Tax benefits in the Canary Islands

The validity of the Canary Islands Special Zone will end on December 31, 2026, and may be extended with prior authorization from the European Commission. However, the deadline for authorisation to register in the Official Registry of Entities of the Canary Islands Special Zone will be 31 December 2020.

The geographical scope of the Canary Islands Special Zone will extend to the entire territory of the Canary Islands.

Legal entities and newly created branches that meet the legal requirements and are registered in the Official Registry of Entities of the Canary Islands Special Zone may benefit from the Canary Islands Special Zone regime.

Only legal entities and branches that meet the following requirements will be eligible for registration:

1. That they have their registered office and effective management headquarters within the geographic area of the ZEC.

2. That at least one administrator or, in the case of branches, a legal representative resides in the Canary Islands.

3. Its corporate purpose is to carry out economic activities included in the annex of Law 19/1994 within the geographic area of the ZEC. Likewise, through a separate branch, they may carry out other activities to which the benefits of the ZEC will not apply, in which case they must keep separate accounts.

4. Make investments in the first two years from registration, which materialize in the acquisition of tangible or intangible fixed assets, located or received in the geographic area of the ZEC, used in it, affected by and necessary for the development of the economic activities carried out by the taxpayer in said geographic area, fulfilling the conditions and for the minimum amount indicated in article 31 of Law 19/1994.

5. The creation of jobs in the geographical area of the ZEC within six months of its registration and the maintenance of at least that number of the average annual workforce during the period of enjoyment of this regime, with a legally established minimum.

6. Submit a descriptive report of the main economic activities to be carried out, which guarantees its solvency, viability, international competitiveness and its contribution to the economic and social development of the Canary Islands, the content of which will be binding on the entity, unless these activities are varied with the express authorization of the Governing Council.

The registration of an entity in the Official Registry of Entities of the ZEC is subject to prior authorization from the ZEC Consortium.

For these purposes, an application must be submitted, accompanied by a descriptive report of the main economic activities referred to in Article 31.2.f) of Law 19/1994. Along with this application, a deposit or guarantee must be provided in the amount of the registration fee regulated in article 50.

In view of the documentation provided, the Governing Council will proceed with the authorization, subject to a favorable report from the Technical Commission.

Authorization by the Governing Council must be granted expressly within a period of 2 months from the date of receipt of the application by the ZEC Consortium. After this period has elapsed without an express resolution, the request for authorization will be deemed to have been rejected.

Once the authorization has been obtained, the applicant must provide the Official Registry of Entities of the ZEC with the documents proving the constitution of the entity in accordance with the Law.

Registration must be completed within 10 days from the date on which the documents referred to in the preceding paragraph are submitted.

ZEC entities will pay corporate tax with the following specialties:

1. They will apply the special tax rate of 4% to that part of the tax base that corresponds to the operations that they materially and effectively carry out within the geographic area of the ZEC.

2. ZEC entities will keep their accounting in accordance with the provisions of the Commercial Code and other accounting regulations applicable to them, without prejudice to the following specialties:

   • They must individualize in separate accounts the operations that must appear, with a positive and negative sign, in the numerator of the fraction by which the percentage to be applied to the tax base is calculated to determine the portion that will be taxed at the special rate.

   • Branches to which the benefits of the ZEC do not apply must keep separate accounting from the accounting of the ZEC entity.

   • The report must include a breakdown of the part of the profit and loss account, as well as all those accounts that reflect the application of profit, which comes from operations carried out effectively and materially within the geographical area of the ZEC.

3. Taxpayers who carry out trade operations in goods referred to in letter a) of section 1 of article 44 of Law 19/1994 must sign a quarterly information declaration of operations with goods carried out outside the Canary Islands Special Zone, which will state the origin and destination of the goods, the type of goods, quantity and other required information, in accordance with the Union customs code and other applicable regulations. They must also keep a record of the corresponding customs documentation.

The special tax rate applicable to that part of the tax base that corresponds to operations that are materially and effectively carried out within the geographical area of the ZEC will be 4%.

In the numerator , with positive sign , the amount of the following operations:

• Transfers of tangible personal property carried out within the geographical area of the ZEC.

• Transfers of real estate assets that form part of the fixed assets used for the activity, including property rights thereon, when the assets are located within the geographical area of the ZEC.

• The provision of services carried out with the entity's resources located within the scope of the ZEC.

• Operations carried out from the entity's activity centres located within the geographic area of the ZEC destined for its branches located outside said geographic area, when they have been used by the branch for the delivery of goods or the provision of services to third parties.

• The transfer of rights to use or exploit computer applications, industrial property rights that are not merely distinctive signs of the taxpayer or its products, and intellectual property rights, as well as their transfer to non-related entities, created by the entity in the geographical area of the Canary Islands Special Zone, in the proportion that they are located in the geographical area of the Canary Islands Special Zone.

• Operations carried out from the activity centres of the entity of the Canary Islands Special Zone located within the geographical area of the Canary Islands Special Zone destined for its branches located outside said geographical area, when they have been used by the branch for the delivery of goods or the provision of services to third parties.

In the numerator , with negative sign , the amount of the following operations:

• Operations received by the entity's activity centres located within the geographic area of the ZEC from its branches located outside said geographic area, provided that they have been used by the ZEC entity for the delivery of goods or the provision of services to third parties.

• Transfers of assets acquired by the ZEC entity from entities that do not have the status of ZEC entity as a result of operations covered by the special regime provided for in Chapter VII of Title VII of Law 27/2014.

In the denominator , the amount of all income and other positive components of the tax base of the ZEC entity.

The percentage resulting from the previous fraction is rounded to the next higher unit.