The Canary Islands Special Zone (ZEC) is the most advantageous fiscal regime available in Spain for companies in eligible sectors. A 4% Corporation Tax rate — compared to the general rate of 25% — represents an exceptional competitive advantage in the European tax landscape. The window to access this regime closes definitively on 31 December 2026. This whitepaper provides the comprehensive analysis required to decide whether the ZEC is viable for your company and how to proceed.
Context and legal basis of the regime
Foundation in EU law
The Canary Islands are an outermost region of the EU under Article 349 of the Treaty on the Functioning of the European Union (TFEU), alongside the French overseas departments, the Azores, Madeira, Ceuta, and Melilla. This status allows Member States to establish special fiscal regimes in these regions without constituting state aid prohibited by Articles 107 and 108 TFEU, provided they are authorised by the European Commission.
The Commission authorised the ZEC regime through Decision C(2000)1840 and its successive revisions. The current authorisation covers registrations up to 31 December 2026, with registered entities able to continue operating under the regime until 31 December 2027. After those dates, the regime expires unless the Commission authorises a new extension — which would require a new proposal from the Spanish Government and a European approval process that, in the current scenario, is not anticipated for the immediately following period.
Law 19/1994 and Royal Decree 1758/2007
The ZEC regime is regulated in Articles 28 to 50 of Law 19/1994 of 6 July, amending the Economic and Fiscal Regime of the Canary Islands. The regulatory development is contained in Royal Decree 1758/2007 of 28 December, which governs the ZEC Consortium, the registration procedure, and compliance controls.
The 4% rate: mechanism and quantitative limits
The 4% rate does not apply to the entity’s entire taxable base, but to the portion of taxable base corresponding to operations materially carried out in the Canary Islands, subject to a maximum cap determined by the employment created in the islands. The maximum taxable base thresholds at 4% are:
| Employment in Canaries (workers) | Maximum taxable base at 4% |
|---|---|
| 5 to 8 | €1,800,000 |
| 9 to 11 | €2,500,000 |
| 12 to 14 | €3,100,000 |
| 15 to 17 | €3,600,000 |
| 18 to 20 | €4,200,000 |
| 21 to 24 | €4,900,000 |
| 25 or more | €5,400,000 + €485,000 per additional employee |
Effective tax saving calculation
For a company with five employees in the Canaries and taxable base of €1,800,000:
- Tax liability without ZEC: €1,800,000 × 25% = €450,000
- Tax liability with ZEC: €1,800,000 × 4% = €72,000
- Annual saving: €378,000
For a company with 25 employees and taxable base of €5,400,000:
- Tax liability without ZEC: €5,400,000 × 25% = €1,350,000
- Tax liability with ZEC: €5,400,000 × 4% = €216,000
- Annual saving: €1,134,000
The portion of taxable base exceeding the applicable limit is taxed at the general rate of 25% or the reduced rate applicable to the entity.
Eligible activities: the positive list and exclusions
Not all economic activities can benefit from the ZEC. Article 28.2 of Law 19/1994 establishes a list of eligible activities:
Included activities
- Manufacturing and product transformation (CNAE 10-33)
- Technology sector: software development and production, IT and telecommunications services, data processing, hosting and cloud computing services
- Environmental activities: waste management, water treatment, renewable energy
- Maritime transport and port activities
- Research and experimental development activities
- Certain internationally-oriented business services: intragroup financing (under strict conditions), asset management, consultancy and advisory services provided to clients outside the Canary Islands
Expressly excluded activities
- Financial activities for third parties (banking, insurance, investment funds)
- Real estate development and property trading
- Residential construction
- Retail trade
- Hospitality, catering, and tourism activities
- Professional services provided to individual consumers resident in the Canary Islands
The exclusion of consumer-facing service sectors means the ZEC is oriented primarily towards B2B companies with clients outside the Canaries or towards productive and industrial activities.
Access and maintenance requirements
At the time of the registration application
Minimum employment: the entity must commit to creating, within the first year from authorisation:
- At least 5 full-time jobs in the main islands (Gran Canaria or Tenerife), or
- At least 3 full-time jobs in the minor islands (Lanzarote, Fuerteventura, La Palma, La Gomera, El Hierro).
Jobs must be filled by employees who reside or work effectively in the Canary Islands. Remote working from the mainland by employees domiciled outside the Canaries does not meet the requirement.
Minimum investment in fixed assets:
- €100,000 in tangible fixed assets located in the Canaries for the main islands.
- €50,000 for the minor islands.
Assets must be connected to the ZEC entity’s activity and located in the archipelago. Intangible assets (software, patents) do not count towards the investment minimum.
Registered office and effective management in the Canaries: the fiscal domicile must be within the ZEC geographic scope. Direction and effective management — the seat of strategic decision-making — must be exercised from the Canaries.
During the permanence in the regime
Employment and investment requirements must be maintained throughout the permanence in the regime. The loss of an employee above the required minimum obliges the company to replace the employment in the following financial year. Non-compliance with the requirements in any financial year results in exit from the regime for that year, with taxation at the general Corporation Tax rate.
Registration procedure: step by step
Step 1: Eligibility analysis (4-6 weeks)
Before initiating any process, it is essential to verify that the planned activity in the Canaries is included in the positive list, that the business model meets the genuine economic substance requirement (it is not a mere holding without real activity), and that qualified talent is available in the Canaries to fill the minimum required positions.
Step 2: Prior report from the ZEC Consortium (4-8 weeks)
The ZEC Consortium, the management body under the Ministry of Finance and the Canary Islands Government, issues a mandatory non-binding report on activity eligibility. The application for a prior report must attach:
- Descriptive report of the activity to be developed in the Canaries.
- Detailed investment plan (assets, timelines, amounts).
- Employment plan (profiles, professional categories, hiring timelines).
- Corporate documentation of the applying entity.
Step 3: Corporate incorporation or adaptation (4-8 weeks)
If the company is newly created, it must be incorporated as an SA or SL with its registered address in the Canaries. If a company already exists with activity on the mainland, the usual option is to incorporate a new Canarian subsidiary. Transferring the registered address of an existing mainland company to the Canaries requires genuine substance to be present from the outset.
Step 4: Registration application before AEAT-Canarias (3 months)
The application is submitted to the AEAT Special Delegation in the Canary Islands. The AEAT has a three-month deadline to resolve; silence has negative effects (deemed rejection). Required documents include: deed of incorporation, Consortium report, provisional NIF, and evidence of the investment and employment commitment.
Step 5: Start of activity and definitive registration
Following the AEAT’s favourable resolution, the entity is entered in the Official Register of ZEC Entities and can apply the 4% rate from the financial year of registration. The first full year at the reduced rate is the year following registration if it occurs in the first half, or the second following year if registration occurs in the second half.
ZEC and Pillar Two: compatibility analysis
For multinational groups with consolidated revenues above €750 million, the ZEC tax advantage (4% rate) creates a gap with the 15% global minimum rate of the Supplementary Tax (Pillar Two, Law 7/2024). This difference must be paid through the Supplementary Tax applicable in the jurisdiction of the parent entity or, where applicable, through the QDMTT (Qualified Domestic Minimum Top-up Tax) if Spain implements this mechanism for ZEC entities.
For groups below the Pillar Two threshold, the ZEC maintains its full advantage. The cost-benefit analysis for groups above the threshold must be modelled on a case-by-case basis, but even with the Pillar Two top-up to 15%, the resulting effective rate (15%) remains lower than the general 25% rate, making the ZEC still advantageous for these groups.
Sectors with the greatest potential in 2025-2026
The sectors that have achieved the greatest actual benefit from the ZEC regime over the past five years are:
- Technology and software: software developers with international clients, cybersecurity companies, B2B SaaS and cloud hosting services.
- Specialised financial services: debt portfolio management, intragroup financing services under strict substance conditions.
- International logistics: storage and distribution operators with an Atlantic hub vocation (the Canaries’ geographic position between Europe, Africa, and the Americas).
- Renewable energy: project development and engineering companies for wind and photovoltaic projects in sub-Saharan Africa managed from the Canaries.
- Environmental and circular economy: industrial waste treatment companies and water management firms.
At BMC our specialist tax team advises companies on ZEC eligibility analysis and the complete registration process. See our tax planning services.
