Raúl Benítez is a social media manager in Murcia. In February 2026 he signed a contract worth 2,000 € a month with a hotel chain based in Las Palmas de Gran Canaria to run its accounts. On his first invoice he added 21 % VAT, as he would for any Spanish client, and the accounts department sent it back: "We are in the Canary Islands, there is no VAT here." Raúl reissued it without tax and, just in case, included it in Modelo 349, thinking it was similar to invoicing Portugal. A few months later, a private individual in Tenerife hired him for a one-to-one course costing 300 € on managing the Instagram account of his small family business, and he no longer knew what to do.
Three Spanish territories outside VAT
Article 3 of Law 37/1992, the Spanish VAT Law, defines the territory in which VAT applies. In Spain's case, it excludes from "the interior of the country" Ceuta and Melilla (as territories not included in the Customs Union) and the Canary Islands (as a territory excluded from the harmonisation of turnover taxes). For VAT purposes, all three are outside the territory where the tax applies, although they are Spain for every other purpose.
Instead there are taxes of their own: the IGIC (Canary Islands general indirect tax) in the Canary Islands and the IPSI (tax on production, services and imports) in Ceuta and Melilla. How those taxes affect your client, and whether it has to declare anything for the service you provide, is something it must review with its own adviser; what follows refers to your invoice from the mainland.
The company in Las Palmas de Gran Canaria: no VAT
For services between businesses, the general rule is the one in article 69.One.1 of the VAT Law: the service is located where the recipient has the seat of its business activity. The hotel chain has it in Las Palmas de Gran Canaria, outside the territory where VAT applies. The transaction is not subject to the tax. Raúl's first invoice, with 21 %, was wrong; the correction was the right move.
The invoice must state that the transaction is not subject to the tax, and in Modelo 303, the quarterly VAT return, it is reported in the box for transactions not subject to the tax under the place-of-supply rules.
Why it does not go into the 349
Modelo 349 covers intra-Community supplies of services, and article 79 of the Spanish VAT Regulations defines them as services subject to VAT and not exempt "in another member state". The Canary Islands are not another member state: they are Spain, only outside the scope of VAT. Invoices to a company in the Canary Islands, Ceuta or Melilla are not intra-Community transactions and do not go into the 349. Including them creates a mismatch with the European information, because there is no Canary Islands intra-Community VAT number with which to cross-check the transaction.
Raúl will have to correct the 349 returns he filed to remove those invoices, so that the return covers only transactions with businesses in other member states.
The income tax withholding, which does apply
This is the point most people forget. For the purposes of IRPF, Spanish personal income tax, the Canary Islands, Ceuta and Melilla are Spain. A company in Las Palmas de Gran Canaria that pays a professional must withhold tax from them just like any company in Madrid. Article 95.1 of the IRPF Regulations sets 15 % of gross income for professional activities, or 7 % in the year the activity begins and the two following years if no professional activity was carried on in the previous year.
If Raúl is registered under a professional activity heading, the correct invoice is:
- Base: 2,000 €.
- VAT: 0 €, transaction not subject to the tax.
- Income tax withheld: 2,000 × 15 % = 300 €.
- Total to be received: 1,700 €.
If the heading is a business one and not a professional one, there is no withholding; how to tell which you have been given is explained in what the IAE heading is and how it is chosen.
The private individual in Tenerife: here there is VAT
With a client who is not a business, the rule changes. Article 69.One.2 locates the service where the provider is established, and Raúl is in Murcia. Article 69.Two contains a list of services that are excluded when the private individual lives outside the Community, but the provision itself leaves private individuals with their home in the Canary Islands, Ceuta or Melilla outside that exception. The result is that the 300 € course for the private individual in Tenerife carries Spanish VAT:
- Base: 300 €.
- VAT: 300 × 21 % = 63 €.
- Total: 363 €, with no withholding, because the payer is a private individual.
| Client | Service | VAT | 349? | Income tax withholding |
|---|---|---|---|---|
| Company in the Canary Islands, Ceuta or Melilla | General | Not subject | No | Yes, if the activity is professional |
| Private individual in the Canary Islands, Ceuta or Melilla | General | Spanish VAT | No | No |
| Anyone | Connected with a property located in the Canary Islands, Ceuta or Melilla | Not subject | No | Depends on the payer |
| Company in another EU state | General | Not subject (reverse charge) | Yes | No, unless it has an establishment in Spain |
The third row answers to another rule: services connected with property are located where the property is (art. 70.One.1). A renovation of a flat in Lanzarote or the management of a tourist apartment in Melilla is not subject to mainland VAT, whoever the client is.
The most common mistake is treating the Canary Islands as if they were another country: no VAT, into the 349 and no withholding. Only the first is true, and only with business clients. If you have spent a year invoicing companies in the Canary Islands without withholding, the obligation to withhold lay with the payer. Article 99.5 of the IRPF Law allows the recipient to deduct the withholding that should have been made when it was not made for reasons attributable exclusively to the withholder; but if it was you who issued the invoice without withholding, it is debatable whether the cause was the payer's alone, and there is no guarantee that the deduction will be accepted. It is also worth checking whether your payments on account covered that income.
The 130 and the 70 % rule
If more than 70 % of your professional income in the previous year had tax withheld, article 109.2 of the IRPF Regulations exempts you from filing Modelo 130, the quarterly income tax payment on account. Clients in the Canary Islands who withhold count towards that percentage; those outside Spain do not. A self-employed person with clients spread across the Canary Islands, the mainland and abroad has to do the sum every year. The differences between the payment on account and the annual return are in what the difference is between the 130 and the annual return.
If you have issued invoices to the Canary Islands, Ceuta or Melilla with a treatment that no longer adds up, you can send them through the form for self-employed people with international clients. How to correct an invoice issued wrongly is in I have made a mistake on an invoice already issued, and the guide to where each service is taxed goes over the rest of the place-of-supply rules.
The rules for invoicing clients in territories with different indirect taxes, inside and outside Spain, are brought together on the Salama Tax page for self-employed people with international clients.