The Canary Islands are not part of Community territory for the purposes of VAT (Article 6 of VAT Directive).
The harmonised rules on VAT do not apply to the Canary Islands and the application of turnover taxes is a matter for the national or local authorities subject to respect for the general principles of the Treaty on the Functioning of the European Union and, notably, the absence of discrimination in the taxation of products.
VAT does not exist in the Canary Islands but there is a local consumer tax known as the IGIC (Impuesto General Indirecto de Canarias - Canaries General Indirect Tax) applied at several different rates. There is also another consumer tax known as the AIEM, which is discussed below.
In principle, the Treaty does not permit differences in taxation between local products and products imported from Spain or the other Member States. However, the specific nature of the outermost regions, one of which is the Canary Islands, is laid down in Article 349 of the Treaty on the Functioning of the European Union, which permits specific measures to be taken, particularly in the tax field, so as to take account of the particular characteristics and constraints of these regions.
Local manufacturers have to contend with a number of constraints, caused especially by their remoteness, the effect of which is to push up the cost prices of their products, thereby making them uncompetitive with products from elsewhere (especially mainland Spain and the other EU Member States). This has justified the implementation of a specific measure, which, by means of tax exemptions or reductions for local products, serves to
Decision (EU) 2020/1792 of 16 November 2020 authorises the Spanish authorities to apply total exemptions or reductions of the local AIEM tax in respect of a limited list of locally manufactured products specified in the annex to that decision until 31 December 2020. These tax exemptions or reductions may not result in tax differentials of more than 15%. Nevertheless, this fiscal advantage is subject to a limit of EUR 150 million per annum.
This decision therefore permits the application, subject to the authorised limits, of tax differentials between local products and products from outside the Canaries.