ZEC entity setup in Las Palmas for international holding: 4% corporate tax rate secured

The Challenge

An international asset management group with a European holding structure and investment activities in emerging markets decided to establish an operational subsidiary in Spain to channel specific income streams. The initial tax analysis identified the Canary Islands Special Zone (Zona Especial Canaria, ZEC) — a low-tax regime approved by the European Commission as compatible state aid — as the most advantageous option both fiscally and from a regulatory standpoint.

The nominal corporate income tax rate for ZEC entities is 4%, compared to the general 25% rate. But accessing that rate is not automatic: the entity must be authorised by the ZEC Consortium, must carry out genuine economic activities listed in the catalogue of eligible activities, and must create stable employment in the Canary Islands. The current regime — extended to 2027 by the European Commission — has an authorisation deadline for new applications closing in December 2026. For the group, that date was non-negotiable.

The additional complexity was the need to demonstrate genuine economic substance in the Canary Islands, a requirement that has grown in significance following the ATAD II Directive and increasing OECD pressure on low-tax structures lacking real activity. Any entity unable to evidence physical presence, employees with substantive functions, and local decision-making was exposed to recharacterisation and loss of the reduced rate.

Our Approach

The project began with an eligibility analysis of the group’s activities against the catalogue of authorised ZEC activities. Portfolio management, financial intermediation, and advisory services to group entities were confirmed as eligible, allowing the ZEC entity to channel management fee income and dividends from certain holdings.

The second phase was the design of the substance structure. We worked with the group to define the minimum operational footprint: office lease in Las Palmas de Gran Canaria, recruitment of three professionals with genuine management and financial analysis responsibilities — not merely administrative roles — and the establishment of board meeting protocols and decision-making processes located in the Canary Islands. This design was built from the outset against the substance standard required by the ZEC Consortium and the OECD guidelines on permanent establishments and conduit entities.

The third phase was the preparation of the authorisation file for the ZEC Consortium. The file required a business plan for the entity, evidence of investment and employment commitments, a detailed description of planned activities referencing the eligible activity catalogue, and documentation of the group’s corporate structure. We managed the dialogue with the Consortium throughout the review process, responding to requests for additional information within the required timeframes.

The fourth phase covered notarial incorporation, registry filing, and ZEC register enrolment, followed by operational go-live: bank account opening, social security registration for employees, and configuration of the initial intercompany service agreements under documented transfer pricing policies.

Results

The ZEC entity received authorisation from the Consortium in week 10 of the project. Formal incorporation and the start of activity were completed in week 14, with comfortable margin ahead of the December 2026 authorisation deadline.

Income channelled through the entity — management fees and portfolio dividends — is subject to the 4% corporate tax rate rather than the 25% rate that would have applied in the group’s originating jurisdiction, generating an estimated annual tax benefit of €2.1 million. The three positions created in Las Palmas form part of the group’s genuine operational workforce, with responsibilities covering financial analysis, regulatory compliance, and investment back-office functions.

The structure was reviewed preventively by the group’s internal tax team and an independent external adviser, both confirming that it meets the substance standards required by both ZEC regulations and EU anti-avoidance directives. The entity has a ZEC compliance manual and an annual review calendar covering the ongoing requirements for maintaining the regime.