Two different taxes, not a reduced VAT
The Canary Islands fall outside the European Union's VAT territory. Instead, the Canary Islands General Indirect Tax (IGIC) applies — its own tax, administered by the Canary Tax Agency under the special tax regime (REF). It isn't a discounted VAT: it has its own rules, rates and forms.
IGIC's general rate is 7%, compared to 21% for mainland Spanish VAT, and there are zero, reduced and increased rates depending on the goods or service.
Which forms does a Canary self-employed worker file
The periodic self-assessment is filed using form 420, usually quarterly, and the annual summary using form 425. Taxpayers exempt due to turnover use form 421 in the cases provided for.
Form 420: periodic IGIC self-assessment.
Form 421: simplified regime in applicable cases.
Form 425: annual summary.
Invoicing the mainland or abroad
This is where most mistakes happen. Supplies of goods from the Canary Islands to mainland Spain are exports for VAT purposes and exempt from IGIC; supplies of services follow place-of-supply rules, which often shift taxation to the recipient. Charging IGIC when it doesn't apply, or failing to charge it when it does, leads to adjustments with surcharges.