Practical guides
ZEC Canary Islands Guide 2026 — 4% Corporate Tax Rate
The Zona Especial Canaria is the lowest corporate tax regime in the EU for companies with genuine economic substance. A comprehensive analysis of the regime, requirements and registration process.
4%
Corporate tax (vs. 25% standard)
€50M
Max. preferential tax base
31 Dec 2026
Registration deadline
What is the ZEC?
The Zona Especial Canaria (ZEC) is a low-tax regime authorised by the European Union within the framework of the Canary Islands Economic and Fiscal Regime (REF), governed by Law 19/1994. It is administered by the Consorcio de la Zona Especial Canaria and its current authorisation, extended by the European Commission, runs until 31 December 2026.
Unlike tax havens, the ZEC is a regime fully compliant with EU law, subject to strict requirements regarding genuine economic substance, job creation and investment. It is not an aggressive tax planning structure — it is a territorial incentive designed to attract investment to the Canary Islands.
4%
ZEC (Canary Islands)
15%
Startups (Spain)
25%
Standard (Spain)
23%
SMEs (Spain)
Requirements for ZEC registration
Activity listed in the ZEC catalogue
The entity's main activity must be included in the catalogue of activities authorised by the European Commission. Expressly excluded are: financial entities (banking, funds, insurance) and intragroup wholesale trade without real added value in the Canary Islands.
Minimum fixed asset investment
The investment must be made within 2 years of registration in the ZEC register:
- €100,000 — Gran Canaria and Tenerife
- €50,000 — Other islands (Lanzarote, Fuerteventura, La Palma, El Hierro, La Gomera, La Graciosa)
Investment in intangible assets (software, patents) counts for up to 50% of the minimum.
Minimum job creation
Positions must be created and maintained within 6 months of registration. They must be full-time roles with Social Security registration in the Canary Islands:
- 5 positions — Gran Canaria and Tenerife
- 3 positions — Other islands
Registered address and effective management in the Canary Islands
The ZEC entity must have its registered address and place of effective management in the Canary Islands. Effective management means that management and administrative decisions are genuinely made in the Canary Islands. A purely formal address is not sufficient: the AEAT requires real economic substance (senior management present, board meetings held on the islands, etc.).
Preferential tax base: limits by headcount
The 4% rate applies only to the preferential tax base — which varies according to the number of employees in the Canary Islands. The excess is taxed at the standard corporate tax rate (25%).
| Employees in Canary Islands | Maximum tax base at 4% | Estimated tax saving vs 25% (approx.) |
|---|---|---|
| 3–5 employees | €1,800,000 | €378,000 |
| 6–8 employees | €3,780,000 | €793,800 |
| 9–11 employees | €5,940,000 | €1,247,400 |
| 12–14 employees | €8,100,000 | €1,701,000 |
| 15–17 employees | €10,500,000 | €2,205,000 |
| 18–20 employees | €12,600,000 | €2,646,000 |
| 21–24 employees | €17,640,000 | €3,704,400 |
| 25+ employees | €50,000,000 | €10,500,000 |
Estimated tax saving is calculated on the difference between the standard rate (25%) and the ZEC rate (4%). Source: Law 19/1994, art. 43 bis.
Eligible and excluded activities
The ZEC catalogue covers the majority of service and technology activities. Exclusions are specific.
Technology and IT
Software development, SaaS, cybersecurity, AI, video games
Consulting and professional services
Tax, legal, engineering, business management advisory
R&D and innovation
Research centres, biotechnology, nanotechnology
Advertising and digital marketing
Digital agencies, SEO/SEM, content production
International logistics and distribution
Supply chain management, foreign trade (non-intragroup)
Tourism and hospitality
Hotels, tour operators, travel agencies
Financial and insurance services Excluded
Credit institutions, insurance companies, investment funds
Intragroup wholesale trade Excluded
Group distribution centres, intragroup commodity trading
Critical deadline
The 2026 opportunity: act before the deadline
The ZEC regime is authorised until 31 December 2026. Once registered, the entity can benefit from the 4% rate for the entire duration of the regime (including potential extensions). Companies that register before the deadline will be well positioned to continue under the new framework that the Consorcio ZEC negotiates with the European Commission.
The Consorcio ZEC processes applications with a resolution period of 2 months. As preparing the documentation (business plan, evidence of investment, employment contracts) can require 4–6 additional weeks, it is recommended to start the process before 30 September 2026.
Estimated time remaining
9 months
until registration closes
Recommended start date:
Before Sep 2026
Compatibility with other REF incentives
RIC — Canary Islands Investment Reserve
ZEC entities may simultaneously benefit from the RIC. The RIC allows a deduction from the corporate tax base of up to 90% of undistributed profits destined for investment in the Canary Islands, with a cap of 50% of the gross tax liability. The combined ZEC + RIC effect can reduce the effective tax rate to near zero on the portion of reinvested profits.
DIC — Canary Islands Investment Deduction
The DIC allows deductions for fixed asset investments with an 80% bonus on the deduction percentages set out in the Corporate Tax Law. It is compatible with the ZEC regime and further reduces the net tax liability. Particularly relevant in the early years, when the company is making the investments required for registration.
IGIC vs VAT
The Canary Islands apply the IGIC (Impuesto General Indirecto Canario) instead of VAT. The standard IGIC rate is 7% (vs. 21% VAT on the Spanish mainland). For ZEC companies invoicing services to clients outside the Canary Islands (service exports), the transaction may be exempt from IGIC, providing an additional competitive advantage over mainland competitors.
State aid and OECD standards
As a regime authorised by the EU under the State aid framework for outermost regions, the ZEC is fully compliant with OECD BEPS standards, provided the economic substance requirements are met. It is not on the EU's blacklist or grey list of non-cooperative jurisdictions.
ZEC registration process
Incorporation or adaptation of the entity
The ZEC entity must be incorporated in Spain (SA or SL). If a company already exists, it may apply for ZEC registration directly — there is no need to create a new entity.
Preparation of the activity plan
A document describing the activity to be carried out, the investment plan, the hiring schedule and the justification of economic interest for the Canary Islands. This is the central document of the application.
Application to the Consorcio ZEC
Submission of the application to the Consorcio de la Zona Especial Canaria (Las Palmas de Gran Canaria or Santa Cruz de Tenerife). Attached documents include the deed of incorporation, the activity plan and the shareholders' documentation.
Consorcio resolution (2 months)
The Consorcio ZEC has 2 months to issue a decision. In the event of administrative silence, the resolution is deemed negative. An administrative appeal may be lodged. A favourable decision includes registration in the Official Register of ZEC Entities.
Investment and job creation (2-year deadline)
After registration, the ZEC entity has 2 years to make the minimum fixed asset investment and 6 months to create the required jobs. Non-compliance results in removal from the register.
Corporate tax return at ZEC rate (4%)
Once requirements are met, the entity applies the 4% rate in its corporate tax return (Form 200), with a separate breakdown of the preferential and non-preferential tax base.
Risks, compliance and economic substance
Key audit focus areas
Lack of genuine economic substance
The AEAT may challenge the ZEC rate if there is no real staff in the Canary Islands, if decisions are made from Madrid or abroad, or if there is no genuine business activity on the islands.
Failure to maintain employment levels
The jobs created must be maintained for the duration of the regime. Workforce reductions may result in partial or total loss of the benefit.
Excluded activities mixed with permitted ones
If the entity carries out both catalogue and non-catalogue activities, the preferential rate may only be applied to income from listed activities.
Related-party transactions and transfer pricing
Transactions with group companies (parent, subsidiaries) must be priced at arm's length. The risk of using the ZEC as a vehicle for artificial income shifting is the primary focus of tax audits.
Comparison: ZEC vs other low-tax EU jurisdictions
All options are legitimate regimes within the EU. The choice depends on the company's profile and its shareholders.
| Jurisdiction | Effective corp. tax | VAT / indirect tax | Substance required | Expiry |
|---|---|---|---|---|
| ZEC — Canary Islands (ES) 2026 Opportunity | 4% | IGIC 7% (not VAT) | High (5 employees GC/TF, €100k investment) | 31 Dec 2026 (extendable) |
| Madeira (PT) | 5% (IFMZ) | VAT 22% | Medium (1–2 employees, €75k investment) | 31 Dec 2027 |
| Ireland | 12.5% (standard) | VAT 23% | High (genuine presence, local staff) | No expiry |
| Estonia (e-Residency) | 0% undistributed / 20% distributed | VAT 22% | Low (remote management possible) | No expiry |
The ZEC is the only option offering a 4% rate within the EU framework. The IGIC at 7% (vs. VAT at 21–23% elsewhere in Europe) provides an additional operational cost advantage.
Is the ZEC right for your company?
The ZEC is particularly attractive for service, technology and consulting companies that can genuinely operate in the Canary Islands with a real local team. The threshold of 5 employees (in Gran Canaria or Tenerife) is achievable for a growing company, and the tax return — especially with profits exceeding €500,000 per year — more than justifies the investment and compliance costs.
The key is comprehensive planning: the ZEC is not an isolated tax saving measure, but part of a strategy that must consider the corporate structure (ZEC subsidiary within a group, or independent company), the tax regime of individual shareholders (residency, IRNR, DTTs), related-party transactions and BEPS compliance.
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