In addition to rising transaction prices and record-high official appraised values for the private housing market in the Canary Islands, there is a unique and highly favorable tax environment.
The Economic and Tax Regime (REF) of the Canary Islands offers real estate owners—both residents and international investors—a number of substantial competitive advantages over mainland Spain and the rest of Europe.
As a leading real estate investment and wealth management firm in the archipelago, Destiny Home breaks down the main official tax deductions, exemptions, and benefits you may be eligible for if you own a property on the island.
1. Taxation of Rental Income: Deductions on Personal Income Tax Returns
If you are looking to generate returns through the rental market, the tax laws of the Tax Agency allow you to significantly reduce the taxable base of your rental income. According to the Tax Agency, all expenses that the owner must incur for the proper operation and maintenance of the property are deductible.
In lease agreements for a primary residence, or in income from real estate investments derived from seasonal rentals (reduced in proportion to the number of days of actual occupancy), you may deduct 100% of the following items:
- Repair and maintenance expenses: Includes repainting, maintenance of facilities, and replacement of defective components (excluding improvement or expansion projects).
- Financing costs: Interest on mortgage loans taken out for the purchase or renovation of a property is fully deductible.
- Depreciation of the asset: For tax purposes, a deduction of 3% per year of the property’s construction cost or its assessed value (whichever is greater) is allowed as technical depreciation.
- Professional and comprehensive management services: The fees and charges charged by specialized companies for the administration and management of rental properties are 100% tax-deductible.
IGIC Benefits and Exemption from Tourist Taxes
The consumption and provision of services in the archipelago are regulated by the Canary Islands General Indirect Tax (IGIC), which serves as a substitute for the mainland VAT.
While on the Iberian Peninsula, hotel operations and certain real estate services are subject to a VAT rate of 10% or 21%, in Fuerteventura the general IGIC tax rate stands at a competitive 7%.
In addition, for property owners who decide to optimize their investment through vacation rentals, the Autonomous Community of the Canary Islands offers a key strategic advantage over regions such as Catalonia or the Balearic Islands: the complete absence of a specific tourist tax on vacation rentals. This allows for substantially higher net profit margins per average night of occupancy.
Municipal Property Tax (IBI) Rebates
The IBI is an annually assessed local tax. However, municipalities on Fuerteventura (especially those with a high level of development and awareness, such as La Oliva and Antigua) offer tax breaks linked to sustainability and the energy transition.
Homeowners who undertake projects to install systems for the thermal or electrical use of solar energy (photovoltaic panels) in their homes may be eligible for rebates of up to 50% on the total property tax (IBI) in the years following the investment, depending on the specific municipal ordinance.
Tax Mitigation in Estate Transfers: Capital Gains and Income Tax
When a homeowner decides to close out their position and begin the process of selling a home in Fuerteventura, the law provides for official mechanisms to exempt or reduce capital gains tax under the personal income tax system:
- Exemption for reinvestment in a primary residence: If the owner sells his or her primary residence on the island, the proceeds are fully exempt from taxation if the entire amount is reinvested in the purchase of a new primary residence within a maximum period of two years.
- Exemption for Individuals Over 65: Individuals over the age of 65 who transfer their primary residence are fully exempt from capital gains tax on the resulting gain, without having to reinvest the proceeds.
Expert Wealth Management with Destiny Home
Tax optimization for real estate assets requires in-depth technical knowledge of industry and local regulations. At Destiny Home, we do not operate as a traditional real estate agency focused on client acquisition; rather, we act as trusted consultants dedicated to preserving your wealth.
Our multidisciplinary and international team offers comprehensive 360° advisory services that coordinate legal services, tax planning, and post-purchase management to ensure that your property in Fuerteventura reaches its full legal and financial potential.
If you would like to conduct a profitability audit of your property or determine the correct market price for a future sale, please contact our wealth management advisors.
Destiny Home ensures your peace of mind and success in the island market.
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