Canary Islands taxation for entrepreneurs: 13 frequently asked questions

What tax advantages are there for entrepreneurs in the Canary Islands?

The Canary Islands offer an exceptional tax framework within the Spanish territory, with specific incentives for those who develop economic activity in the archipelago. The main advantages include:

• The special 4% Corporate Income Tax rate applies only to the share of the tax base from operations materially and effectively carried out in the Canary Islands by ZEC entities that meet all requirements.
• A lower indirect tax (IGIC) instead of the peninsular VAT.
• Deductions for investment, hiring and innovation.
• The possibility of setting aside undistributed profits through the Reserve for Investments in the Canary Islands (RIC), reducing the tax burden.

These benefits require meeting specific criteria. At Advixy we evaluate your case so that you can take advantage of them safely and effectively.

What is the Canary Islands Special Zone (ZEC) and who can access it?

The ZEC is a special tax regime authorised by the European Union. Newly created legal entities and branches registered in the ZEC Register may apply the special 4% rate to the share of the tax base linked to operations materially and effectively carried out in the Canary Islands, subject to eligible activity, investment, employment and ongoing substance.

If you have a company with national or international projection, we can help you to structure it under the ZEC in a suitable way from Advixy.

3. Is it necessary to be a tax resident in the Canary Islands to access the archipelago’s tax incentives?

Not necessarily. The key is not so much the personal fiscal residence, but that the company or the activity is really located and managed from the Canary Islands. That is to say:

• A person can live outside the archipelago, but his company must have fiscal domicile, effective address and substantial activity in the Canary Islands.
• In the case of self-employed workers, it is usual that they must be tax residents in the islands, unless they operate through a permanent establishment with a local structure.
• In companies under the ZEC regime (Canary Islands Special Zone), it is mandatory that at least one of the administrators or legal representatives be a tax resident in the Canary Islands during the whole period of enjoyment of the regime.

Compliance with the requirements of economic substance and real presence is essential to access and maintain tax incentives. In Advixy we analyze your personal and business situation to configure the most appropriate structure and avoid risks.

Can I work as a freelancer and benefit from the Canary Islands incentives?

Yes, but not merely because a person is self-employed. Some REF incentives may apply to individuals carrying on an economic activity when their requirements are met; the 4% ZEC rate is reserved for registered legal entities and branches. The IGIC rate depends on the transaction, not on self-employed status.

From Advixy we help you to decide whether it is better for you to operate as a freelancer or to incorporate a company, analyzing your business model and growth prospects.

5. What requirements must I meet to qualify for the ZEC?

The main requirements are:

• Create a new legal entity or branch, register it in the ZEC Register and maintain its registered office and effective place of management in the Canary Islands; at least one director or legal representative must reside in the islands.
• Invest within the first two years at least €100,000 in Tenerife or Gran Canaria, or €50,000 in the other islands, subject to the statutory exception linked to greater job creation.
• Create within six months and maintain an annual average of at least 5 jobs in Tenerife or Gran Canaria, or 3 in the other islands.
• Carry on an activity listed in the annex to Law 19/1994 and comply with the binding business plan, authorisation and ongoing regime requirements.

In Advixy we take care of the whole process: from the application to the ZEC Consortium to the implementation of your activity in full compliance with the regulations.

What is the difference between IGIC and VAT?

IGIC is the Canary Islands General Indirect Tax and replaces VAT in the archipelago. It has lower tax rates (the general rate is 7%) and certain exemptions depending on the type of good or service.

It is essential to have a good understanding of the IGIC regulations and rules in order to invoice and tax correctly, especially if your company sells both inside and outside the Canary Islands and you need to adapt your operations to both fiscal frameworks.

At Advixy we help you to adjust your invoicing and accounting to both the specific Canary Islands system and the general Spanish tax regime, offering expert advice for companies operating throughout Spain.

What is the Canary Islands Investment Reserve (RIC)?

The RIC allows a reduction of the tax base for allocations made from profits of establishments in the Canary Islands, generally capped at 90% of undistributed profit under Article 27 of Law 19/1994. It is not an automatic exemption: the reserve must be recorded separately and, as a general rule, materialised in eligible investments within a maximum of three years.

However, its implementation requires a technical study and a rigorous follow-up. In Advixy we offer you this specialized accompaniment.

Are tax benefits automatic or do they have to be requested?

There is no single procedure for every incentive. The ZEC requires prior authorisation and registration; the RIC and many deductions are claimed in the tax return if their requirements are met and documented, while other benefits may require specific notices or approvals. Each incentive and tax period must be reviewed separately.

At Advixy we make sure that everything is correctly requested, applied and documented.

9. Can I have my company in the Canary Islands and operate nationally or internationally?

Yes, many companies choose the Canary Islands because of its taxation, its connectivity with Europe and Africa and its legal framework fully integrated into the Spanish system. You can operate from the Canary Islands to any part of the world, always complying with the requirements of economic substance demanded by the regulations.

Advixy designs with you the optimal structure for your company to be operational and in compliance from day one.

10. What is the best legal form for entrepreneurship in the Canary Islands?

There is no single answer. It will depend on factors such as:

• Your personal and tax situation.
• Estimated turnover.
• Whether you will work alone or with partners.
• If you need to limit your liability.

The choice between operating as self-employed, forming an SL or using another legal form comes first; only then should the entity’s eligibility for the ZEC or other incentives be assessed. The ZEC is a tax regime, not a legal form. Advixy can help structure the appropriate option.

How long does it take to incorporate a company and start operating in the Canary Islands?

There is no single guaranteed timetable. Incorporation depends on the notary, Commercial Registry, NIF and census registration; ZEC authorisation and registration are additional procedures whose duration depends on the file and any information requests. The start date should therefore be planned without promising a fixed range.

At Advixy we expedite each phase so that you can start as soon as possible, with all the legal and fiscal guarantees.

12. How does the 4% ZEC rate compare with the general Corporate Income Tax regime?

The 4% ZEC rate is a special rate, not the general rate for every Canary Islands company. It applies only to the share of the tax base from operations materially and effectively carried out within the ZEC and requires authorisation, registration and ongoing compliance.

Outside the ZEC, Article 29 of Law 27/2014 sets a general 25% rate and provides scales or specific rates depending on turnover, the nature of the entity and its circumstances.

• General state regime: the applicable rate and scale must be determined from turnover and the current rules in Article 29.
• Newly created entities carrying on an economic activity: 15% in the first tax period with a positive tax base and the following period, subject to exclusions or any lower applicable rate.

A sound comparison cannot rely on the headline percentage alone: it must consider the eligible ZEC tax base, substance, employment, investment, limits and compatibility rules. Advixy can assess the specific facts.

Are there little-known legal forms that can bring strategic advantages to my company?

Regulated vehicles include the Spanish Economic Interest Grouping (AIE), the European Economic Interest Grouping (EEIG) and the Temporary Business Association (UTE). An SPV describes a vehicle’s purpose and is not, by itself, a legal form; “General Interest Entity” is not a standard Spanish company form. Each option has its own company-law, tax, accounting and liability rules, so it should be assessed for the specific project.