Special tax rules in the Canary Islands, Ceuta and Melilla

Terms used

• IGIC — The IGIC is the Canary Islands' general indirect tax, used instead of VAT.
• IPSI — The IPSI is the local indirect tax in Ceuta and Melilla, used instead of VAT.
• IRPF — The IRPF is Spain's personal income tax.
• AEAT — The AEAT is Spain's national tax agency.

Key rules

• Canary Islands: You pay IGIC instead of VAT, with a 7% general rate and a 3% reduced rate.
• Ceuta and Melilla: You pay IPSI instead of VAT, with rates mostly between 0.5% and 10%.
• 60% deduction: Residents of Ceuta and Melilla deduct 60% of the tax on income earned in those cities.
• Canary income tax: Individuals pay ordinary IRPF and use regional deductions that have income limits and change yearly.

The short version

These three territories do not use ordinary VAT. They have their own indirect taxes, and Ceuta and Melilla also give a large income tax deduction. Both can change what you take home.

Canary Islands

Shopping and services: IGIC instead of VAT. The Canary Islands charge IGIC, which is usually lower than mainland VAT. The general rate is 7% and the reduced rate is 3%. Basic goods have a zero rate. Increased rates of 9.5%, 13.5% and 15% apply to some items, and tobacco is taxed at 20%. The Canary Government sets these rates and they can change, so check the current rate for what you are buying.

Income tax: no special rate for individuals. You file the ordinary IRPF. What you get instead are regional deductions set by the Canary Government. They cover things like:

• a birth or adoption
• care of dependants
• rent on your main home
• studies away from home
• donations
• housing in some specific cases

Each deduction has income limits or other conditions, and they change from year to year. Check the current list with the Canary Islands tax agency before you file.

The big structural breaks in the Canaries, the Reserva para Inversiones and the ZEC regime, are for companies. They do not apply to you as an individual.

Ceuta and Melilla

Shopping and services: IPSI instead of VAT. Both cities charge IPSI, a local tax. Rates mostly run from 0.5% to 10% depending on the item. Each city sets its own rates.

Income tax: a 60% deduction. If you live in Ceuta or Melilla, you can deduct 60% of the part of your state and regional tax that comes from income you earned in Ceuta or Melilla. Keep these points in mind:

• Your residence there must be real, not just on paper.
• Income earned outside the two cities does not qualify.
• Work, business income and some property income can count as earned there.
• In some cases people who live elsewhere can use the 60% for real estate in Ceuta or Melilla, with conditions.

The detailed conditions are technical. Confirm them with the tax agency (AEAT) before you rely on the deduction, especially if you are not resident in the cities.

How this changes your net position

• If you buy a lot of goods locally, lower indirect tax in the Canaries or IPSI in Ceuta and Melilla can lower your costs.
• If you earn your income in Ceuta or Melilla, the 60% deduction can cut your income tax a lot.
• In the Canaries, expect ordinary income tax with some regional deductions, not a lower rate.

The questions below cover the most common doubts.

Frequently asked questions

Which indirect tax applies in the Canary Islands instead of VAT?

The Canary Islands apply IGIC, a local sales tax, instead of VAT. The general rate is 7%, the reduced rate is 3%, basic goods are at zero, and increased rates are 9.5%, 13.5% and 15%. Tobacco is at 20%.

Which indirect tax applies in Ceuta and Melilla?

Ceuta and Melilla apply IPSI, a local tax on production, services and imports, instead of VAT.

Who can claim the 60% income tax deduction in Ceuta and Melilla?

You can claim it if you actually live in Ceuta or Melilla and the income was earned there. The deduction is 60% of the part of your tax linked to that income.

Do individuals in the Canary Islands get a special income tax rate?

No, you file the ordinary income tax return, with extra regional deductions set by the Canary Government. These cover things like births, caring for dependants, renting your main home and studies away from home, each with income limits or other conditions. The big business incentives are for companies, so most individuals gain mainly from the lower indirect tax.