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The gross domestic product (GDP) of the Canary Islands economy amounted to around 42.4 billion euros in 2007. Around 71% of this was generated in the service sector (including tourism), followed by construction (4.7 billion), industry and trade (1.7 billion), energy (1.1 billion) and agriculture, livestock and fisheries (0.5 billion). In comparison with GDP per capita in the EU, expressed in purchasing power standards, the Canary Islands have an index of 74 (EU-28:100, as of 2015).
Overall, the Canary Islands GDP grew by 7.17 % from 2006 to 2007. On the islands there are branches of the main Spanish banks and some foreign banks. Persons, including EU nationals, registered in the Canary Islands as having their primary residence are entitled to benefits such as discounts on inter-island flights and ferries and on flights to mainland Spain and the Balearic Islands.
Before the advent of mass tourism in the 1960s, the Canaries lived mainly from agriculture, livestock farming and fishing. This industry now plays a comparatively small role in terms of GDP.
Bananas account for the bulk of agricultural production; tomatoes, cucumbers, cut flowers, potatoes and wine are also important products, Other tropical fruits such as clementines, lemons, papaya and mango are also grown. The total agricultural area in 2006 was 51,867 hectares.
By far the most important economic sector is tourism. The main tourist centres are in Tenerife, Gran Canaria, Fuerteventura and Lanzarote. In 2007, around 14.2 billion euros, i.e. 31.09% of GDP, were turned over in the tourism sector (2006: 13.5 billion). The number of guests fell by 6.6% from 2006 to 2007 to around 9.33 million.80] The vast majority of tourists come from Great Britain, followed by Germany, the Netherlands and Ireland, of which 3,410,165 travelled to Tenerife, 2,713,728 to Gran Canaria, 1,471,979 to Fuerteventura and 1,618,335 to Lanzarote.
In 2012, the number of visitors from mainland Spain fell by around 2.1% due to the economic crisis. However, the total number of 10,101,493 tourists was only 0.4 % lower. This situation eased again in 2014. However, the Canary Islands are still visited by 0.7% fewer mainland Spaniards than before the crisis. The trend among cruise liners is much more positive: Tenerife alone recorded another record in 2014 with 301 ships and 545,000 cruise liners. A total of 11.4 million foreign visitors visited the Canary Islands in 2014. This corresponds to an increase of 8% compared to the previous year.
Industry, Construction and Energy
Industry focuses mainly on energy and water, but also on food, tobacco and other light industries. Overall, industrial production fell by 0.3 % in 2007 (2006: -1.48 %). Construction is the second largest sector after services, accounting for 11.2 % of GDP. The number of building permits fell from 5,053 in 2006 to 4,012 in 2007.
The Canary Islands’ main trading partner is the European Union, and Spain in particular. The foreign trade deficit of the Canary Islands in 2007 amounted to around 14 billion euros; the largest part of this, around 10 billion, is due to imports from Spain.
Labour market and employment
The unemployment rate was 33.36% in October 2014, tripling since 2007, but down four per cent on the previous year. At the end of 2013, the number of people in employment had risen by 3.81% and 10,862 compared to the previous year, reducing the unemployment rate for the first time since 1997. By 2017, the unemployment rate had fallen to 23.5%. By 2017, the unemployment rate had risen to 23.5%. By 2017, the unemployment rate had risen to 23.1%. By 2017, the unemployment rate had fallen to 23.5%. By 2017, the unemployment rate had risen to 23.5%.
Youth unemployment in the Canary Islands is the highest in Europe. In 2013, it was around 70 percent among 16 to 24-year-olds. Due to the lack of prospects, around 44,000 young people were no longer registered at the employment offices of the two provinces. Many are trying to gain a foothold abroad, mainly in Germany and South America.
According to the National Statistics Institute (INE), the gross monthly salary of an employee in the Canary Islands averaged 1300 euros in 2006, the second lowest in Spain. In addition, a Canarian employee has the third longest working time in the country with an average of 146.1 hours per month. In 2005, the autonomous region of the Canary Islands had the second highest increase in Spain’s unemployment rate.
Special tax arrangements
The ZEC (Zona Especial Canaria) was initially approved by the European Union until 31 December 2008 and was extended by the EU until 2019 in January 2007. This organisation, founded by the Spanish Central and Regional Governments and affiliated to the Spanish Ministry of Economy, has the task of promoting and expanding the economic and social development of the archipelago, so that it is not only dependent on the predominant economic sectors of tourism and construction. This is why there are so-called ZEC companies that commit themselves to certain investments and job creation, and can therefore benefit, for example, from a reduced rate of Spanish corporation tax of only 4% (normally 30% in Spain). On the islands of Gran Canaria and Tenerife, a minimum investment of 100,000 euros and the creation of five jobs is a prerequisite; on the other islands with a smaller economy, it is 50,000 euros and three new hires. One of the main tasks of the ZEC is to attract foreign capital to the Canary Islands. More than 78% of the investments in the low tax zone come from abroad, of which more than 13% from Germany, making it the largest investor after Spain among the approved ZEC companies.
The law of 22 July 1972 on the economic and fiscal arrangements of the Canary Islands introduced a different type of VAT from that of the mainland. This different type of tax was maintained after Spain’s accession to the EU. Following the amendment in 2019, there are seven different tax rates:
- Tipo cero = 0% This rate applies, inter alia, to all types of bread and unprocessed foodstuffs (fruit, vegetables, meat, fish, milk and cheese, eggs), cooking oil, pasta, electricity, water supply, medicines for human consumption, books, newspapers, magazines.
- Tipo de gravamen reducido del 2,75 por ciento = 2,75 % This rate applies to renovation work on certain houses.
- Tipo de gravamen reducido del 3 por ciento =3% This rate applies, inter alia, to the manufacture, transport and distribution of electrical energy and gas, textiles and footwear, paper and paper products, veterinary medicines.
- Tipo general del 6,5 por ciento = 6,5 % This rate applies to all revenue not covered by separate provisions of the Act. It is the standard tax rate.
- Tipo incrementado del 9,5 por ciento = 9,5 % This rate applies, inter alia, to work on loading ships and aircraft.
- Tipo de gravamen incrementado del 13,5 por ciento = 13,5 % This rate applies, inter alia, to cigars costing more than € 1,80 each and to various alcoholic beverages, rifles and hunting ammunition, pearls and precious stones.
- Tipo de gravamen incrementado del 20 por ciento = 20 % This rate applies to tobacco products other than cigars.
Small enterprises with a turnover of less than € 30,000 per year are exempt from tax. In addition, other tax rates apply in the Canary Islands, including mineral oil tax, tobacco tax and spirits tax. Inheritance tax is regulated differently in all autonomous communities.