The Canary Islands Investment Deduction (DIC) is one of the standout incentives in our tax system: it rewards companies that invest in productive assets in the islands by letting them reduce their Corporate Tax liability. But, as often happens with the most powerful benefits, the detail matters. And right now there is one detail worth keeping firmly in mind before you file: how much of the deduction you can actually apply in a given year.
Two readings of the same limit
The friction point is the DIC generated by acquiring new fixed assets (AFN) — the new machinery, installations or equipment a company brings into its activity in the Canary Islands. The question is what percentage of the gross tax liability that deduction can absorb.
On one hand, the Corporate Tax Practical Manual 2025 published by the Spanish Tax Agency itself states that, where a year involves only deductions carried over from previous years, the DIC on new fixed assets can absorb up to 100% of the gross liability, as it is not subject to the joint limit set for other investment deductions. This position rests on Supreme Court case law (including the judgment of 29 January 2009).
On the other hand, in recent audit actions by the Tax Agency in the Canary Islands, a more restrictive interpretation is being argued: that the 70% limit should operate jointly, adding together deductions pending from earlier years and the one generated in the current year, so that together they could not reach 100%. The debate has been reignited by Supreme Court judgment 605/2024 of 10 April, which applies to the DIC on new fixed assets the rules of article 26 of the former Law 61/1978, opening up different readings on the scope of the limit.
What this means for your company
In practice, there is a difference of criteria between what the Tax Agency Manual says and what inspectors in the islands are defending. And that difference is not theoretical: if you prepare your return applying the more favourable interpretation (reaching 100% of the liability), you may later face an adjustment reducing the deduction to 70%, with the corresponding tax to pay and, where applicable, interest.
This does not mean automatically giving up the more advantageous option. It means making the decision with your eyes open: weighing how much deduction is at stake in your specific case, the real risk of an audit, and the legal grounds to defend your position if it ends up being challenged. It is exactly the kind of decision where it pays to document your reasoning well from the outset.
Conclusion
The DIC remains a highly valuable tool for investing in the Canary Islands, but this year demands more judgement than ever when setting the applicable limit. Before you close your Corporate Tax return, it is worth reviewing how you are applying the deduction and deciding with a clear view of the risk. At EBF Consulting we analyse your specific situation and help you choose — and sustain — the most appropriate position. If you have invested in new fixed assets this year, let’s talk before you file.