The implementation of the tax part of the special tax regime for the Balearic Islands (REIB) will have an economic impact of 28 million euros per year in Menorca and will benefit 4,344 companies on the island and 35,943 workers, including employees and the self-employed.

This was announced by the Minister of Finance and External Relations, Rosario Sánchez, who, together with the Minister of Economic Model, Tourism and Labour, Iago Negueruela, and the President of the Consell Insular de Menorca, Susana Mora, met with mayors and representatives of the different economic sectors and trade unions, to publicise the tax benefits of the REIB and how they will affect the island.

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“The tax regime is the fourth REIB support, given that it is added to the compensations by the State achieved in 2019 in terms of energy, passenger and freight transport, and investments. The investments, which are channelled through the insularity factor, have been incorporated into the general state budgets this year for the first time and will mean, over five years, an investment of more than 600 million euros for the Balearic Islands,” explained Councillor Rosario Sánchez.

The tax regime for the Balearic Islands

Sánchez recalled that in 2019, initiatives began to be implemented to compensate for the effects of insularity in Menorca, with the declaration as a Public Service Obligation of air connections between islands and with Madrid, and, by sea, with the strategic lines between islands, as well as compensation for the extra cost of generation in electricity systems.

“And now a new tax system has been introduced that will boost island companies and entrepreneurs, with the aim of ensuring that the fact of being an island and the extra costs that arise from it will never be a brake on the productive fabric of our islands,” added the councillor.

The councillor was very pleased to have been able to present these figures to all those attending the meeting, as well as the positive impact this measure will have on Menorca’s economy.

“It was a purpose that was clear to all of us, and we have made it clear, with the achievement of this special tax regime, with which we help companies to invest, to be more leaders, to go beyond the insularity and its extra costs, creating more jobs than ever”.

Sánchez stressed that the REIB is a collective success: “we have achieved it together, as the cohesive society that we are. We have worked together for years, Administration, employers, trade unions and social agents”.

For his part, Minister Iago Negueruela explained the measures announced by President Francina Armegol during the debate to deal with the effects of the war in Ukraine and highlighted the line of aid planned for workers on the Islands. “The Government, together with the trade unions, has created a social protection shield to help workers on the islands who are unemployed in winter, with social aid that will complement unemployment benefits, with 300 euros for people who receive contributory unemployment benefit and 600 euros for people who receive a subsidy, and which will be paid in a single payment during the first three months of 2023,” he said.

Negueruela also praised the fiscal measures that will benefit companies on the Islands to help maintain employment during the winter months and will complement the social shield for workers.

Investment reserve and special regime for the primary sector
The measure will have an annual impact on the Balearic Islands’ economy of 349.1 million euros and will allow the creation of 3,191 full-time jobs, equivalent to 1% of the Balearic Islands’ GDP in 2019.

The special tax regime for the Balearic Islands will consist of two measures: the investment reserve and the special regime for industrial, agricultural, livestock and fishing companies.

In the case of the investment reserve, the aim is to encourage companies in the Balearic Islands to reinvest their profits in the archipelago and involves reducing the tax base for corporate tax, personal income tax deductions or reducing the income tax of non-residents. In addition, the self-employed who file personal income tax returns will be able to apply a deduction to their tax liability.

To obtain these tax benefits, the investment reserves must be used to create jobs, to acquire shares or holdings in Balearic companies, invest in R&D, improve and protect the environment, intellectual property or tangible assets (land, buildings, machinery, furniture, etc.).

Companies will be able to reduce their corporate tax base by up to 90 % of undistributed profits, while the personal income tax deduction will be a maximum of 80 % of the median rate for the self-employed entrepreneur for all activity deriving from establishments located in the Balearic Islands. The investment reserves will mean a saving for companies and the self-employed of 201.66 million euros per year, which the state and regional administrations will no longer receive.

In the case of the special regime for industrial, agricultural, livestock and fishing companies, corporate tax and non-resident income tax are reduced, and personal income tax deductions are approved for companies and the self-employed who sell goods produced in the Balearic Islands.

Thus, 25 % of the tax liability will be reduced for the creation of new jobs and 10 % for maintaining employment. By means of this measure and according to the Government’s calculations, industrial, agricultural, livestock and fishing companies in the Balearic Islands will save 5.99 million euros a year.