Canary Islands Economic and Fiscal Regime: REF Explained

Background of the Economic and Fiscal Regime of the Canary Islands (REF)

• 1507: First Royal Decree
• 1852: Port Franks
• 1972: Under a franchise and not the application of the Customs Revenue
• 1991: Adaptation to the EU Framework
• 1994: Current Economic and Fiscal Regime of the Canary Islands Act
• 2006: Renewal of the REF

What is Sought by the REF?

• Promoting the economic development of the Canary Islands
• Addressing the costs of remoteness:
  • Shortage of land and natural resources
  • Additional costs of supply and production
  • Difficulties in achieving economies of scale
  • Accommodation on the peninsula
  • Island market tightness

What is Intended by the Renewal of the REF?

• Improving the operation of the system
• Correcting inefficiencies
• Adapting to new regional aid guidelines for the period 2007-2013

What is the REF?

The REF is an economic instrument that attempts to boost growth, development, and improve diversification of employment.

Principal Mechanisms of the REF

The principal mechanisms of the REF are the RIC (Canary Islands Investment Reserve) and ZEC (Special Canary Zone).

Initial Investment

• Concept: Creating a new establishment, extending an existing establishment, diversifying the production of an establishment into new product markets, and additional fundamental changes in the overall production process of an existing establishment.
• This excludes replacement investment. Assets are excluded to provide transportation services to third parties.

Initial Investment Conditions

• The beneficiary must finance at least 25% through their own resources or external funding, exempt from public aid.
• The aid may not exceed 40% of the investment, 50% for SMEs, and 60% for microenterprises.
• Continued investment in the region for a minimum period of 5 years, except for SMEs, where it is 3 years.
• Maintenance of new jobs for 5 years, except for SMEs, where it is 3 years.
• New assets, except for SMEs.
• Job creation: Net increase in the number of workers directly employed in a particular establishment compared with the average of the previous 12 months.

Operating Aid

• Definition: Reduction of the normal costs of operation.
• Excluding the financial sector and intra-group.
• Conditions:
  • It is justified by its contribution to development and its level is proportional to the handicaps it seeks to alleviate.
  • Temporary and reduced over time, phased out as they reach real convergence with the wealthier areas of the EU, except in remote regions.
  • Transport: Only for additional costs.

Domestic Context for Renewal

• Investing in job creation
• ICN's investment in the subscription of shares issued by entities within the ZEC
• More detailed rules aimed at providing better legal certainty
• Ensuring investment destination in the Canary Islands Archipelago
• Strengthening mechanisms for monitoring the application
• Submission of an investment scheme
• Information in the notes to the annual accounts
• New specific penalty system