Tax increases in Tenerife from 1st January 2020 (IGIC, Inheritance Tax, Income Tax)
As they say, nothing is certain in life except death and taxes. Clearly unwilling to alter that preconception, the Canarian Government have once again imposed various tax hikes and variations upon the Canary Islands.
IGIC
IGIC (Impuesto General Indirecto Canario) is the technical name for ‘sales tax’ or ‘VAT’ in the Canary Islands In the rest of Spain, this is referred to as ‘IVA’.
After having teased us with a small decrease in IGIC during 2019, the Canarian Government has now hiked the rates again, but not only for the standard rate of IGIC. They have also increased the special rate and have removed some IGIC exemptions. The following are the main changes:
- A rise in the general rate of IGIC to 7% (in 2019 it was reduced from 7% to 6.5%).
- A scrapping of the exception (0%) rate of IGIC for commercial electricity bills, which now attract 3% IGIC. However, household electricity supplies remain 0% rated.
- Increase the IGIC charged for telecommunications services (phone bills etc) to 7% (was 3%).
- An increase in the Special IGIC tax rate (for luxury goods etc) from the current 13.5% to 15%.
The IGIC bands therefore now apply as follows:
0% band (Tipo Cero) – water supplies; the sale of sanitary and veterinary products; books, newspapers and magazines; officially protected housing works; deliveries of certain foods; air or sea transport between the Canary islands.
3% band (Tipo Reducido) – Mining industry; Chemical industry; Textile sector; Wood industry; Paper industry; Ground Transportation; Vehicle repair.
7% band (Tipo General) – general goods and services not specified elsewhere here.
9.5% band (Tipo Incrementado) – Import/sale of basic types of vehicles or transportation devices.
15% band (Tipo Especial Incrementado) – Import/sale of luxury/powerful vehicles, cigars (costing over €1.80 each), alcoholic beverages, jewellery, fur and perfume products.
20% band (Tipo Especial) – Production of Black Tobacco (but 35% for Blonde Tobacco).
Meanwhile, the following activities/products continue to be exempt from IGIC: postal services, healthcare, blood deliveries, social assistance services, education, services provided by sports associations, cultural companies, insurance and reinsurance, financial operations, small retail trading.
Self-employed individuals (Autonomo) do not have to charge IGIC on products and services provided they do not exceed an annual turnover of €30,000. However, they may optionally elect to charge IGIC if they prefer. This exemption does not apply to unlimited partnerships (‘comunidad de bienes’).
Inheritance Tax
The Canarian government has proposed to replace the current 99.9% Inheritance Tax discount for direct descendants that reside within the EU. The proposal (yet to be introduced at the time of writing) is to replace this discount with a sliding scale of discounts. As before, any discount will still be calculated on the total amount of tax payable under the full calculation (i.e. before discounts are applied). The current suggestion is that the sliding scale discount will apply to inheritance tax bills between €0 and €305,000, above which no discount will be available. For the majority of cases, a tax bill of €305,000 would equate to total inherited assets of up to approximately €1.1 million euros per beneficiary, but personal tax exemptions vary, so each individual’s circumstances should be assessed individually.
Income Tax for Self-Employed
The government proposes to introduce 2 new income tax bands for self-employed persons (Autónomo). Previously, net earnings above €90,000 were taxed at a fixed rate of 24%. It is now proposed that for net earnings between €90,000 to €120,000, a new rate of 25% will apply, whilst for net earnings over €120,000, the rate is increased to 26%. However, the introduction of these new rates has yet to be approved/confirmed.