No VAT in Tenerife seems strange to residents of European countries used to paying value-added tax on everything.
VAT, or Value-Added Tax, is an indirect consumption tax levied by governments on the sale of goods and services. In Belgium, VAT has been in effect since January 1, 1971, and in the Netherlands since January 1, 1969. In Spain, VAT (known as IVA, Impuesto sobre el Valor Añadido) was introduced later, on December 28, 1992, following recommendations from the European Union.
In Tenerife, however, there is no VAT. Instead, products are subject to IGIC (Impuesto General Indirecto Canario), a Canary Islands-specific tax. The reasons why VAT does not apply in this European territory can be traced back to the history, politics, geography, and socio-economic policies of the Canary Archipelago, which is part of the Zona Especial Canaria (ZEC). So, while Tenerife does not have VAT, it does have IGIC.
Origins of the Tax
After the Spanish conquest of the Canary Islands in the 15th century, funding was needed to sustain these territories. While everyone, including the poorer Canarian population, had to contribute, their taxes were less burdensome than those imposed on wealthier Spaniards.
The Royal Decree of July 11, 1852, also known as the Decreto Bravo Murillo, established low import and export taxes to promote international trade with the Canary Islands.
In 1912, after 12 years under the Ley de Cabildos, this law was repealed. This allowed Canary Island institutions to manage their financial growth independently rather than relying on loans from mainland Spain. However, it wasn’t until 70 years later that a law was passed to regulate Canarian taxation and align it with the archipelago’s economic needs.
No VAT
This important tax law had to be amended again in 1982 following the Spanish Constitution’s provisions for the Canary Islands’ autonomy. When Spain joined the European Community in 1986, the country was once again compelled to adjust taxation rules for the Canary Islands.
On March 6, 1990, a law governing exports of Canarian products was approved. The Ley 20/1991, which clarified the tax structure for the archipelago, was published a year later but did not take effect until two years after that. Additionally, in 1991, the islands joined the Unión Aduanera (Customs Union), but without applying VAT. The tax rates for IGIC were set at 0%, 2%, 5%, and 13%.
The archipelago’s heavy reliance on tourism and its unique economy have also contributed to lower tax rates. IGIC rates are significantly lower than mainland VAT rates, reflecting this unique history. Without this context, it can be difficult to understand how a European territory escapes the EU’s VAT regulations.
IGIC Tax Rates
The IGIC system applies to all the Canary Islands, territorial waters, and airspace within 12 nautical miles of the archipelago. Here are the rates:
- 0% (Tipo cero): Applies to essentials such as water, medicines, books, subsidized housing, and air transport for passengers.
- 3% (Reducido): Applies to various industries, including mining, textiles, paper, and agriculture.
- 7% (General): The most common rate, covering general goods and services not subject to other rates.
- 15% (Incrementados): Applies to luxury items, such as cigars costing over €2.50, certain alcoholic beverages, jewelry, and watches over €120.20.
- 20% (Especiales): Applies to black tobacco (roll-your-own or pipe tobacco).
- 35% (Especiales): Applies to blond tobacco (cigarettes).
Lower Costs of Living
The low tax rates on essential items make the cost of living in the Canary Islands about 30% lower than in many European countries. This is why, on Tenerife, there is no VAT – only IGIC.
Pixabay © Photography
No VAT in Tenerife ©
More TRIVIA can be read [HERE].
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