» This tax incentive is applicable by societies and other judicial entities subject to the Spanish Corporative Tax Act with a permanent establishment in the Canaries, as well as by natural persons who carry out economic activities and determine their net yield by direct estimation.

» For these societies, the RIC (Canary Island Investmets reserve) is established as a reduction on the taxable amount of  the Corporate Tax with a limit of the 90% in non distributed benefits. That is, in most cases the RIC highest limit is the 90% of the net benefit minus the distribution made to the legal reserve and earnings, which are the most common result distributions.

» In order to understand the potential of this tax incentive we choose to show different examples of Corporate Tax Liquidations where the results obtained with the highest possible RIC might be compared to the results obtained without it.

»In the following frame we show the results of Corporate Tax Liquidations to different levels of benefits before taxes are applied:

» To calculate these results, we have taken into account the following conditions: we have taken the legislation applicable on the year 2006 and we have not considered permanent differences, such as non-allowable expenses; temporary differences, such as accelerated appreciations, leasing operations, etc;  negative taxable portions of previous years which are to be balanced, earnings distribution, transfer to legal retained profits, deductions and installments.

»It is easy to appreciate important fiscal savings which can be reached by using the RIC possibilities to its outmost, decreasing the effective combined rate of tax from the 30%-35% to the 5% approximately. However, in order to reach these fiscal savings it is necessary to invest the amount included in the “Highest RIC” column (or a lower amount if we do not want to reach its outmost).

» With the purpose of obtaining important fiscal savings, the companies arrange an investment engagement of the amounts given in a series of direct or indirect assets. To obtain these assets, the contributor has a effective period up to five years (annual income, the reserve accounting endowment year and the following three years), undertaking to keep them working over a five year period, unless its foreseeable time of use is lower.

» This is the reason why this tax incentive is attractive to those companies which wish to expand and which develop or will develop, at least, part of their activities in the Canary Islands. This incentive is hardly known in the mainland, and we have collaboration agreements with advisors of other Spanish provinces to train customers regarding this incentive and the introduction of companies the Canaries.