Canary Islands industrial companies may apply a 50% reduction to their full tax liability

The application of tax incentives within the framework of the economic and tax regime of the Canary Islands requires strict compliance with industrial activity requirements. Recently, the Dirección General de Tributos (DGT) has clarified the scope of the reduction available to entities that produce tangible goods in the region.

What the DGT has ruled

The inquiry focused on determining whether an activity dedicated to the manufacturing of metal structures could qualify for the fifty percent reduction in the full tax liability provided for in Article 26 of Law 19/1994. The binding body has ruled that, to access this benefit, the entity must carry out an industrial activity of producing tangible goods through a manufacturing process that transforms raw materials.

In this sense, the DGT confirms that the manufacturing of metal structures constitutes a valid industrial activity for this purpose. Furthermore, it has been verified that said activity does not fall within the exclusions established in the eleventh additional provision of Law 19/1994, which enables the application of the incentive on the income derived from the sale of these goods.

What it means for you

For industrial companies based in the Canary Islands, this criterion represents a confirmation of the operability of the special regime for producers of tangible goods. If your business model involves the transformation of raw materials into finished products, such as in the case of metal structures, the income obtained from the sale of such goods could see a significant reduction in their tax burden.

It is fundamental that the activity is not merely commercial or assembly without transformation, as the manufacturing process requirement is the central axis for granting the reduction in the full tax liability of Corporate Income Tax (IS).

What should be done

Entities operating in industrial sectors in the archipelago should verify whether their production process fits the definition of raw material transformation required by the regulations. It is necessary to analyze the nature of the manufactured goods and ensure they are not on the list of exclusions in Law 19/1994. Since the application of this benefit depends on the technical reality of production, each situation must be evaluated in detail to guarantee compliance with the legal requirements.