Canary Islands Special Zone (ZEC): Tax Benefits

Posted on Mar 25, 2025 in Law

Canary Islands Special Zone (ZEC): A Low Tax Regime

The Canary Islands Special Zone (ZEC) offers a reduced taxation framework. It was created within the Canary Islands’ Economic and Fiscal Regime (REF) to promote economic and social development and diversify the archipelago’s productive structure. Approved by the European Commission in January 2000, the ZEC provides significant tax advantages.

Where to Establish a ZEC Entity

ZEC entities can be established throughout the Canary Islands, with some specific considerations:

  • Companies focused on service activities can be located in any part of the Canary Islands.
  • Companies involved in the production, processing, manipulation, and marketing of goods are limited to specific areas designated for such activities.

These designated areas are located near ports and airports across the islands, with the following allocations:

  • Gran Canaria: 150 hectares, divided into 5 zones.
  • Tenerife: 150 hectares, divided into 5 zones.
  • La Palma: 50 hectares, divided into 2 areas.
  • El Hierro, La Gomera, and Lanzarote: 25 hectares each, with a single approved zone per island.

Who Can Establish a ZEC Entity?

Any entity intending to develop industrial, commercial, or service activities can establish itself within the ZEC, excluding financial and insurance activities.

Key Requirements for ZEC Entities

  • Be a newly created company with an address and place of effective management in the Canary Islands.
  • At least one of the directors must reside in the Canary Islands.
  • Make a minimum investment in fixed assets related to the activity:
    • €100,000 in Gran Canaria and Tenerife.
    • €50,000 in the other islands.
    This investment must be made within the first two years from the time of authorization.
  • Create at least:
    • 5 jobs within 6 months of authorization in Gran Canaria and Tenerife.
    • 3 jobs in the other islands.
    Maintain this employment level throughout the duration of ZEC status.
  • Submit a specification of the economic activities to be developed, demonstrating:
    • The project’s economic viability.
    • Its international projection.
    • Its solvency.
    • Its contribution to the economic and social development of the Canary Islands.
  • Establish as its corporate objective the realization, within the ZEC, of one of the permitted activities, including the production, processing, handling, and wholesale distribution of goods (excluding insurance companies and financial institutions).

Tax Benefits

  1. Corporate Income Tax:
    • ZEC entities are subject to a significantly reduced corporate income tax rate of 4%.
    • This rate applies up to a maximum taxable income base, depending on the number of jobs created and the type of activity (industrial, etc.).
  2. IGIC (Canary Islands General Indirect Tax):
    • IGIC replaces VAT in the Canary Islands, with a standard rate of 5%.
    • ZEC entities are exempt from IGIC on supplies of goods and services between ZEC entities, as well as on imports of goods.

The ZEC Consortium

The ZEC Consortium is a public agency with its own legal personality and assets, under the Ministry of Finance and co-participated by the central government and the Canary Islands Autonomous Community. Its functions include:

  • Monitoring and advising ZEC entities.
  • Promoting and facilitating services necessary for the proper functioning of the ZEC.
  • Managing the official register of ZEC entities; its governing board authorizes installations.

Reserve for Investments in the Canary Islands (RIC)

  1. Enables a reduction of up to 90% of the taxable base for retained earnings in the Canary Islands.
  2. Must be applied to investments in new or used fixed assets involving technological and/or environmental improvements, investments in public debt for infrastructure and environmental improvement, or the purchase of shares in other companies investing in the Canary Islands.
  3. Applicable to both corporations and individuals.
  4. Must be shown separately in the company’s balance sheets.