The Canary Islands: one of the world’s most advantageous tax regimes for R&D and innovation activities
The latest annual report of the Organisation for Economic Co-operation and Development (OECD) places Spain in third place behind France and Portugal in terms of tax support for innovation in Europe. Spain is also sixth in the worldwide ranking for companies with tax benefits and fourth for start-ups and companies without tax charges.
The model applied in Spain offers tax benefits for R&D and technological innovation projects, as well as a whole range of tax savings that include reduction of taxable income deriving from licensing of intellectual property (Patent Box regime); reduction of the impact of Social Security contributions; and finally the most well-known instrument, deduction of expenses for Technological Innovation (12%) and R&D (up to 42%). It therefore comprises a hybrid model as it is both volume-based and incremental in various circumstances (17% for R&D staff salaries, 8% for investment in equipment), up to a maximum of 50% of the gross tax due and with the possibility of carry-over for 18 tax years.
This high-potential regulatory tax instrument includes ex-ante evaluation of each project and may be monetised and duly combined with other sources of public financing such as the funding offered by the Centre for the Development of Industrial Technology (CDTI) and other private sources.
In addition, the application of the Canary Islands Economic and Tax Regime allows the Islands to offer an even more beneficial tax regime than the rest of Spain. The main differences are as follows:
- Deduction for Technological Innovation: 12% on the Peninsula and 45% in the Canary Islands.
- Deduction for R&D activities: up to 42% on the Peninsula and up to 75.6% in the Canary Islands.
- Research staff: up to 17% for salaries on the Peninsula and 37% in the Canary Islands.
- Investments for R&D activities: 8% on the Peninsula and 28% in the Canary Islands.
- Reduction of the annual tax base: up to 50% on the Peninsula and up to 90% in the Canary Islands.
As can be seen, the Canary Islands offer one of the world’s most generous tax regimes for R&D. Gran Canaria in particular also offers a series of features which make it the ideal destination to take advantage of these benefits: infrastructure, connectivity, public and private resources devoted to R&D (the University of Las Palmas de Gran Canaria, with more than 150 research groups including the Canary Islands Oceanic Platform, Canary Islands Technological Institute, Spanish Bank of Algae, etc.) and outstanding research talent.
These incentives offered at a national and regional level may be combined with direct credit facilities for R&D and optimised during the project life cycle, or even in subsequent operational phases of the resulting technology.
The purpose of the initiative ‘Best in Gran Canaria’ spearheaded by the Agency for the Economic Development of Gran Canaria is to raise awareness and provide advice regarding the application of these tax instruments and the financing available for R&D activities. This agency under the auspices of the Gran Canaria Island Council offers a ‘Support Service for Companies’ (SAE) and advice provided by certified experts regarding tax incentives for innovation available to start-ups, companies and innovative entrepreneurs, whether at a local or international level.
Without a doubt, all these reasons make the Canary Islands and Gran Canaria in particular an absolute must for R&D projects and the ideal place to make the most of all the tax support available for R&D and Technological Innovation.