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Explanatory note on Act 8/2018 of 5 November, modifying Act 19/1994 of 6 July, with modifications to the Canary Islands' Economic and Tax Regime

For tax periods beginning on or after 7 November 2018 there is an amendment to the fourth additional provision, deduction for investments in Canary Islands of Act 19/1994 of 6 July, increasing the joint limit on the quota for the islands of La Palma, La Gomera, and El Hierro, whereby the tax-free threshold limit will increase from 80% to 100% and the minimum tax liability of 35 percentage points will increase to 45 points when the EU state aids regulations allow and for investments as mentioned in Act 2/2016 of 27 September and other legal measures for regulating these islands' economic activity.

For tax periods beginning on or after 7 November 2018 there is an amendment to the fourteenth additional provision of Act 19/1994 of 6 July, deduction limits for investments in film productions, audiovisual series', and live performing arts and musical events held in the Canary Islands, with the addition of the following new developments:

  • An increase in the amount of deductions for investments in Spanish feature films, audiovisual fiction series', animations, or documentaries, as referred to in Section 1 of Article 36 of Act 27/2014 of 27 November, on Corporation Tax, which will increase from 4.5 to 5.4 million euros when relating to productions made in the Canary Islands.

  • There will also be an increase from 4.5 to 5.4 million euros for the amount of deductions for expenses incurred in the Canary Islands for foreign feature film productions, or audiovisual works as referred to in section 2 of the article 36 of the Act 27/2014. 

  • The minimum sum of expenditure indicated in Section 2 of Article 36 of Act 27/2014, in cases of carrying out post-production or animation services for a foreign production, will be fixed at 200,000 euros for expenditure incurred in the Canary Islands. 

  • Finally, the minimum sum of deductions for expenditure incurred in production and live performing arts and musical events as referred to in Section 3 of Article 36 of Act 27/2014 is fixed at 900,000 euros for expenditure incurred in the Canary Islands. 

In addition, as a supplement to the regime of deductions for incentives and stimuli for business investment in the Act on Corporation Tax applicable in the Canary Islands, for tax periods beginning on or after 7 November 2018 a new Article 94 bis, in Act 20/1991, of 7 June, through which those companies contracting staff to work in the Canary Islands will have the right to the fiscal benefits due to creating employment, as established by fiscal regulations in accordance with the requirements established in them, is added, increasing them by 30 per cent. This amendment includes the application of deductions for job creation in Article 37 of Act 27/2014 and the increase that did not previously exist of 30 per cent on sums deductible both on deductions named in Article 37 and 38 on deductions for the creation of employment for workers with disabilities of the aforementioned Act 27/2014.

Con efectos para los períodos impositivos que se inicien a partir de 1 de enero de 2018 se añade una nueva disposición adicional decimocuarta bis Impuesto sobre Sociedades. Application of the fiscal consolidation regime to companies with branches in the Canary Islands Special Zone in Act 19/1994 of 6 July, establishing that the application of the special tax rate stated in Article 43 of this Act in the case of in branches in the Canary Islands Special Zone of companies with fiscal residence in Spain will not impede these companies from forming a fiscal group employing the fiscal consolidation regime stipulated in Chapter VI of Title VII Act 27/2014 of 27 November, on Corporation Tax. Notwithstanding the above, the part of the gross tax rate of the company forming part of a fiscal group, that is attributable to the Special Canary Islands Zone branch, will not be included in the company's individual gross tax base for the purpose of determining the fiscal group's gross tax base, and will be determined separately in legally-determined terms.

For tax periods beginning on or after 7 November 2018 there is an amendment to Section 1 of the additional fourteenth provision of Act 27/2014 on Corporation Tax, establishing that shipping companies applying the subsidy set in Article 76, Sections 1 and 2, of Act 19/1994 of 6 July, with an amendment to the Canary Islands Economic and Tax Regime, exclusively to non-subsidised incomes will be taken as a positive. And that in the case of shipping companies that pay taxes under the Special Regime based on tonnage established in Chapter XVI of Act 27/2014 of 27 November, on Corporation Tax, instalment payments will be calculated on the amount of gross tax base obtained under that established by Article 114.1 of this Act (containing the special rule on setting the gross tax base according to each ship's net registered tonnage).

In both cases this compensates for the adverse impact of determining instalment payments introduced by the minimum instalment payment rule without considering that these companies can apply, respectively, both a subsidy of 90 per cent of the income deriving from operations of ships registered in the Special Registry, or determining their gross tax base according to the regulations cited in the Special Regime based on Tonnage.