RIC — Canary Islands Investment Reserve: Reduce Your CIT Base by Up to 90%

The Reserva para Inversiones en Canarias (RIC) is the Canary Islands special economic and fiscal regime (REF) instrument that allows companies with a registered office or permanent establishment in the Canary Islands to reduce their CIT taxable base by up to 90% of undistributed profits committed to investment in the archipelago, regulated under Art. 27 of Ley 19/1994 (6 July 1994), as amended by Ley 8/2018. Allocated amounts must be materialised in eligible assets from categories A1 to D1 within three tax periods from the close of the allocation year, and the materialised assets must be retained in Canary Islands economic activity for a minimum of five years.

From our office in Las Palmas de Gran Canaria, we manage the RIC integrated with the broader REF incentive planning for each client — from the initial allocation calculation and eligible asset selection through annual compliance, materialisation deadline tracking, and AEAT inspection preparation.

Why the RIC is the Most Powerful REF Instrument for Canary Islands Businesses That Reinvest Profits

A Canary Islands company generating €2 million of pre-tax profit that does not distribute dividends can allocate the RIC for up to €1.8 million (90% of undistributed profit), reducing the CIT base from €2 million to €200,000. At the 25% general CIT rate, the tax is €50,000 instead of €500,000 — a saving of €450,000 in a single year. The €1.8 million allocated to the RIC must be materialised in eligible investments in the Canary Islands within three years.

This efficiency is not aggressive tax planning: it is the exact mechanism that the legislature designed in Ley 19/1994 to compensate for the structural disadvantages — logistical costs, smaller markets, energy dependence — of Canary Islands businesses compared to their mainland counterparts. The European Commission has validated the RIC as compatible State aid precisely because it responds to this compensatory objective.

For a ZEC-registered entity (paying 4% CIT on its special base), the combination of ZEC + RIC can reduce the effective CIT rate on the entity’s total profits to a fraction of the general 25% rate. A simplified example: ZEC base of €800k at 4% (€32k), non-ZEC base of €1.2M, RIC allocation of €1.08M (90%), remaining non-ZEC base of €120k at 25% (€30k) — total CIT: €62k on €2M of profit, an effective rate of 3.1%.

How the RIC Works: Allocation, Materialisation in A1–D1 Assets, and Retention

Step 1 — Accounting allocation (year of profit):

The RIC must be allocated in the same year in which the profit is generated. The allocation consists of transferring the relevant portion of the year’s profit to an indisponible reserve account in the balance sheet. The maximum allocatable amount is 90% of the undistributed profit, subject to the additional limit of 90% of the CIT taxable base for the same period. If the company distributes dividends, the maximum allocation is reduced by the dividend amount. The allocation must be disclosed in the notes to the annual accounts, with the allocation amount, the relevant profit year, and the planned materialisation schedule.

Step 2 — Materialisation in eligible assets (within three tax periods):

Art. 27.4 of Ley 19/1994 defines the eligible categories:

• Category A1 — new tangible fixed assets for Canary Islands economic activity (the broadest and most commonly used category)
• Category A2 — maritime transport, fishing, and aquaculture assets
• Category A3 — used fixed assets for first installations on minor islands (not Gran Canaria or Tenerife)
• Category B — intangible assets (patents, licences, know-how, specialist software)
• Category C — employment creation directly linked to A1–B investments
• Category D1 — subscription of shares/interests in Canary Islands companies that invest in A1–C assets

Since the Ley 8/2018 reform, investment property for rental purposes by entities whose principal activity is real estate rental also qualifies under A1.

Step 3 — Five-year retention:

Materialised assets must remain in the company’s assets and be used in Canary Islands economic activity for five years from entry into service (or from the date of acquisition for real estate and participations). Early disposal triggers proportional reversal with interest.

RIC + ZEC: The Combination That Can Bring the Effective CIT Rate Close to Zero

The RIC is fully compatible with the ZEC regime within the limits of Art. 27.9 Ley 19/1994. A ZEC entity can apply the RIC on profits not forming part of its ZEC special taxable base, or on the excess above the ZEC base limit, with the result that both the ZEC 4% rate and the RIC 90% base reduction apply in different proportions to the company’s total profit.

The management of this combination requires separate accounting for ZEC and non-ZEC activities, correct allocation of the RIC to non-ZEC profits, and verification of the Art. 27.9 compatibility limits. We manage this analysis annually for all our Las Palmas-based clients operating under both regimes.

What Our RIC Management Service Includes

From our Las Palmas de Gran Canaria office we manage the RIC integrated with the complete REF incentive planning:

Annual allocation and accounting: BFC calculation, maximum allocation determination, accounting registration in the close-of-year balance sheet, coordination with the external auditor.

Asset eligibility analysis: Identification of A1–D1 eligible assets that fit the company’s investment plan, technical documentation of each investment’s eligibility, and legal analysis for assets on the boundary of category definitions.

Materialisation deadline tracking: Alert system for the three-year materialisation deadline of each historic RIC allocation still open. Missed deadlines can result in reversal of the entire allocation plus interest — the most costly compliance failure in REF management.

Annual compliance audit: Full review of all active RICs, retention verification, documentation update, and preparation of the AEAT inspection evidence file (shareholders’ meeting minutes, accounting records, acquisition invoices, employment contracts for category C).

REF optimisation: Compatibility analysis between the RIC, ZEC (4% rate), REF investment deductions (Art. 94 Ley 20/1991 — 25% deduction on new fixed assets), and other available incentives to maximise the combined effective tax rate.

The RIC is the instrument that most frequently justifies the cost of specialist Canary Islands tax advisory. A correctly managed RIC can save hundreds of thousands of euros in CIT annually — but a poorly managed one can reverse those savings with interest charges that eliminate the entire benefit. Our Las Palmas team maintains this documentation with precision for all clients with active RIC allocations, ensuring that an AEAT inspection of the regime can be responded to with the highest diligence and without the risk of documentation gaps being interpreted as non-compliance.

RIC for Self-Employed Individuals Under IRPF (Art. 27 bis Ley 19/1994)

Art. 27 bis of Ley 19/1994 (introduced by Ley 8/2018) extends an equivalent incentive to individuals carrying out economic activities in the Canary Islands who are subject to IRPF (personal income tax) on direct assessment basis. It allows a reduction of net profit from Canary Islands economic activity under the same conditions as the RIC — up to 90% of undistributed profit, materialised in A1–D1 assets within three years.

This extension is particularly relevant for self-employed professionals (doctors, architects, lawyers, engineers) and sole traders in the Canary Islands who generate significant net profits from their activities but have not incorporated a company. For these profiles, the RIC-IRPF can provide very significant reductions in personal income tax in high-income years.

Sources and Regulatory Framework

• BOE — Ley 19/1994, Régimen Económico y Fiscal de Canarias
• Zona Especial Canaria — Official website
• Agencia Tributaria — IGIC and REF
• Gobierno de Canarias — Consejería de Economía