Firstly - What is IGIC Tax?
On the canary islands we don’t not have VAT but have a specific tax called IGIC which is similar in many ways. The good thing about it is that it is taxed at a much lower rate than in most countries. As of 2023 the tax rate of IGIC for most goods and services is 7%.
What is REPEP?
- What does REPEP stand for = Régimen Especial del Pequeño Empresario o Profesional
- This means a special regime for small businessmen or professionals
- So certain self-employed workers do not have to pay IGIC tax
What criteria needs to be fullfilled to be included in REPEP?
What is the criteria to be included in this regime?
- You must be a resident of the Canary island
- The total volume of sales must not exceed 30000 in one year
- You must submit a modelo or form 400 to be included in the regime
- You must include in your invoices “Operation exempt from IGIC due to tax exemption”
If you are a self-employed worker starting out or have a yearly sales volume of less than 30000 euros then you can apply for a Regime Called REPEP and will not have to bill your clients with IGIC saving you 7% of every payment you receive.
This tax regime is not applied to companies so if you have a limited company (an SL company) in the canary islands this will not apply to you. This only applies to self employed workers.
An example of someone included in REPEP
Let’s say your name is TIM and have just moved to the Canary Islands and you want to start your own business as a self-employed worker offering graphic design services.
Our team helps you get all the necessary documents in order and you’re ready to start work.
Before you begin your activity we tell you we are going to submit form 400 to exclude you from paying IGIC as this is your first ever year in business.
You work the whole year and do well with a sales volume of 25000 euros.
Now if you were not aware of the REPEP you would have needlessly paid 7% of 25000 euros = 1750, just like I did because I didn’t have the right advice
But thankfully you were included in REPEP and don’t pay the IGIC tax. And because you did not exceed 30000 euros you are again included in REPEP next year.
The next year you have a slightly better year. And after the third trimester your accountant realises you have done 24000 euros in sales. And because you have a great accountant he gives you a call.
“Tim, I see from your accounts that from January to September. you have done 24000 euros in sales volume, that’s great”
“Just to let you know that if you invoice more than 6000 euros in the last trimester you will not be included in REPEP next year and will have to pay the 7% IGIC tax. Because your total volume of sales will exceed 30000.”
Tim must then think hard. Because if he invoices over 30000 he will not be included in REPEP next year even if NEXT year he makes way less than 30000.
Not only that but he will not be allowed back into the regime for 3 years after exceeding the 30000 euro mark.
So maybe Tim wants to try to hold out on issuing some of his invoices until the start of next year and try his best to keep his sales volume under 30000 in this example.
This is what Tim does and the following year he is still included in REPEP
The next year Tim has a crazy year and makes 150000 euros in sales. Because he did not go over the 30000 euros in the previous year he still does not pay the 7% IGIC tax. So now he’s saved 10,500 euros in IGIC tax. Well done Tim!
Of course next year he is no longer included in REPEP as his volume of sales was way over 30000.