Selling online to the Canary Islands, Ceuta and Melilla: VAT, IGIC, IPSI and how to set it up

A customer in Las Palmas buys from your store and you charge them 21% VAT, like everyone else. A few days later the transport company calls them: they have to pay the IGIC and some clearance fees to receive the parcel. They have paid tax twice and write to you angry. They are right.

Why VAT is not charged

Article 3 of the Spanish VAT Law 37/1992 excludes the Canary Islands, Ceuta and Melilla from the territory where the tax applies. For VAT purposes, sending goods there from the mainland or the Balearic Islands is an export, and exports are exempt (article 21 of the same law).

That does not mean there are no taxes. Each territory has its own:

• Canary Islands: the IGIC (Canary Islands General Indirect Tax), regulated by Law 20/1991. Its standard rate is 7%, with reduced and increased rates for certain goods.
• Ceuta and Melilla: the IPSI (Tax on Production, Services and Imports), with rates set by each city.

In addition, the Canary Islands have the AIEM (a levy on imports and supplies of goods) for certain products.

What happens to the parcel

As it is an export, the goods have to go through customs:

• On departure, an export DUA (Single Administrative Document) justifies the VAT exemption. Without it, the Spanish Tax Agency may consider that the sale was not exempt.
• On arrival, the import is settled: the corresponding IGIC or IPSI and, if any, the clearance fees.

In practice, carriers and postal operators serving the Canary Islands usually offer clearance as part of the shipment, with charges you should know about and explain to the customer before the purchase. Ask your carrier exactly what their service includes and who pays what.

How you explain it to the customer

Customers in these territories are usually used to it, but the store has to say it clearly:

• That the price is shown to them without VAT.
• That at destination they will pay the local tax and, where applicable, the clearance fees.
• Who handles that clearance and how much it costs, if you know.
• Whether there are products you do not ship there.

An alternative used by some high-volume stores is to register for IGIC and sell with destination taxes included (“delivered duty paid”). It is more convenient for the customer but carries its own obligations in the Canary Islands; it is not a store setting, it is a tax decision made with your adviser.

What about services and digital products?

The place-of-supply rules for services are different from those for goods, and the same logic does not always apply. If you sell services, subscriptions or downloads to customers in the Canary Islands, Ceuta or Melilla, check with your adviser how your specific case is taxed before configuring anything.

How to configure taxes in PrestaShop

In PrestaShop taxes are applied through tax rules per country and, within a country, per state/province or by postcode range. For Spain:

1. Enable the provinces in International > Locations > States, so that customers choose theirs in the address.
2. In each tax rule you use (standard, reduced, super-reduced), add a line for Spain, provinces of Las Palmas and Santa Cruz de Tenerife, with a 0% tax. It can also be done by postcode: those in Las Palmas start with 35 and those in Santa Cruz de Tenerife with 38.
3. Do the same for Ceuta (51) and Melilla (52).
4. Use a 0% tax with a clear name, such as “Exempt (territory without VAT)”, so it is understood on the invoice.
5. Check shipping: carriers also have a tax rule, and shipping to those destinations must be charged without VAT.

In one store we reviewed, the tax rules came from an import and the two Canary Island provinces were being charged another European country's VAT rate, while Spanish VAT was disabled. Nobody had noticed until a Canary Islands customer complained. It is worth going through rule by rule, not just the main one.

Common mistakes

1. Charging VAT to the Canary Islands, Ceuta or Melilla.
2. Setting 0% only in the standard rule and forgetting the reduced ones and the shipping rule.
3. Configuring 0% without then keeping the proof of export.
4. Not warning the customer that they will pay taxes and clearance at destination.
5. Applying 0% based on the billing country instead of the delivery address.

Checklist

• Provinces enabled for Spain.
• 0% for Las Palmas, Santa Cruz de Tenerife, Ceuta and Melilla in all rules, shipping included.
• A test order with an address in each territory, checking the cart and invoice.
• Information text in the store about taxes and clearance at destination.
• A procedure agreed with the carrier for the DUA and filing of the proof.

Frequently asked questions

What if the customer lives in the Canary Islands but asks for delivery to Madrid? For goods, what counts is where they are sent. If the parcel goes to Madrid, it carries VAT, wherever the customer lives.

Are sales to Canary Islands businesses different? They are still VAT-exempt exports. The Canary Islands business will settle the import IGIC according to its rules. You should issue a full invoice with its details.

Are the Balearic Islands also exempt? No. The Balearic Islands are part of the territory where VAT applies, just like the mainland. Only the Canary Islands, Ceuta and Melilla are excluded.

Can I choose not to ship to these territories? You can, but say so before the purchase, in the shipping information and in the checkout itself, so that the customer does not reach the last step and discover they cannot receive the order.

How to handle it in PrestaShop

PrestaShop's tax rules are enough to stop charging VAT to these destinations; what usually fails is that some rule is left without the exception. To make sure the invoice comes out with the customer's correct details, RKR Datos de Facturación collects and validates the NIF, NIE or CIF at checkout according to the customer type, and the other modules shown under this article help with the PDF invoice.

This article is for information only and does not replace tax advice. For a specific case, consult your adviser.