THE SPECIAL CUSTOMS AND TAX REGIME FOR THE CANARY ISLANDS

The Canary Islands benefit from a unique customs and tax regime rooted in historical agreements within the European Union (EU). Initially established under the Treaty of Rome in 1958 to support overseas territories, this regime has evolved to account for the Canary Islands’ geographical and economic challenges, such as remoteness and dependency on specific products. While excluded from the EU VAT system and harmonized excise duties, the Canary Islands maintain their own indirect taxation system, including the Canary Islands General Indirect Tax (IGIC) and the Tax on Imports and Deliveries of Merchandise (AIEM), fostering local economic development. Regulations like EU 2021/2048 further support the region by suspending customs tariffs on certain industrial imports. Additionally, the Canary Islands impose region-specific excise taxes on fuels and tobacco, while adhering to reduced rates for certain alcoholic products compared to mainland Spain. These measures collectively aim to balance the region’s integration into the EU’s internal market with its economic sustainability.

When the Treaty of Rome, establishing the European Economic Community, came into force on 1 January 1958, its Fourth Part contained special customs and tax provisions for the association of the so-called “overseas countries and territories” belonging to what were then considered colonial powers: France, Belgium, Italy and the Netherlands, in order to promote their economic and social development.

In this regard, article 131 stated: “Le but de l’association est la promotion du développement économique et social des pays et territoires, et l’établissement de relations économiques étroites entre eux et la Communauté dans son ensemble”

[“The objective of the association is the promotion of economic and social development of the countries and territories, and the establishment of close economic relations between the constituents of the Community”].

And article 133 (3) : « Les pays et territoires peuvent percevoir des droits de douane qui répondent aux nécessités de leur développement et aux besoins de leur industrialisation ou qui, de caractère fiscal, ont pour but d'alimenter leur budget. »  

[“The countries and territories can levy customs duties which reflect the necessities of their development and the needs of their industrialisation or which, from a fiscal perspective, are intended to finance their budget.”]

Today, this privileged customs and fiscal treatment for certain peripheral regions of the European Union is found, as a general strategic goal, in Article 349 of the Treaty on the Functioning of the European Union, which lays down:

“Taking account of the structural social and economic situation of Guadeloupe, French Guiana, Martinique, Mayotte, Réunion, Saint-Martin, the Azores, Madeira and the Canary Islands, which is compounded by their remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development, the Council, on a proposal from the Commission and after consulting the European Parliament, shall adopt specific measures aimed, in particular, at laying down the conditions of application of the Treaties to those regions, including common policies. The measures referred to in the first paragraph concern in particular areas such as customs and trade policies, fiscal policy, free zones, agriculture and fisheries policies…”

At the time of Spain joining the European Economic Community, the legal Ac of June, 11, 1985, concerning the conditions of the accession and the adjustments to the Treaties established, in Protocol 2, the exclusion of the Canary Islands of the customs territory of the Community, and in Annex V, “Taxation”, also declared the possibility of excluding the Canary Islands from the regulations on VAT and harmonized excise duties (then only, and partially, Tobacco).

Later, however, through Council Regulation (EEC) 1911/91, the inclusion of the Islands in the Community customs territory was expressly accepted, with certain suspensions on the application of the common tariff for the benefit of the local economy and the products manufactured in the islands.

On the other hand, said Regulation confirmed the exclusion from Community regulations of VAT and excises, and also cleared the possibility of maintaining a specific indirect taxation in the Canary Islands.

Therefore, the Preamble of Regulation (EEC) 1911/91 mentioned that ‘Whereas experience has however shown that the development of the Canary Islands would be better served by their full integration into the common policies and the process of completing the internal market… the arrangements laid down in the Act of Accession should therefore be amended and the Canary Islands integrated into the Community's customs territory’, adding that  ‘the strengthening of the Canary Islands' integration into the Community is not incompatible with the maintenance of indirect taxation specific to these islands, especially the exclusion of the Canary Islands from the territorial field of application of the common VAT system… and the continuing exclusion of the Canary Islands from the territorial field of application of the Directives concerning manufactured tobacco…”

This differentiated treatment in the Spanish Atlantic territory is currently reflected, in the field of customs, in Regulation EU 2021/2048, by which, as an exception to the general rule, the duties of the EU common customs tariff are suspended, in the Canary Islands, for certain imports of industrial products considered capital goods and destined for the islands.

Thus, article 1 of said norm establishes that ‘From 1 January 2022 to 31 December 2031, the Common Customs Tariff duties referred to in Article 56(2), point (c), of Regulation (EU) No 952/2013, applicable to imports into the Canary Islands of capital goods for commercial or industrial use, currently falling under the CN codes listed in Annex I to this Regulation, shall be suspended in full. Those capital goods shall be used in accordance with the relevant provisions of Regulation (EU) No 952/2013 and of Regulation (EU) 2015/2447 for a period of at least 24 months after their release into free circulation by economic operators located in the Canary Islands.’

As for ​​indirect taxation, the existence of specific indirect taxes applicable in the territory of the Canary Islands was admitted in the European Community by the previously mentioned Regulation 1911/91, and, as a consequence, Law 20/1991 issued by the Autonomous Government for the archipelago established the Canary Islands General Indirect Tax (IGIC) and the Tax on Imports and Deliveries of Merchandise in the Canary Islands (AIEM).

IGIC is a tax similar to VAT, applied to the supply of goods and services made by taxable persons, on a regular or occasional basis, in the course of their economic activity, as well as to the import of goods into the Canary Islands, regardless of the purpose for which they are intended or the status of the importer.

AIEM, on its part, contributes to the development of the Canary Islands by taxing the production of goods on the islands and the import of goods of a similar nature into this territory.

On the other hand, although the Canary Islands are excluded from the application of the European Union regulations on excise duties (article 4 of Directive 2020/262: ‘This Directive and Directives 92/83/EEC, 92/84/EEC, 2003/96/EC and 2011/64/EU shall not apply to the following territories forming part of the customs territory of the Union: (a) the Canary Islands’), the national regulations on these taxes, contained in the Spanish law 38/1992, are partially applied in the islands for certain products, being this another fiscal peculiarity in the archipelago which we want to highlight in this article.

In this way, in the Canary Islands the same excise legislation is applied as in the rest of Spain for certain alcoholic products: beer, intermediate products, alcohol and spirits, with the peculiarity that in the case of intermediate products, alcohol and spirits, the tax rates are lower.

This means that when these products are sent from Spain to the Canary Islands, out of the suspensive regime, from a factory or tax warehouse, the specific rates of the Islands must necessarily be applied; that when they are sent with the tax already paid, the difference must be returned, and that when one of these products is introduced into the rest of Spain, the difference in tax rates must be paid.

As regards any product from the European Union subject to the general regulations on excise duties (Directive 2029/262), it must be taken into account that said regulations do not apply in the Canary Islands and that therefore the movement provisions relating to the suspension regime or the release for consumption have not legal effects in the archipelago.

Upon entry into this territory, the rates corresponding to the products subject to the excise duties must be paid, unless they are destined to a factory or a tax warehouse, in which case the shipment will be carried out under a suspension regime, from the place of introduction to the recipient.

Finally, the Canary Islands also have two excise duties applied, exclusively, in this territory:

First, the Excise of the Autonomous Community of the Canary Islands on petroleum-derived fuels, created by autonomic Law 5/1986, which taxes the delivery made by wholesale traders of the products listed in article 9: gasoline, diesel, fuel oil, propane and butane, as well as biofuels mixed whit gasoline or diesel, with a right to partial reimbursement by farmers and professional transporters.

Secondly, the Excise on tobacco products, established by autonomic Law 1/2011, which taxes the manufacture and import of tobacco products (cigars and cigarillos; cigarettes; rolling tobacco and other smoking tobacco) within the territory of the Canary Islands, in a similar way to Directive 2011/64 and Spanish national Law 38/1992.