Government announces the creation of new tax incentive for investment in Balearic Islands

Moncloa Palace, Madrid

This new tax incentive represents a qualitative leap forward with respect to the current Special Regime of the Balearic Islands (Spanish acronym: REB) as it includes a fiscal instrument that will encourage investment in the Balearic Islands and reduce the insularity costs of both companies and the self-employed, thereby driving job creation. A decisive step forward has been taken to address the issue of insularity in a specific and differentiated manner, in line with the government's constitutional mandate and drive to promote economic and employment reactivation.

Investment incentive

This is a tax incentive for investment in the islands aimed at taxpayers owning establishments in the Balearic Islands (whether they are subject to corporate income tax, non-resident income tax, or personal income tax by direct assessment) obtaining earnings from economic activities in the islands.

The incentive consists of the possibility of benefiting from a tax break as a result of a reduction in the taxable base (corporate tax and non-resident income tax) or a deduction in the tax rate (personal income tax) for appropriations to the investment reserve made in each tax period, up to a limit of 75% of undistributed earnings originating in the Balearic Islands.

Utilization of the reserve

The reserve may be utilized over a period of three years to make capital investments aimed at creating or expanding an establishment, diversifying its activity, or transforming its production process, at the creation of jobs related with such investment, and at environmental enhancement and protection in the Balearic Islands. Investments are allowed to be made ahead of capitalisation

Therefore the investment reserve in the Balearic Islands is not only framed as an incentive for investment but also as a means to create jobs and protect the environment.

Control and monitoring mechanisms for the new tax incentive will also be put in place to ensure that its application conforms to European Union law.