A special tax regime is a set of tax rules applicable to specific territories, sectors, or types of taxpayer that establish reduced tax rates, allowances, or exemptions compared to the general regime. In Spain, the most significant are the Canary Islands Economic and Fiscal Regime (REF), the Canary Islands Special Zone (ZEC), and the tax incentives available in Ceuta and Melilla, which offer substantial advantages for companies establishing real economic activity in those territories.
In practice
What Are Spain’s Special Tax Regimes?
Spain has several territories where companies can benefit from more favourable tax treatment than the general regime, provided they meet requirements of genuine economic activity and job creation. These regimes are recognised by the European Union and are compatible with the single market when applied within the limits approved by the European Commission.
Canary Islands Economic and Fiscal Regime (REF)
The REF is the special fiscal framework of the Canary Islands archipelago, recognised in the Statute of Autonomy and in Council Regulation (EU) 2021/1176. Its main instruments are:
Canary Islands Investment Reserve (RIC) Allows a deduction from the Corporate Income Tax base of up to 90% of undistributed profits earned in the year, provided they are invested in fixed assets or subscriptions to securities in the Canary Islands within three years. It is one of the most powerful fiscal incentives in the EU.
Canary Islands Investment Deduction The percentage deduction in Corporate Income Tax for investments in new assets in the Canary Islands is double the rate applicable under the general regime, with an absorption limit also doubled (50% of net tax liability, compared to 25% under the general regime).
IGIC (Canary Islands General Indirect Tax) The national VAT does not apply in the Canary Islands. Instead, IGIC applies, with a standard rate of 7% (compared to 21% VAT). Reduced rates of 3% and a zero rate apply to certain goods and services.
Canary Islands Special Zone (ZEC)
The ZEC is a low-tax zone within the REF, of particular interest for companies wishing to establish their international operations base in the Canary Islands. ZEC entities are taxed at 4% in Corporate Income Tax (compared to the general 25%) on the special ZEC tax base — the profits derived from authorised activities. The registration deadline for new entities in the Official ZEC Registry is open until 31 December 2026. See the ZEC entry for full details.
Ceuta and Melilla Incentives
Companies and self-employed individuals operating effectively in Ceuta or Melilla benefit from a 50% reduction in Corporate Income Tax (or in the IRPF liability for the self-employed) on income earned in those territories. Additionally, IPSI (Tax on Production, Services and Imports) replaces VAT with significantly lower rates (between 0.5% and 10% depending on the activity).
Basque Country and Navarre (Foral Regimes)
The Basque Country’s Concierto Economico and Navarre’s Convenio Economico give these autonomous communities legislative competence over Corporate Income Tax, allowing them to set reduced rates (generally 20-23%) and their own incentives for SMEs and R&D.
Relevance for Businesses
Tax planning based on special regimes is a lawful and efficient strategy to reduce the tax burden, provided genuine economic activity (operating headquarters, employees, assets) is established in the qualifying territory. The Tax Agency applies strict substance-over-form controls, so purely formal domiciliation without real activity is insufficient to access the benefits.