Canary Islands, Ceuta and Melilla: outside EU VAT

The Canary Islands, Ceuta and Melilla are part of Spain but sit outside the EU VAT area. Article 6 of the VAT Directive, Directive 2006/112/EC, excludes them. The Canary Islands remain inside the EU customs union and apply their own indirect tax, IGIC, with a general rate of 7%. Ceuta and Melilla sit outside both the customs territory and the VAT area, and apply IPSI in place of VAT.

For a seller with stock in Portugal, an order to Tenerife or Melilla is therefore a different transaction from an order to Madrid. The rules below explain why, and how Portugal’s own islands differ.

Are the Canary Islands, Ceuta and Melilla part of the EU VAT area?

No. Article 6 of the VAT Directive lists territories of member states to which the Directive does not apply.

• Article 6(1) covers territories that form part of the customs territory but fall outside the VAT area. The Canary Islands are on this list.
• Article 6(2) covers territories outside both. Ceuta and Melilla are on this list.

Sales to these territories are not sales within the EU VAT area. The EU VAT rules for cross-border sales between member states, and the One Stop Shop (OSS) that reports consumer sales within that area, do not reach them.

What is the difference between the Canary Islands and Ceuta and Melilla?

Customs. The European Commission describes the Canary Islands as part of the EU customs union but outside the EU VAT area. Ceuta and Melilla sit outside both.

The difference decides what a seller deals with. For the Canary Islands, the question is tax: an export for VAT purposes, then IGIC and possibly AIEM on arrival. For Ceuta and Melilla, the goods leave the EU customs territory as well as the VAT area, so the customs formalities for the route are confirmed with the customs broker before the first consignment.

What tax replaces VAT in the Canary Islands?

IGIC, the Impuesto General Indirecto Canario. Its general rate is 7%. A KPMG tax alert of January 2026, citing Decreto Legislativo 1/2025 of 13 October as the consolidated text for 2026, sets out the full list of rates.

• 0%, the zero rate.
• 1%, new for 2026, for petroleum products.
• 3% and 5%, the reduced rates.
• 7%, the general rate.
• 9.5%, the increased rate.
• 15% and 20%, the special rates.

A second levy sits beside IGIC. AIEM, the Arbitrio sobre Importaciones y Entregas de Mercancías en las Islas Canarias, is an import-protection levy applied on top of IGIC to specified categories of goods. The Canary Islands Tax Agency publishes the rates that apply to frequently imported goods. Whether AIEM applies depends on the goods, so it is checked per product.

What tax replaces VAT in Ceuta and Melilla?

IPSI, the Impuesto sobre la Producción, los Servicios y la Importación. It replaces VAT in both cities and taxes local production, services and imports.

Ceuta sets its IPSI rules in its own tax ordinance, the Ordenanza Fiscal Reguladora del IPSI, which is updated through the city’s official bulletin, the BOCCE. Rates differ by category of goods and services. A seller shipping to either city reads the current ordinance for the goods concerned, rather than assuming a single rate.

Is a shipment from Portugal to the Canary Islands an export?

For VAT purposes, yes. The European Commission explains that goods supplied from the EU VAT area to the Canary Islands are treated as an export, zero-rated as such, even though they stay inside the customs union. The movement requires an export declaration. On arrival, the importer on the islands faces IGIC and, for listed goods, AIEM at import, not EU VAT.

Two points follow for a seller with stock in Portugal. The export declaration is part of every Canaries flow. And someone has to act as importer in the Canary Islands and pay IGIC. Whether that is the buyer or the seller is set in the sales terms, the same choice discussed in DAP or DDP for shipments into the EU.

Are the Azores and Madeira also outside EU VAT?

No. Portugal’s autonomous regions stay inside the EU VAT area; the VAT Directive’s territorial exclusions do not list them. They keep lower regional VAT rates within the one Portuguese system, as published by AICEP Portugal Global.

Territory	Standard	Intermediate	Reduced
Mainland Portugal	23%	13%	6%
Azores	16%	9%	4%
Madeira	22%	12%	4%

The contrast matters. An order to Funchal or Ponta Delgada stays inside the EU VAT area. An order to Las Palmas is an export for VAT purposes.

A worked example

Suppose a maker of household goods from outside the EU releases its stock for free circulation on arrival in Portugal and sells online to consumers in several EU countries. In one week it receives orders from Madrid, Santa Cruz de Tenerife, Melilla and Funchal. The details are hypothetical, for the mechanics only.

The Madrid order is a cross-border consumer sale inside the EU VAT area, reported under the ordinary rules for such sales. The Funchal order also stays inside the EU VAT area. The Tenerife order is an export for VAT purposes: it leaves with an export declaration, and IGIC, plus AIEM if the goods are listed, is due on import in the Canary Islands. The Melilla order leaves both the EU customs territory and the VAT area, and IPSI applies there.

Four addresses, three different treatments. The checkout has to know which is which before the parcel is packed.

What does the seller check before the first sale to these territories?

1. Delivery addresses in the Canary Islands, Ceuta and Melilla identified at checkout and kept out of the intra-EU VAT flow.
2. An export declaration for every shipment to the Canary Islands.
3. Who acts as importer on arrival, and who pays IGIC and any AIEM.
4. The IGIC rate for the goods under Decreto Legislativo 1/2025, and whether AIEM applies.
5. For Ceuta and Melilla, the current IPSI ordinance and the customs formalities for the route.
6. Orders to the Azores and Madeira treated as sales inside the EU VAT area.

Before the first order to the Canaries, Ceuta or Melilla ships, the seller’s tax adviser and customs broker confirm how it is treated. Read this post as background, not as tax or legal advice.

How this runs at EFC

EFC’s base in Portugal, run with its logistics partner, holds stock inside the EU and ships it to customers across Europe, after release for free circulation. For consumer sales inside the EU VAT area, EFC handles OSS reporting and fiscal representation. Orders to the Canary Islands, Ceuta or Melilla leave that area, so how they are declared and who imports them on arrival are agreed with the client before the first shipment. EFC gives no legal or tax advice.

Sources

Label	Value	Source
VAT territory	Directive 2006/112/EC, Article 6(1): Canary Islands excluded; Article 6(2): Ceuta and Melilla excluded, outside the customs territory too	Directive 2006/112/EC, Article 6, EU text on EUR-Lex, opened 2026-08-26
Canary Islands status	inside the EU customs union, outside the EU VAT area; supplies from the EU VAT area treated as exports; export declaration; IGIC and AIEM at import	European Commission, turnover taxes in the Canary Islands, opened 2026-08-26
IGIC rates	general 7%; 0%, 1% (petroleum products, new for 2026), 3%, 5%, 9.5%, 15%, 20%; Decreto Legislativo 1/2025 of 13 October	KPMG Tax Alert, IGIC rate changes 2026, opened 2026-08-26
AIEM	separate import levy on specified goods, applied on top of IGIC	Gobierno de Canarias, Canary Islands Tax Agency, rates on frequent imports, opened 2026-08-26
IPSI	replaces VAT in Ceuta and Melilla; taxes production, services and imports; Ceuta ordinance updated through the BOCCE	Ciudad de Ceuta, Ordenanza Fiscal Reguladora del IPSI, opened 2026-08-26
Portuguese VAT rates	mainland 23%, 13%, 6%; Azores 16%, 9%, 4%; Madeira 22%, 12%, 4%	AICEP Portugal Global, value added tax, opened 2026-08-26