The Canary Islands eCommerce Conundrum
Spain has two rates of sales tax: one for the mainland and the Balearic Islands and another lower rate for the Canary Islands. Although this can mean lower prices in stores for those living on the Islas Afortunadas (Fortunate Isles), in the era of eCommerce not everything is working out so well.
The basic problem is because the Canary Islands are considered outside the European Union as regards customs, meaning all imports and exports have to be accompanied by the corresponding customs forms and duties have to be paid.
What Sales Tax Rates Are Levied?
Sales tax on the mainland – known as IVA (Impuesto al Valor Agregado) – is normally levied at 21%, although lower rates exist for some items. On the Canary Islands the IGIC (Impuesto General Indirecto Canario) is applied with a normal rate of 7%, again with higher and lower rates applicable on certain items.
So, What’s The Problem?
Well, ever since the eCommerce boom many websites, including lots of big Spanish brands, won’t deliver to the Canary Islands. This is basically down to some, or all, of the following reasons:
- A need to have a duplicate website with different prices (for the different sales tax rates).
- Increased cost of delivery to the Canary Islands (for example, a small package sent from Madrid to Barcelona costs around 5€, but to the Canary Islands costs around 30€).
- Requirement for items delivered to the Canary Islands to go through customs, thereby removing the possibility to guarantee delivery in a certain number of days.
- Possibility that the receiver will have customs tax levied on their import, even if they have paid IVA already.
Of course, many companies do have duplicate websites, such as Ikea and major clothing retailers, so you should always choose the right one for your location.
In an ideal world goods could be sold for delivery to the Canary Islands without tax and then the receiver would be liable for declaring receipt of the goods and payment of the tax. However, this means lots of extra work for companies and so they prefer the option of losing potential sales (we suppose they’ve done the maths!)
Who Can Collect The Customs Tax?
The customs tax isn’t applied to all imports given the sheer volume of packages that arrive on a daily basis in the Canary Islands and the lack of staff to deal with the paperwork. This means that the customs tax levy becomes a type of “lottery” – those who’re unlucky have to pay.
Hence there are a number of agencies, including the Spanish Post Office Correos, which collect the customs tax on behalf of the Tax Office. Other courier companies normally apply an additional admin charge on top of the customs tax, making it even more expensive, so people normally prefer to use the Spanish Post Office service.
All Change In The Future…
New rules coming into force this year will mean changes to this system. Changes are necessary as eCommerce in the Canary Islands only amounts to 20% of purchases compared with 32% in the rest of Spain.
Starting in April 2014 all goods imported via Correos will be subject to an easier online system in order to declare and pay customs tax.
In the summer, in an attempt to improve eCommerce between the mainland and the Canary Islands, vendors on the mainland will be able to download and complete a simpler version of the customs form in order for the buyer to receive the items directly at home without requiring any further paperwork or additional costs.
Of course, this means an additional bureaucratic workload for companies – whether they’ll be willing to take on this task is yet to be seen.