2015) may be applied, respecting the limits that apply to them, in the liquidations of the tax periods that end in the immediate and successive 15 years.

e. Limits

The taxpayer may deduct the amount of the deduction for investments in new fixed assets in the Canary Islands that comes from both previous tax periods that are pending application and from the tax period itself, with a double limit:

  1. An individual limit of 50 percent of the aforementioned quota.

    For these purposes, it should be noted that the limit for this deduction, according to section 7 of the twelfth Additional Provision of Law 43/1995, was 15% of the full quota plus the minimum differential of 35 percentage points established by article 94 of Law 20/1991.

    This individual limit of 50% applies both to the deduction generated in the tax period itself and to those from previous tax periods. And, in the event that there is a pending deduction amount from previous periods, this may be applied taking into account, in addition, the joint limit of 70% to which we refer below.

  2. A joint limit of 70% , which is determined by applying the provisions of section 4 of the eleventh transitional provision of Law 43/1995.

    The aforementioned section 4 of the eleventh transitional provision of Law 43/1995 sets a joint limit of 35% plus the minimum differential of 35 percentage points established by article 94 of Law 20/1991.

The limit on the deduction for investments in new fixed assets in the Canary Islands is applied, in accordance with the TEAC Resolution of April 9, 2015, issued in an extraordinary appeal for unification of criteria, on the entire tax rate and not only on the part of it that corresponds to income from economic activities carried out in the Canary Islands.

Note: In the case of the islands of La Palma, La Gomera and El Hierro, the percentages of 50% (individual) and 70% (group) rise to 60% (individual) and 80% (group) , respectively.