ZEC and Special Territories: Pay 4% Corporate Tax in the Canaries

Spain's special fiscal territories — the Canary Islands, Ceuta, and Melilla — offer reduced corporate tax rates and investment incentives authorised by the European Commission as compatible state aid. The Canary Islands Special Zone (ZEC), governed by Royal Legislative Decree 1/2019, provides a 4% corporate tax rate (versus the standard 25%) for entities conducting qualifying activities with genuine economic substance in the archipelago, with the current EU authorisation open to new registrations until 31 December 2026. The Reserva para Inversiones en Canarias (RIC, Art. 27 of Law 19/1994) allows Canary Islands-taxable companies to reduce their IS taxable base by up to 90% of undistributed profits committed to eligible investments within four years; companies with genuine activity in Ceuta or Melilla benefit from a 50% corporate tax bonus under Arts. 33–34 of Law 20/1991.

Our experience advising companies that operate in territories with special regimes allows us to design structures that maximise available incentives without compromising compliance. We know the requirements, the limits, and the best practices to ensure benefits are maintained sustainably over time.

Why the Canary Islands ZEC is Spain’s Most Important Tax Opportunity Before 2026

A technology services or consulting company with EUR 2 million in annual profits pays EUR 500,000 in corporate tax at the standard 25% rate. The same company, with genuine activity and economic substance in the Canary Islands under the ZEC, would pay 4%: EUR 80,000. The annual saving of more than EUR 400,000 is not aggressive planning — it is the use of an EU Commission-approved regime expressly designed to offset the structural disadvantages of Spain’s extra-peninsular territories. The problem is that many companies are unaware of their eligibility, or attempt it without specialist advice and lose the benefits by failing to meet the substance requirements: inadequate business premises, employees who do not actually reside in the territory, or management decisions taken from the mainland. And the window is closing: the ZEC authorisation expires in December 2026 and the Consortium registration process takes two to four months.

Our ZEC Registration and Special Territories Structuring Process

Our specialists first assess the company’s actual eligibility and quantify the potential saving with concrete figures. We recommend the optimal combination of regimes — ZEC plus REF plus RIC in the Canary Islands, or the 50% bonus in Ceuta or Melilla — depending on the activity, sector, and investment plans. We manage the entire ZEC registration process with the Consortium, including the business plan with employment and investment commitments. We design the genuine substance structure that withstands an AEAT review: appropriate premises, employees with effective residency, contracts with local suppliers, and documented management decisions taken in the territory. Once the structure is operational, we monitor continuous compliance with all requirements.

ZEC Eligibility: Employees, CNAE Codes, and Investment Minimums

Access to the ZEC requires meeting cumulative requirements that should be verified before initiating the process. On employment, the general rule requires a minimum of five employees in the Canary Islands for most activity categories; for certain high-value-added or investment-intensive activities, the threshold may be reduced to one or two employees under specific conditions. Employees must have their workplace and effective residence on the islands.

On activity eligibility, the ZEC admits a closed list of CNAEs covering primarily: software publishing and IT activities (CNAE groups 58-63), professional and technical services including legal, consulting, accounting, architecture, engineering, and advertising (groups 69-74), administrative and business support activities including staffing and security (groups 78-82), qualifying wholesale trade and logistics, and research and experimental development (group 72). The specific CNAE code of the business activity is determinative: we verify eligibility before initiating any process.

The minimum investment committed in the business plan is EUR 100,000 for companies locating in Las Palmas de Gran Canaria or Santa Cruz de Tenerife, and EUR 50,000 for those locating on other islands. This investment must be materialised in productive fixed assets related to the authorised activity.

Regulatory Framework: ZEC, RIC, and Special Territory Regimes

The Canary Islands Special Zone is governed by Royal Legislative Decree 1/2019 and authorised by the European Commission as compatible state aid. The 4% reduced rate applies to the taxable base from authorised activities, subject to limits based on number of employees and investment level. The RIC is regulated under Art. 27 of Law 19/1994: it allows reduction of the taxable base by up to 90% of undistributed profits committed to investment in the Canary Islands within four years. The ZEC authorisation has been renewed to December 2026, with negotiations underway for its extension. The Ceuta and Melilla 50% corporate tax bonus is regulated under Arts. 33 and 34 of Law 20/1991.

Real Results in ZEC and Special Territories: Savings of up to 80% in Corporate Tax

• Quantification of potential tax savings before starting the process: concrete figures on which to decide the investment in the relocation.
• ZEC registration managed end-to-end, with business plan approved by the Consortium in 2-4 months.
• Genuine substance structure, documented and robust against any AEAT or European Commission review.
• Annual RIC management: allocation, investment timeline monitoring, and documentation for each investment.
• Monitoring of changes to the European authorisation and proactive adaptation of the structure to any modification of the regulatory framework.

Our special territories experience allows us to design structures that maximise available incentives without compromising compliance. We know the requirements, limits, and best practices for maintaining benefits sustainably over time.

Spain’s special territorial fiscal regimes are one of the significant competitive advantages the country offers to companies that establish or develop activity in these zones. The Canary Islands Special Zone offers a reduced 4% rate on corporate tax — compared with 25% under the standard regime — for a broad list of qualifying activities including technology services, logistics, commerce, and consulting. For a company with average profits, the difference in the tax bill can reach six figures annually, with a direct and lasting impact on business profitability.

However, special territory regimes are not a free benefit. They require genuine economic substance: appropriate business premises, employees with effective residence and activity in the territory, and management decisions actually adopted in that jurisdiction. The European Commission supervises these regimes as state aid compatible with the internal market, meaning investment and job creation requirements set out in the initial authorisation must be met. Non-compliance not only forfeits the benefit: it can generate a reassessment with late-payment interest and penalties exceeding the savings achieved in prior years.

The Reserva para Inversiones en Canarias (RIC) is a complementary incentive to the ZEC that allows any company taxable in the archipelago to reduce its taxable base by up to 90% of undistributed profits committed to investment in the territory within four years. The RIC is a powerful tax deferral mechanism that, well planned, converts reinvestment into tax advantage. Our team manages the annual RIC allocation, monitors investment commitment timelines, and documents each investment for any AEAT review.

Ceuta and Melilla offer a 50% corporate tax bonus for companies with genuine activity in those autonomous cities, equivalent to an effective rate of 12.5%. For foreign trade, logistics, or services activities, the geographical proximity to Morocco and North Africa adds a strategic dimension beyond the fiscal incentive. We advise on presence structures in Ceuta and Melilla that are robust before the Administration and generate real operational value, coordinating where needed with our trade and customs teams to optimise the customs dimension as well.

Company Size Segmentation

Startups and early-stage companies: the ZEC is particularly attractive for startups in technology, consulting, or digital services with high profit margins that are reinvested. A startup relocating to Gran Canaria or Tenerife at EUR 500,000 annual profit saves EUR 105,000 per year (EUR 125,000 minus EUR 20,000 at ZEC rate) — more than the cost of maintaining genuine substance. Early-stage companies also qualify for the Startup Law 15% IS rate in their first four profitable years, which can be combined with ZEC in some cases.

SMEs (EUR 1M–10M revenue): the typical ZEC beneficiary profile. Technology services, logistics, consulting, and wholesale trade SMEs with genuine activity profiles that match the ZEC eligibility list. The 5-employee minimum and EUR 100,000 investment threshold are achievable for most SMEs in the primary CNAE categories. Annual IS saving at EUR 1M profit: EUR 210,000.

Corporate groups (EUR 10M+ revenue): large groups with multiple Spanish entities can establish a ZEC entity for eligible activities, channelling profits from qualifying activities through the low-rate entity. Transfer pricing rules (OECD guidelines and LIS Art. 18) must be rigorously applied to ensure the ZEC entity’s margins reflect genuine value added. We design and document transfer pricing policies for ZEC group structures that withstand AEAT review.

Worked Example: Technology Company ZEC Registration

A Madrid-based IT services company (45 employees, EUR 3.8 million revenue, EUR 900,000 annual profit before tax) evaluated ZEC registration. Eligible activity: software development and IT consulting services (CNAE 6201, 6202, 6209 — all within the ZEC eligible CNAE list).

BMC’s implementation:

• Substance design: 5 IT professionals relocated to Gran Canaria (2 already had personal connections to the islands). Leased office space in Las Palmas de Gran Canaria. Local IT contracts established with Canary Islands service providers.
• Business plan: EUR 150,000 committed investment (leasehold improvements and equipment) — above the EUR 100,000 minimum for Las Palmas.
• ZEC Consortium registration: business plan approved in 3 months. ZEC authorisation granted for IT consulting and software development activities.
• Annual IS saving: EUR 900,000 × (25% - 4%) = EUR 189,000 per year.
• Ongoing compliance: employment and investment commitments monitored annually; all management decisions formally documented as taken in the Canary Islands; RIC annual allocation on undistributed profits reinvested in Canary Islands productive assets.
• Three-year projected saving (to December 2026 authorisation end): EUR 567,000.

Common Mistakes We Fix

1. Insufficient economic substance. The most common cause of ZEC benefit loss on AEAT review is insufficient substance — employees who live in Madrid but are listed as Canary Islands residents, board decisions documented as taken in Las Palmas but actually taken in the mainland headquarters, or premises that are uninhabited offices. Genuine activity and genuine decision-making in the territory are non-negotiable.

2. Wrong CNAE codes. The ZEC eligible CNAE list is closed. Activities that seem to qualify — but are classified under a non-eligible CNAE — do not qualify. We verify the specific CNAE applicable to each activity before initiating any process, as an incorrect classification discovered after registration generates a reassessment of all prior years’ benefits.

3. Failing to document management decisions. Board resolutions, management decisions, and strategic decisions related to ZEC activities must be demonstrably taken in the Canary Islands. Companies that centralise decision-making in Madrid without documenting the Canary Islands connection create a paper trail that negates the substance requirement.

4. Not using the RIC alongside ZEC. The ZEC and the RIC are complementary: the ZEC provides a low tax rate on IS, and the RIC allows further reduction of the taxable base for undistributed profits reinvested in Canary Islands assets. Companies that use only the ZEC without planning their RIC allocation miss a significant additional deferral mechanism.

5. Waiting too long to register. The ZEC Consortium registration process takes 2–4 months. The current authorisation expires in December 2026. Companies that begin the process in September or October 2026 risk either a rushed process with documentation deficiencies, or missing the window entirely. The optimal timing for 2026 is to register by June 2026 at the latest.

How We Work

ZEC engagements begin with a written eligibility assessment and savings quantification — a concrete analysis of whether the company qualifies, what the annual IS saving would be, and what the substance requirements would cost to implement. This assessment has a fixed fee and is provided without commitment to proceed.

If the client decides to proceed, we manage the entire ZEC registration process: business plan preparation, employment and investment commitment documentation, Consortium submission, and follow-up through approval. Post-registration, we provide annual compliance support: IS return in ZEC format, RIC allocation management, substance documentation review, and monitoring of regulatory developments affecting the ZEC authorisation.

Geographic Coverage and Multi-Territory Strategies

Canary Islands (Las Palmas de Gran Canaria and Santa Cruz de Tenerife): ZEC registration requires business presence in the Canary Islands. Las Palmas de Gran Canaria is the most common ZEC location given its connectivity, business infrastructure, and proximity to universities supplying technology workers. We advise on office location, employee relocation packages, and the practical infrastructure to establish genuine substance.

Canary Islands (outer islands): companies establishing on islands other than Gran Canaria and Tenerife benefit from the EUR 50,000 (rather than EUR 100,000) minimum investment threshold — relevant for smaller companies in categories requiring lower initial investment.

Ceuta and Melilla: the 50% IS bonus is available to companies with genuine activity in either autonomous city. Ceuta and Melilla’s proximity to Morocco creates specific opportunities in international trade, distribution, and logistics. Our trade and customs team advises on the combined customs and IS optimisation available for genuine operations in these territories.

Multi-territory strategies: some companies benefit from combining regimes — a ZEC entity for technology services combined with a Ceuta presence for logistics activities. We design integrated group structures that maximise available incentives across all applicable special territories, coordinating IS, IVA, and employment law implications as a unified strategy.

Interaction with International Tax Planning

ZEC and Ceuta/Melilla regimes are compatible with international group structures but require careful coordination with transfer pricing rules (LIS Art. 18 and OECD Guidelines). Intra-group service pricing between a ZEC entity and other group entities must reflect arm’s length conditions — inflated service margins channelled through the ZEC entity to exploit the low rate are a transfer pricing risk. We design and document transfer pricing policies for special territory structures that withstand AEAT review.

For international investors considering Spain through a ZEC or Ceuta structure, interaction with applicable double taxation treaties — and with ATAD anti-avoidance provisions as implemented in Spain — must be assessed. We coordinate with our international tax practice to ensure special territory structures are effective at the group level and not undermined by treaty provisions or GAAR analysis in the investor’s home jurisdiction.

Our special territories advisory operates from our Las Palmas de Gran Canaria, Tenerife (via correspondent), Madrid, Ceuta, and Melilla service areas. For clients in mainland Spain evaluating ZEC as a relocation or expansion option, our advisory begins with a structured eligibility review that produces a written savings quantification and implementation road map — without commitment to proceed, so companies can make an informed decision before any investment. For clients already in the ZEC, our annual compliance support ensures that the substance requirements are continuously documented and that any ZEC regulatory changes are identified and addressed proactively before the next IS return. The ZEC renewal negotiation — for the period beyond December 2026 — is a live regulatory process that we monitor and advise on as it develops. Clients registered under the current authorisation will need to understand how any modified framework applies to their structure before the current authorisation expires.