Special tax system in the Balearic Islands

This document summarizes some of the most noteworthy aspects of the regulatory development regarding the special tax system in the Balearic Islands, enacted under Act 31/2022, of December 23, of the General State Budget for 2023, which offers two tax incentives:

• A reserve for investments in the Balearic Islands, allowing the taxable base for corporate income tax to be reduced by up to 90% of profits made in the Balearic Islands, as long as they are allocated to certain investments.
• A reduction applicable to the part of the total tax liability corresponding to income resulting from the sale of tangible assets produced in the Balearic Islands, inherent to industrial, agricultural, livestock and fishing activities, if certain requirements are met.

The much awaited regulatory development provides solutions to several issues that raised certain doubts.

 The new tax regulation is applicable to tax periods starting on or after January 1, 2023.