F.A.Q. – 13 Frequently Asked Questions on Taxation in the Canary Islands for Entrepreneurs
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:
- Reduced corporate income tax rates (up to 4% in ZEC regime).
- 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 authorized by the European Union that allows taxation at 4% on corporate income tax. It is aimed at newly created companies that carry out authorized economic activities from the Canary Islands and meet certain requirements in terms of investment, employment and location.
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 mandatory to be a tax resident in the Canary Islands to have access to those of the archipelago?
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, although some incentives are designed for companies, there are also relevant benefits for the self-employed, such as the reduced IGIC rate, certain tax rebates and the possibility of establishing an effective headquarters in a low tax environment.
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 are the requirements to qualify for the ZEC?
The main requirements are:
- To create a new entity with domicile and effective address in the Canary Islands.
- Make a minimum initial investment in fixed assets in the first years.
- To hire a minimum number of employees resident in the Canary Islands.
- To develop an activity included in the list allowed by the ZEC.
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 Canary Islands companies to allocate part of their profits to a special reserve, exempt from taxation, provided that they are reinvested in certain assets or projects within the Canary Islands. It is a powerful tool to reduce the tax burden and finance business growth.
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?
No tax incentive is applied automatically. They all require planning, documentation and, in some cases, prior approval by the competent administration. Even if you meet the requirements, a misinterpretation or lack of control can cause you to lose key benefits or generate tax contingencies.
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 self-employed, SL or ZEC must be based on a solid strategy. From Advixy we advise you to choose and configure the legal form that best suits your project.
How long does it take to incorporate a company and start operating in the Canary Islands?
The process can take between 1 and 4 weeks, depending on the type of company and whether the ZEC regime is accessed. It is necessary to take into account notary formalities, registry registration, obtaining of NIF, census registration and, if applicable, ZEC authorization.
At Advixy we expedite each phase so that you can start as soon as possible, with all the legal and fiscal guarantees.
12. Where are the lowest corporate income tax rates in Spain and how do they compare with the Canary Islands?
The Canary Islands leads the way in business taxation in Spain thanks to the Canary Islands Special Zone (ZEC), which allows taxation at the lowest corporate income tax rate in the country and in Europe: only 4% for companies that meet its requirements.
In addition to the Canary Islands regime, there are two other options of interest for certain business profiles:
- Basque Country: offers a general rate of 24% and a reduction to 20% for micro and small companies, within its own tax regime.
- Navarra: maintains a general rate of 28%, but allows reduced rates for small and micro-enterprises, which can be between 19% and 23% in certain cases.
These regimes are reserved for companies with tax domicile and effective activity in each territory, but no option reaches the tax advantage of the Canary Islands. If you want to study the best strategy for your company, our expert team can evaluate your case and help you to optimize your taxation and growth.
Are there little-known legal forms that can bring strategic advantages to my company?
Yes, there are special legal forms such as the European Economic Interest Grouping (EEIG), Special Purpose Vehicles (SPV), and General Interest Entities (EIG), which allow optimizing taxation, managing risks and coordinating complex business projects. These structures are particularly useful for innovative companies, international investments or strategic groupings. The choice of the appropriate vehicle depends on many factors, so it is advisable to seek expert advice to design the best legal and tax strategy.