The Canary Islands Special Zone (ZEC)
The Canary Islands Special Zone (ZEC) is a low-taxation area established within the Canary Islands’ Economic and Fiscal Regime (REF) offering a 4% Corporate Tax, compared to the general rate of 25%, and other incentives to foster economic diversification and attract sustainable, innovative businesses in the archipelago’s productive structure. Recent changes, such as reduced investment requirements and extended trading benefits, enhance its appeal to sectors like ICT, audiovisual, and tourism, positioning the Canary Islands as a premier investment destination in Europe.
To qualify for ZEC benefits, entities must meet specific requirements:
- New Entity: Be a newly created entity or branch with domicile and effective management in the ZEC area.
- Local Administration: At least one administrator must reside in the Canary Islands.
Investment: A minimum investment in fixed assets related to the activity is required—€100,000 in Tenerife and Gran Canaria, or €50,000 in La Gomera, El Hierro, La Palma, Fuerteventura o Lanzarote —within the first two years of registration. - Job Creation: Create at least five jobs in the capital islands or three in the non-capital islands within six months of registration and maintain this average while registered with ZEC.
- Permitted Activities: The company’s business purpose must align with activities allowed under the ZEC framework and an application for authorisation prior to registration in the Official Register of Entities of the ZEC is required.
- There are recent modifications that have introduced greater flexibility:
- Reduced Investment Requirement: The minimum investment can now be substituted by creating additional jobs, providing more avenues to access this tax incentive.
- Trading Activities: The 4% tax rate now applies to profits from wholesale trading operations, even if goods do not physically pass through the Canary Islands (triangular operations), provided that the management of these activities is centralized in the archipelago, completing a commercial cycle with economic results.
These changes aim to attract new business projects, especially those that are knowledge-intensive, operate in priority sectors for Canary Islands’ development (such as audiovisual, video games, technology, and science), or are labor-intensive with higher employment creation than the minimum required.
In addition to the reduced Corporate Tax rate, ZEC entities enjoy other tax advantages:
Exemptions from the Non-Resident Income Tax: Dividends distributed to parent companies in other countries, interest, and capital gains from movable property obtained without a permanent establishment are exempt from withholding in Spain.
Exemptions from the Property Transfer and Stamp Duty Tax: Applicable to the acquisition of goods and rights for the development of the ZEC entity’s activity, corporate operations (except dissolution), and documented legal acts linked to operations within the ZEC area.
Exemptions from the Canary Islands General Indirect Tax (IGIC): Deliveries of goods and services between ZEC entities, as well as imports of goods by them, are exempt.
Regarding the activities that can be carried out under the ZEC (Zona Especial Canaria) framework, they are very diverse, encompassing both industry and the fields of services and wholesale trade. However, some sectoral clusters stand out, as their diversification potential represents important business niches for prospective investors, thereby contributing to the modernization of the productive and commercial framework of the Canary Islands. Accordingly, the following business opportunities compatible with the ZEC are proposed:
- Business services and outsourcing: Activities such as consultancy and business management, engineering, architecture, design, public relations, marketing, and communication, among others.
- Audiovisual sector: Feature films, short films, television series, animation and cartoons, IT consultancy, data processing, web hosting, and web portals, among others.
- Maritime sector: Repair, assembly, maintenance, transport and logistics, supplies, provisioning, catering, recreational boat construction, inspection, and control, among others.
- Transport, logistics, and distribution: Warehousing, storage, and handling of goods, call centers to receive orders and provide product information, postal activities, and more.
- Tourism: Tour operators, travel agencies, reservation services and excursion organization, theme parks, production of various tourism-related products for hotels and restaurants that expand beyond the predominant sun-and-beach offerings, maintenance and cleaning of hotel and leisure complexes, private security activities, and more.
- ICT (Information and Communication Technologies): Software and digital services, telecommunications services, network providers, GPS localization, technological platforms, and more.
These incentives are designed to position the Canary Islands as an ideal destination for investments in sustainable, creative, and innovative industries. Undoubtedly, this is one of the most powerful tax benefits in all of Europe. It allows the Canary Islands to attract all kinds of investors to establish businesses, with a particular emphasis on those that operate online. Additionally, it has the backing of the European Commission, which has extended the ZEC’s continuity period until 2032.