What IGIC is, and why the Canaries do not charge VAT

The short answer

IGIC, the Impuesto General Indirecto Canario, is the general consumption tax charged in the Canary Islands instead of VAT. It is not a Canarian version of VAT, and it is not a reduced VAT rate: it is a different tax, with a different law, different rates and a different territory.

It has seven rates, of which the general one is 7 %¹, and the body that sets them is the Canarian parliament rather than the Spanish state.⁶ Two whole groups do not charge it: retailers³ and individuals who billed 30,000 euros or less in the previous year.⁴

Why the Canaries do not charge VAT

The reason is territorial rather than fiscal, and it is written into the VAT law itself. Article 3 of Ley 37/1992 defines where the tax applies and leaves out the Canaries, Ceuta and Melilla.⁹

What is interesting is that it excludes them in different subparagraphs for different reasons. Ceuta and Melilla are out because they sit outside the European Union's customs union. The Canaries are inside the customs union, and are out for something else: they are excluded from the harmonisation of turnover taxes. So the islands trade with the continent as EU customs territory, while their consumption tax is their own.

That is where the three taxes that coexist in Spain over the same thing, consumption, come from:

The state law no longer says what you pay

Here is a quirk almost nobody mentions, and it explains why it is so easy to look for the IGIC rate in the wrong place. The Spanish state law on the tax is still Ley 20/1991, but its operative articles are empty.

The sixth final provision of Ley 31/2022 turned them into cross-references to the Canarian law:

• Article 10, on interior exemptions, points to article 50 of Ley 4/2012.⁸
• Article 27, on the rates, points to articles 51 to 61.⁶
• Article 49, on the special regimes, points to articles 64 to 111.⁸

And several articles in between, such as 50, 51, 58 bis and 58 ter, now appear in the consolidated text literally as «(Sin contenido)»: with no content at all. Everything operative lives in regional legislation, under the competence granted by the eighth additional provision of Ley 22/2009.

The consequence is worth stating plainly: IGIC is the only general consumption tax in Spain whose rate the state does not decide. Neither VAT nor the excise duties work that way.

The seven rates

Article 51.1 lists them, and the general rate is defined by exclusion: it applies to anything "not subject to any of the other rates provided for in this article".¹

Two warnings about that table. The first is that the real lists are very long and built on divisions of the European classification of economic activities, with their exceptions: deciding whether a particular product falls under article 54 or article 56 is a classification question rather than a calculation.

The second is that article 55, the 9.5 % one, cannot be read on its own. It taxes manufacturing services producing vehicles "whose supply or import is subject to the 9.5 % rate", and which supplies those are is set out in articles 59, 60 and 61, which article 51.2 brings in with a "without prejudice to". Read in isolation it looks circular; it closes through that paragraph.

And a timing rule that settles most practical doubts: article 51.4 says the rate that applies to each transaction is the one in force when the tax accrues.¹ Not the invoice date, the contract date or the payment date. It is the same rule article 90.Dos of the VAT law applies on the mainland.

A zero rate is not an exemption

Article 52 puts drinking water, ordinary bread and gluten-free bread, flour, gofio, milk, cheese and eggs at the zero rate, among other things.² On the mainland those same products sit at the 4 % super-reduced rate.

The difference from an exemption is not cosmetic. Someone selling at 0 % remains a taxable person and keeps the right to deduct the tax they were charged on their purchases. Someone making an exempt supply does not. That is why the Canarian legislator chose a zero rate rather than an exemption for basic foods: the baker still deducts the IGIC on the flour and on the oven's electricity, and the final price carries no hidden tax.

Article 59 takes that idea somewhere surprising: electric vehicles are taxed at the zero rate, along with fuel-cell vehicles and hybrids emitting no more than 110 grams of CO2 per kilometre under the WLTP protocol, and also bicycles, pedal-assisted bikes and scooters.⁵

On a 30,000 euro base, that is the difference between paying 0 euros of IGIC in the Canaries and 6,300 euros of VAT on the mainland, for the same car and the same invoice.

Shops do not charge IGIC

This is the piece that explains the whole architecture of the tax, and it is the one that most surprises anyone arriving from VAT.

Article 50.Uno.27 declares exempt "the supplies of goods made by retailers", and adds that those taxpayers "shall be compulsorily included in the special regime for retailers".³ A Canarian shop's price carries no IGIC line at all.

The tax does not disappear: it is collected earlier. Article 51.5 adds a retailer surcharge when the shop imports its stock, and that surcharge has a property worth knowing because it makes any invoice checkable:

It is exactly one tenth of the rate, in all seven bands.¹ If you ever see a surcharge that does not hold that proportion, the invoice is wrong.

Compare it with the mainland equivalence surcharge, which is the analogous VAT regime: there the surcharge is 5.2 % on a 21 % rate, so nearly a quarter of the rate rather than a tenth.¹⁰ On a 1,000 euro purchase of stock, the Canarian retailer pays 70 euros of tax and 7 of surcharge, 77 in all; the mainland one pays 210 and 52, so 262.

And there is a second half of article 50.Uno.27 that almost nobody states: when a wholesaler sells directly to someone who is neither a business nor a professional, the part of the base corresponding to the retail margin is also exempt, valued by reference to the average price at which that same wholesaler sells to shops. A single invoice splits into a taxed part and an exempt one.

Thirty thousand euros, and below it you charge nothing

Article 109 of Ley 4/2012 places individuals established in the Canaries whose total turnover in the previous calendar year did not exceed 30,000 euros inside the special regime for small traders unless they opt out, and article 110.1 declares their supplies and services exempt.⁴

There is nothing equivalent in VAT. Article 88.Uno of Ley 37/1992 requires the taxable person to pass the tax on in full,¹⁰ so a mainland freelancer billing 25,000 euros charges 21 % from their first invoice and a Canarian one on the same income charges nothing.

Three details move the answer:

1. Individuals only. Article 109.1 says so expressly. A company charges IGIC from the first euro, whatever it bills.
2. Turnover is scaled to a full year. If the activity began during the previous year, the turnover is scaled up before being compared with the threshold. Someone who billed 20,000 euros in six months counts 40,000 and falls outside. The law does not fix the scaling method.
3. The waiver is tacit. Article 109.2 says it is taken to have happened when the first-quarter return is filed on time, and that it covers all of the taxpayer's activities. It is the same mechanism that takes a mainland freelancer out of the módulos regime without signing anything.

Article 110.2 closes the circle: the regime does not apply to a retailer's commercial supplies, because those are already exempt under article 50.Uno.27. Two different articles reaching the same result, which is why "do I bill less than 30,000?" is the wrong question if you run a shop.

Mainland Spain is a third territory

Article 8.1 of Ley 20/1991 defines as third territories "the Peninsula, the Balearic Islands, Ceuta, Melilla, any other European Union member state or third countries", and calls an import the entry of goods into the Canary Islands from any of them, "whatever their intended purpose or the status of the importer".⁷

Read that twice: mainland Spain heads that list, alongside non-EU countries.

Three practical consequences follow:

• A parcel sent from Madrid to Las Palmas is an import for IGIC purposes, whether a business or a private individual ordered it.
• An online purchase that would carry VAT on the mainland arrives in the Canaries without it, and with IGIC due on arrival.
• Article 51.3 fixes the rate of that import: the one for goods of the same nature.¹ An imported book pays what a book bought on the island pays.

A worked example with real numbers

An invoice with a base of 1,000 euros, at the general rate.

The same purchase costs 140 euros more on the other side of the sea, and the mainland tax is exactly three times as much.

Now suppose the buyer is a shop bringing that stock in from outside. In the Canaries article 51.5 adds a 0.7 % surcharge, so 7 euros, and it pays 1,077 euros. On the mainland the equivalence surcharge is 5.2 %, so 52 euros, and it pays 1,262 euros.

And if what it buys is a 30,000 euro electric car, article 59 puts it at the zero rate: 0 euros of IGIC against 6,300 euros of VAT.

What this page does not settle

It does not classify products. Deciding whether a particular good goes at 3 % or at 15 % means reading the lists in articles 52 to 61 with their divisions and exceptions, and where there is doubt it is worth confirming before you invoice.

Nor does it cover the customs-value reliefs in articles 14 and following of Ley 20/1991, which keep some small imports outside the tax; or the simplified regime of articles 64 to 66; or the used-goods, travel-agent or cash-accounting regimes. And AIEM, the Arbitrio sobre Importaciones y Entregas de Mercancías en las Islas Canarias, is a separate tax and not an IGIC rate.