Special Tax Regime of the Canary Islands

The Canary Islands offer one of the most attractive tax regimes within the European Union, designed to encourage investment and business growth. Its Economic and Fiscal Regime (REF) provides significant tax incentives that allow companies to optimise their tax burden in a secure and stable environment, with the guarantee of European regulations and double taxation agreements.

Strategically located between Europe, Africa and America, the Canary Islands have an advanced infrastructure, international connectivity and a favourable business climate for entrepreneurs, SMEs and large corporations.

Among its various advantages, the following is highlighted:

Canary Islands Special Zone (ZEC)

The Canary Islands Special Zone (ZEC) is a low-tax regime that allows companies from various sectors to benefit from a reduced corporate tax rate of 4%, instead of the 25% generally applicable in Spain.

Main benefits of the ZEC

• Corporate income tax rate of 4%, applicable to the taxable income generated in the Canary Islands.
• Exemption of the Canary Islands General Indirect Tax (IGIC) in transactions between ZEC entities and on the import of goods.
• Exemption from withholding taxes on dividends, interest and capital gains distributed to non-resident entities, provided they are not in low-tax jurisdictions.
• Exemption in the Transfer Tax and Stamp Duty (ITP and AJD) for acquisitions of property used for business activity.

Main requirements to benefit from the ZEC

To access this regime, companies must comply with the following requirements:

• Be a newly created entity that carries out one of the authorised activities and be registered in the Official Register of ZEC Entities.
• Have its registered office and effective place of management in the Canary Islands.
• Have at least one director or, in the case of branches, a legal representative resident in the Canary Islands.
• Make a minimum investment in fixed assets related to the activity:
  • 100,000€ in Tenerife and Gran Canaria.
  • 50,000€ in other islands.
• Create and maintain employment:
  • 3 jobs in non-capital islands.
  • 5 jobs in Tenerife or Gran Canaria.
• Apply for prior authorisation from the ZEC Consortium, submitting a detailed business plan.

Reserve for Investments in the Canary Islands (RIC)

The Reserve for Investments in the Canary Islands (RIC) is a powerful tax incentive that allows the taxable base to be reduced by up to 90% of undistributed profits, provided that these are used for productive investments in the Canary Islands.

Objectives and benefits of the RIC

• Significant reduction of the tax burden, by deferring taxation on generated profits.
• Promotion of investment and business growth in strategic sectors.
• Support for job creation and innovation in the archipelago.

Eligible investments for the RIC

RIC funds must be reinvested within a maximum period of three years in:

• Acquisition or production of tangible fixed assets for business activities.
• R+D projects and innovative technologies.
• Job creation and human capital development.
• Environmental investments that promote sustainability.
• Shares in Canary Islands entities that meet certain requirements.
• From 2024, the renovation of subsidised housing is included as an eligible investment.

Maintenance of the investment

For an investment made with the RIC to be valid, it is compulsory to maintain the acquired assets or the investment made for a minimum period of 5 years (or during its useful life if this period is shorter).

Tax Deductions in the Canary Islands

In addition to the ZEC and the RIC, companies can benefit from various tax deductions for investment in the archipelago:

• Deduction for investment in new fixed assets, promoting business modernisation.
• Incentives for internationalisation, including advertising and publicity expenses in foreign markets.
• Deductions for the audiovisual industry, with a highly competitive tax framework for the production of film and series.
• Deductions for R+D, incentivising technological research and innovation.
• Bonuses for live shows, promoting culture and performing arts.
• Deduction for opening subsidiaries or branches in West Africa, facilitating international expansion from the Canary Islands.

Canary Islands General Indirect Tax (IGIC)

The General Indirect Tax (IGIC) is the indirect tax applied in the Canary Islands, equivalent to VAT but with lower tax rates adapted to the economic reality of the archipelago.

Characteristics of the IGIC

• Lower tax rates than VAT, which reduces the tax burden for businesses and consumers.

Why choose the Canary Islands for your investment?

• Unique tax environment in the EU, with highly competitive incentives.
• Legal certainty and stability, backed by European regulations.
• Strategic location, facilitating access to markets in Europe, Africa and America.
• Exceptional quality of life, combining tax advantages with an attractive environment for entrepreneurs and professionals.

At Forvis Mazars, we offer specialised advice to take advantage of the tax advantages of the Canary Islands and optimise your company’s taxation.

Contact us for a personalised consultation and find out how to maximise your investment in the Canary Islands.