The Canary Islands Special Zone (ZEC) is a privileged tax regime created within the framework of the Canary Islands Economic and Tax Regime (REF) to attract investment and create qualified employment in the archipelago. ZEC entities are taxed under Corporate Income Tax at a reduced rate of 4%, compared to the general rate of 25%, making it one of the most attractive tax opportunities within the European Union.
Requirements to Access the ZEC Regime
To register with the ZEC, an entity must: (1) be newly created or registered in the Canary Islands; (2) have its registered office and effective management headquarters in the archipelago; (3) carry out activities included in the ZEC-approved list; (4) have at least one administrator residing in the Canary Islands; (5) create a minimum of one or five jobs in the first six months (depending on the type of entity); and (6) invest at least 100,000 euros in fixed assets in the Canary Islands during the first two years.
The minimum employment requirement is one job for service entities and five for production entities. These jobs must be full-time, under an employment or commercial contract, and the individuals must reside and carry out their activity effectively in the Canary Islands. The resident administrator may count as one of the required jobs if they meet the residency and dedication requirements.
Special Tax Base
The 4% rate does not apply to the entire tax base, but only to the portion corresponding to transactions materially carried out in the Canary Islands with non-ZEC clients. There is a tax base limit based on the number of employees: between €1.8 million and €90 million annually, according to the scale. The portion of the tax base exceeding those limits is taxed at the general Corporate Income Tax rate.
This design means that to make the most of the ZEC regime, it is advisable to plan the expected business volume and the number of employees required. A company with five employees generating €4 million of taxable income pays 4% on €1.8 million (tax: €72,000) and 25% on the remaining €2.2 million (tax: €550,000), compared to €1,000,000 it would pay without the ZEC regime.
Compatibility with Other Canary Islands REF Aids
The ZEC regime is compatible with other Canary Islands REF aids, which significantly enhances its appeal. The main compatible benefits are:
Canary Islands Investment Reserve (RIC): Allows deduction from the tax base of up to 90% of undistributed profits destined for investments in the archipelago. Combined with the 4% rate, the tax saving can be very significant for companies with reinvestment capacity.
Deduction for Canary Islands investments: Investments in new fixed assets generate a deduction from the Corporate Income Tax liability of up to 25% (compared to the general 10%), with a limit of 50% of the gross tax liability. This deduction can be accumulated with the 4% reduced rate.
IGIC (Canary Islands General Indirect Tax): ZEC entities carrying out intra-Community transactions under certain conditions may benefit from IGIC exemption — the Canary Islands equivalent of VAT — which has a general rate of 7%.
Eligible Activities and Sectors with Greatest Potential
The ZEC permits a broad range of service and production activities, making it suitable for technology, consulting, engineering, logistics, distribution, digital content and e-commerce companies. Regulated financial activities (banking and insurance), real estate activities and those directed at the resident end consumer in the Canary Islands are excluded.
The sectors with the greatest potential to benefit from the regime are: software and technology services, shared services centres for multinational groups, R&D activities, international trading companies with logistics operations and digital content businesses. The Canary Islands, by virtue of their geographic position between Europe, Africa and the Americas, are also a natural platform for companies with activities in those markets.
Registration Process and Deadline
The ZEC registration process is handled by the Canary Islands Special Zone Consortium, headquartered in Las Palmas de Gran Canaria. The application must be accompanied by a descriptive report of the activity, the entity’s bylaws, the investment and employment plan, and accreditation of the administrators. The deadline to register with the ZEC expires on 31 December 2026, so the time available to start the process is limited.
Once registered, the ZEC entity must annually meet the employment and investment requirements and notify the Canary Islands Tax Agency of any incident that may affect its status on the register.
Practical Steps for Companies Considering the ZEC
The typical path for a company wishing to access the ZEC involves: (1) verifying that the planned activity is included in the ZEC-approved list; (2) incorporating a new Spanish limited liability company (SL) or public limited company (SA) in the Canary Islands, or transferring the registered office of an existing entity; (3) identifying and hiring the required number of employees in the archipelago; (4) preparing and submitting the ZEC registration application to the Canary Islands Special Zone Consortium; and (5) making the required investment in fixed assets within the first two years.
Groups with existing operations that are considering establishing a Canary Islands entity for service activities, intellectual property licensing or trading should obtain specific tax advice to ensure the structure is substantive and defensible under both Spanish transfer pricing rules and BEPS anti-avoidance principles. Substance requirements — real employees, real decision-making, real economic activity on the island — are essential for the regime to hold up to scrutiny.
The deadline to register with the ZEC expires on 31 December 2026. At BMC we advise on the incorporation and registration process. See our special territories services.
