Canary Islands Tax Incentives by wulinqing


									                              Cross – Comparison of
   Tax Incentives for US Companies Currently in Canary Islands, Ireland, and Puerto

Canary Islands Tax Incentives
There are many incentives available for a US Company establishment in the Canary Islands. Firstly, a summary
of the main non-fiscal incentives:

Our policies, business incentives, and university support focus on key industries that include: Medical
Technology, Water Technology, Renewable Energies, Biotechnology, Information and Communication
Technology (ICT), Astrophysics, Optics and Space Technology. Our universities offer degrees (in addition to
doctoral programs) in Computer Science, Electrical Engineering, Telecommunications, Robotics, Medicine and
Surgery, Physics, and Biosciences.

The Canary Islands form part of the European Union, but offer a very unique business environment with
specific economic and fiscal incentives that compensate for the distance from the European continent.

The Special Economic & Fiscal Regime of the Canary Islands (REF), while not considered a “tax haven” as it is

governed by Spanish Legislation and fully authorized by the European Union, is the most favourable in Europe.

The main instruments on that score, which your company could benefit from, are as follows:

   •   Canary Islands Special Zone (ZEC): income tax rate of 4%,
   •   Reserve for Investment in the Canaries (RIC): up to 90% reduction of the tax base for corporation
   •   Deduction for Investment in the Canaries: a greater amount of deduction with respect to the General
       Spanish Regime,
   •   Allowances for Production of Tangible Goods: 50% of the total amount that corresponds
       proportionately to the income derived from the sale,
   •   2 Free Trade Zones (out of 5 existing in Spain),
   •   Indirect tax advantages: there is no V.A.T. (16%), applicable in the rest of Spain, whereas the Canary
       Islands General Indirect Tax (IGIC) is only 5%.

As you will find in the report, the combination of the majority of these economic & fiscal benefits is possible,
and they are also compatible with eligible grants and subsidies for company creation, for job creation, for
innovation and technological development of industrial companies, for R+D+I, among other things.


REQUIREMENTS OF THE CANARY ISLANDS SPECIAL ZONE (ZEC) | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
        The creation of at least five jobs in the six months following upon registration in the ROEZEC 1, and
        keeping up this average over the years that the company is registered.
        Investing at least 127,958 US$ 2 in fixed assets of the company within two years following upon the
        moment of registration.
        The conduct of authorised activities. The activity to be carried on by …. must be authorised. (See
        Appendix 2)
        The newly-created company must have its domicile and its effective management in the Canary
        At least one of the senior managers must live in the Canary Islands.

ZEC Corporations which carry on industrial or commercial activities may only be set up in certain authorised
areas (Free Trade Zone included).


        Taxation of 4% for Corporation Tax.
        Imports of goods by ZEC Corporations, as well as deliveries of goods and provision of services between
        ZEC Corporations are exempt from paying IGIC (Impuesto General Indirecto Canario, equivalent to
        VAT/ IVA 3).
        Purchases of goods and rights connected with the activity, the company operations and legal
        documents are exempt from paying Capital Transfer Tax (ITP) and Stamp Duty (AJD).
        The profits distributed by ZEC entities to their parent companies and the interest and other returns
        obtained by non-residents in Spain (withholding tax of 0%) are exempt from paying non-resident
        Income Tax. Application of the double taxation treaty signed between the United States of America and

The Free Trade Zone is an area that is exempt for the purposes of European customs legislation.

This status has practical effects on the payment of duties and taxes on imports of goods, which will be exempt
for the entry of goods to the customs area of the Free Trade Zone.

Therefore, the entry of raw materials for transformation or elements for assembly to the facilities of the
companies that have set up here are exempt from the payment of duties for import into the community, if the
origin is in third countries. Likewise, the payment of indirect taxes on import into the Canaries (IGIC, AIEM 4) is
exempt from taxpaying for goods from either third countries or the European Union.

The Gran Canaria Free Trade Zone is exempt from the fulfilment of the Condition of Economic Order which is
valid in the remaining Free Trade Zones of the European Union, whose material effects prevent any Free Trade
Zone operator supplying himself with raw materials for transformation from third countries if there is a
community producer who is capable of supplying the operator. The exemption which is valid in the Gran
Canaria Free Trade Zone permits the operator to supply himself freely with exempt products from markets in
third countries such as the United States or Israel.

  ROEZEC: Official Register of Entities of the Canary Islands Special Zone.
  (€ 100,000). Exchange rate of EUR to US$ on October 2rd, 2007: 1 € = 1.41099 US$
  IVA (16% V.A.T. average rate in Spain) is not applicable in the Canary Islands. There is an equivalent indirect tax, IGIC (Canary
Islands Indirect Tax: 5% average rate).
  AIEM: Duty on Imports and Deliveries of Goods in the Canary Islands. | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
The intermediate transformation processes carried out on the goods inside the area are likewise exempt from
indirect taxation. Thus, any subcontracted process which is directly applicable on the goods within the area will
be invoiced by the supplier without application of IGIC for provision of services, or any other equivalent
indirect taxation in the European Union, IVA (VAT).

Finally, the exit of the finished product from the area for sale on the market at the definitive destination will
likewise be subject to a system of preferential customs payments.

The final destination of the goods is free, and the products resulting from the transformation may be freely
sold in the Canary Islands, the rest of Europe or Third Countries. The application of definitive import duties
and taxes will depend on the customs legislation in force in each of the destination markets.

For the case of goods sold in Europe, the duties will be paid on entry proportional to the incorporation of
materials from third countries to the finished product and the Community IVA (VAT) on imports (the rates will
depend on the country of entry) on the basis of a sales invoice, with the exemption from indirect taxes for
subcontracting inside the area being definitive.

Other fiscal incentives

•   The purchase of capital goods and machinery for incorporation into the production process is subject to a
    definitive exemption for the totality of applicable duties and indirect taxes.
•   The customs incentives applicable to companies that have been set up in the Free Trade Zone are
    compatible with the remaining fiscal incentives of the Economic and Fiscal Regime of the Canary
    Islands, as well as with the obtaining of any business subsidy from any community organisation.
•   In concrete terms, companies set up in the Canary Free Trade Zone may likewise take advantage of the
    fiscal benefits of the Canary Islands Special Zone (set out above); the Reserve for Investments in the
    Canary Islands, the Allowance for the Production of Tangible Goods in the Canary Islands, subsidies for
    export in the Canary Islands and subsidies and business plans of the European Union.
•   The Reserve for Investments in the Canary Islands (RIC) is a fiscal incentive of the Economic and Fiscal
    Regime of the Canary Islands which makes it possible to reduce the taxable base of Corporation Tax by up
    to 90% of the non-distributed profits which are to be devoted to the purchase of new or used fixed assets,
    the subscription of securities or account entries for Canarian public debt or the subscription of shares or
    stockholdings in the capital of companies which have a permanent establishment in the Canary Islands.
    The RIC is compatible with the fiscal benefits deriving from the specific incentives of the Fiscal and
    Economic Regime (exception: the RIC is not compatible with the ZEC) and those of the General
    Regime of Corporation Tax which we set out below:

    -      Allowance for the Production of Tangible Goods: This incentive gives an allowance of 50% of the
           total tax liability for Corporation Tax which proportionally corresponds to the earnings deriving from the
           sale of tangible property produced in the Canary Islands.

    -      The Special Regime of Deduction for Investments in the Canary Islands although the taxpayer
           may not simultaneously apply both fiscal benefits on the same investment asset, but if the investment
           asset is greater than the sum already devoted to the RIC, the excess can be applied to the Deduction
           for Investments. This limitation disappears if it is possible to split it up. The Deduction for Investments
           in the Canary Islands is a fiscal incentive which operates by reducing the total taxable base of
           Corporation Tax after the application of the deduction for double taxation and possible allowances. It is
           equivalent in its operation to the system in the rest of Spain but there are considerable advantages
           with regard to the intensity of the fiscal benefit. | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
     -      Freedom of depreciation for goods which generate employment.

     -      Exemptions on the Capital Transfer Tax and Stamp Duty for the purchase of goods.


Among the incentives for investing in the Canary Islands, the grants and subsidies which can be applied to the initiative of investment intended by ……
are the following:


For companies incorporated or to be incorporated which carry out investment projects in areas which are
subject to promotion and which fulfil the following requirements:
       o New establishment:
                  Investments greater than 600,000 €
                  Creation of new jobs.
       o Extension and modernisation:
                  A minimum increase of 15% for a notable increase in productivity.
                  That the approved investment is of 150% of the arithmetic average of the depreciation of
                  the three previous years.
       o Transfer:
                  New investments equivalent to double the value of the fixed assets.

   Type of Subsidy:                     Origin and/or                   Activities and Area of                            Maximum Level
                                        Program:                        Subsidies:                                        of Subsidy:
 | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
                              REGIONAL                    Creation, expansion,                      Up to 40% of the
                              INCENTIVES (EU)             modernization, and transfer of            total investment
                                                          companies.                                eligible for subsidy

                              GOVERNMENT OF               Creation, expansion,                      Up to 40%-60%
                              THE CANARY                  modernization and transfer of             depending on the
                              ISLANDS                     companies, energy saving,                 company activity
                                                          importation of basic products,            undertaken,
                                                          Inter island transportation,              number of jobs
                                                          quality, alternative energy, new          created, and new
                                                          technologies, textile                     technology applied.
                                                          manufacturing, trade, exterior
                                                          promotion, information
                                                          equipment, communications,
                                                          tourism, agriculture, and

 TRAINING                     GOVERNMENT OF               Training for the unemployed and           100% of the
                              THE CANARY                  the employed.                             expenses eligible
                              ISLANDS                                                               through authorized

 EMPLOYMENT                   GOVERNMENT OF               Doctors, reorganization of work           From 2.404 € to
                              THE CANARY                  time, unemployed handicapped,             6.000 € per
                              ISLANDS                     hotel industry, tourism,                  contract.
                                                          construction, corporatist with            Allowance for the
                                                          special insertion difficulties,           National Insurance
                                                          substitution of overtime,                 Contribution quota
                                                          autonomous and indefinite                 between 20% and
                                                          contracts.                                90% the 1st year
                                                                                                    and between 20%
                                                                                                    and 85% the 2nd

 RESEARCH AND                 PROFIT, (Technical          Research and Development:                 Up to 50% of the
 DEVELOPMENT                  Research Promotion          industrial, development, pre              investment and
                              Program).                   competitive, technological                expenses eligible for
                                                          demonstration, international              subsidies.
                                                          programs, and applied

Ireland Tax Investment Incentives | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
The main offer of Ireland in the tax incentives are:

    • A corporation tax rate of 12.5% applies to all corporate trading profits.

    • Tax credits for incremental expenditure on Research and Development.

    • A favourable holding company regime.

    • Double taxation agreements with 44 countries.

Corporate Tax Rate in Ireland
   The corporate tax rate in Ireland is 12.5%. Corporation tax is charged on the profits of a company.
   "Profits" for corporation tax purposes consist of income (business or trading income comprising active
   income, and investment income comprising passive income) and capital gains. Capital gains arise on the
   disposal of capital assets.

   Ireland operates a classical system of company taxation. Under this system, tax payable on corporate
   dividends is independent of the tax paid by the company paying the dividend and no credit is available to
   shareholders for tax paid at the corporate level. A company resident in Ireland for tax purposes is subject
   to corporation tax on its world-wide income. With some exceptions, a company incorporated in Ireland is
   automatically considered to be Irish tax resident. A company is also considered to be Irish tax resident if it
   is managed and controlled in Ireland.

Research and Development (R&D) Tax Credit
   In 2004, Ireland introduced a new R&D Tax Credit which was designed to encourage both foreign and
   indigenous companies to undertake new and/or additional R&D activity in Ireland.
   The tax credit is available to Irish tax-resident companies engaged in in-house qualifying R&D undertaken
   within the European Economic Area [EEA], provided such expenditure is not otherwise eligible for tax
   benefit elsewhere within the EEA. In practice R&D expenditure covers wages, related overheads, plant and
   machinery and buildings.
   The 2007 Finance Act has improved the tax credit in two important ways. Firstly, the base year
   expenditure against which qualifying incremental expenditure on R&D is measured under the tax credit
   scheme is being fixed at 2003 for a further three years to 2009. This will provide an additional incentive
   for increased expenditure on R&D in 2007, 2008 and 2009. The 2003 base year had originally been fixed
   for the first three years of the scheme (2004-2006) and was due to roll forward to 2004 for the purpose of
   calculating the tax credit for 2007.
   Secondly, from 1 January 2007, companies that sub-contract R&D work to unconnected parties will also
   qualify up to a maximum of 10% of the qualifying R&D expenditure in any one year.
   The Irish tax treatment of intellectual property (I.P.) is dependent on the nature of the IP rights and can
   be summarized as follows: | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
  •   Scientific Research: revenue and capital expenditure on activities in the field of natural or applied
      science for the extension of knowledge is allowable as a trading expense in the year in which the
      expenditure is incurred. The write off is not available for mining or petroleum related research.
  •   Patents: can be written off by a tax deduction generally claimed over 17 years on a straight-line basis,
      or over the life of the patent if less than 17 years.
  •   Know how (industrial): can be written off fully as a trading expense in the year in which it is incurred.
      The write off is not available where the know how was part of an acquired business or purchased from
      a related party.
  •   Software: is written off over 8 years on a straight-line basis, where the software is used for business
  •   Trademarks: no tax deduction is available for the cost of developing or acquiring trademarks, although
      a deduction is available for the cost of obtaining the registration of a trademark.
  •   Copyright: as per trademark above.
  •   Other (including brands): no tax deduction is available for the purchase of other IP assets, although it
      may be possible to obtain a revenue deduction for costs incurred to build a brand i.e. advertising,
      promotion etc.%.

Holding Companies

  •   Capital            Gains          Tax           (CGT)         on           Share           Disposals
      Irish holding companies are allowed an exemption from capital gains tax on the disposal of shares in
      their       subsidiaries.    The        exemption       is    subject       to      a       number
      of conditions. To be regarded as a holding company, the company must hold at least 5% of the shares
      of another company.

  • Foreign                                           Dividend                                          Income
      The Irish tax system taxes the receipt of foreign dividends at a rate of 25%, but allows this liability to
      be reduced, in certain circumstances, by the foreign underlying tax already paid on this income. There
      is a unilateral tax credit for underlying foreign tax provided there is a 5% shareholding relationship
      between the companies. In addition, “Onshore pooling,” allows the foreign dividends to be pooled
      together, before they are offset against the Irish tax liability. The tax credits do not need to be utilised
      in the year that the dividend is received. They can be carried forward indefinitely or offset against Irish
      tax on future foreign dividends.

Double Taxation Agreements

      To facilitate international business, Ireland has generated a good network of double taxation
      agreements. To date Ireland has 44 tax agreements, which provide for the elimination or mitigation of
      double taxation.

Puerto Rico Tax Investment Incentives
Corporate Tax Rate in Puerto Rico

      7% maximum corporate income tax rate with some qualified companies paying as little as 2 %. | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
        2-0 % special corporate tax rate for “Pioneer Industries”

        A 200 % super-deduction for research and development and job training costs.

        Accelerated depreciation for investment in buildings, machinery and equipment with unlimited loss
        carry forwards.

        100 % deduction on real and personal property taxes during initial construction and first-year of
        operations. The opportunity to conduct business in the most comprehensive, noncontiguous Foreign
        Trade Zone system in the U.S

Capital Gain Tax

        Tax Rate - 4% on capital gains resulting from the sale of shares

        Exempt businesses will be subject to a tax rate of 4% on capital gains obtained from the sales of their
        shares. This tax rate substitutes the ordinary tax rate of 12.5% applicable to corporations.

        Dividend Distributions – Tax exempt for stockholders

        The stockholders or associates of a corporation or a partnership that is an exempt business under the
        Tax Incentives Act will not be subject to income taxes on the dividends distributed from the industrial
        development income.

Property Tax
-Real Property:

Tax Rate - 8.33% tax rate (assessment based on 1958 values)

Exemptions – 100% and 90% exemptions
The eligible business will have a 100% tax exemption on state and municipal property taxes during their
construction period and the first year of operations. After that, the exempt business will have a 90% property
tax exemption.

-Personal Property

Tax Rate - Approximately 6.33%

Exemption – 100% exemption on intangible assets
Intangible assets such as patents, production licenses or trademarks are fully exempt from personal property
tax. Also exempt are personal property used by a service unit like stocks, bonds or other securities. | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147
Free Trade Zone
Puerto Rico has the most comprehensive, non-contiguous Free Trade Zone system in the USA. The system will
allow companies to obtain significant financial savings opportunities, since raw material, components, finished
goods and packaging may be storaged in and transported tax free through these zones. Items shipped abroad
after processing are exempt from taxes.
Benefits of the FTZ in Puerto Rico include:
Deferred US customs duties
No US custom duties and Puerto Rico excise tax payments on products exported to foreign markets.

Financing Options
The public and private sectors in Puerto Rico have joined forces to make locating or expanding your business
in Puerto Rico financially attractive. Private and government banks provide long-term or low-interest loans for
new businesses locating here. In addition, financing is available from a variety of sources.

The Government Development Bank of Puerto Rico (GDB) makes long-term and large loans to the private
The Puerto Rico Economic Development Bank loans or guarantees loans up to $1.5 million and also invests in
qualified high-risk projects.
AFICA sells Puerto Rico tax-exempt industrial development bonds to provide low-cost financing to some
The Special Fund for Economic Development provides for economic development in specific scientific and
technical research, risk sharing programs for new small businesses and managing tax-exempt businesses.
Venture Capital initiatives promote venture capital financing for growing companies.

Other Tax incentives
Credit for purchases of locally manufactured goods
Stockholder tax credit of 30% of the tax paid by the exempt business commensurate to its participation in the
ownership of the exempt business.
4% one-time tax on capital gains derived from sales of stock of exempted businesses.
Credit of 50% of the investment in the a acquisition of an exempt business in the process of closing operations
in Puerto Rico

Special deductions:
Deduction of 15% of production payroll to manufacturers whose industrial development income is less than
$30,000 per production employee.
A super-deduction of up to 200% for the cost of employee training and R&D expenses. | Email : | Ph :703.627.4407 | 44081 Pipeline Plaza, Ste. 310 | Ashburn VA, 20147

To top