The Canary Islands Special Zone (ZEC)

The Canary Islands Special Zone (ZEC)

The Canary Islands Special Zone is a low taxation scheme created within the framework of the Canary Islands Economic and Fiscal Regime (REF) for the purpose of encouraging the economic and social development of the Canary Islands and the diversification of their productive structure. The ZEC was authorized by the European Commission in January 2000. Following the terms and conditions of such authorization, the Spanish government adapted the aspects related to the ZEC contained in the regulations governing the Canary Islands Economic and Fiscal Regime1.1. Initially, the ZEC will be in force until 31 December 2008. This period can be extended subject to the authorization of the European Commission. The registration of companies in the Official ZEC Register (ROEZEC) will end in December 2006, unless otherwise decided by the European Commission.


ZEC Entities are subject to the Corporate Income Tax in force in Spain at reduced rates ranging from 1% to 5% depending on:

  • Net job creation.
  • Date of registration in the Official ZEC Register.
  • Whether their activity is new or pre-existing.
  • Whether their activity is widely implemented in the Canary Islands.

The general tax rate of the Corporate Income Tax in Spain is 35%, or 30% in the case of Small and Medium-sized Enterprises (SME).

Tax rate scale

In order to determine the tax rate applicable to a ZEC Entity, the period from the registration of the ZEC Entity to the end of the validity of the ZEC shall be divided into three stages. The length of these stages will vary depending on the year in which the ZEC Entity is registered.

The applicable tax rates shall be levied on the taxable amount arising from operations materially and effectively carried out within the ZEC territory.

Considering the above-mentioned stages and the net job creation of a ZEC Entity, the tax rates will be as follows:

General taxation scheme

Between 5 and 8 workers1,0%2,5%5,0%
Over 8 and up to 121,0%2,25%4,5%
Over 12 and up to 201,0%2,0%4,0%
Over 201,0%1,75%3,5%

Definition of the stages

If the activity of a ZEC Entity has been carried out previously with a different ownership, and the pre-existing workforce is retained, the tax rates will be established according to the relative increase in the workforce.

Entities with a pre-existing activity

Over 50%1,0%2,5%5,0%
Between 25% and 50%2,5%3,5%5,0%
Less than 25%3,5%4,5%5,0%

The special tax rates (between 1% and 5%) shall be applied to a maximum amount of the tax base which will vary according to the number of jobs created by the ZEC Entity and its type of activity.

Maximum amounts of the tax base at which ZEC entities will benefit from the special tax rates

Between 5 and 8 employees1.800.000 € 1.500.000 € 1.125.000 € 
Over 8 and up to 12 employees2.400.000 € 2.000.000 € 1.500.000 € 
Over 12 and up to 20 employees3.600.000 € 3.000.000 € 2.250.000 € 
Over 20 and up to 50 employees9.200.000 € 8.000.000 € 6.000.000 € 
Over 50 and up to 100 employees21.600.000 € 18.000.000 € 13.500.000 € 
Over 100 employees120.000.000 € 100.000.000 € 75.000.000 € 

2 “OTHER SERVICES” include the following NACE activities: wholesale trade and commission trade, except of motor vehicles and motorcycles; activities of travel agencies and tour operators; tourist assistance activities n.e.c.; legal, accounting, book-keeping and auditing activities; tax consultancy; market research and public opinion polling; business and management consultancy; holdings, and advertising and public relations services.


The Canary Islands are an integral part of Spanish territory and the European Union and therefore:

  • ZEC Entities may take advantage of the Double Taxation Agreements signed by Spain with other countries.
  • ZEC Entities may take advantage of the EU Parent Subsidiary Directive, according to which the profits that a subsidiary distributes to its parent company with domicile in another Member State are exempt from withholding tax.
    • According to the ZEC regulations, the exemptions described below shall also be applied to the returns obtained by non-EU Member residents from a ZEC Entity and arising from operations materially and effectively carried out within the ZEC territory. Individuals: profits and returns obtained from the transfer of personal capital, to third parties as well as earnings from tangible properties without the individuals taking permanent establishment.
      Corporate entities: profits distributed to parent companies by subsidiaries domiciled on Spanish territory.

These exemptions will not be applied if the profits have been obtained through a territory considered as a tax haven, nor if the tax domicile of the parent company is on such territories.


The IGIC is the Canarian Indirect Tax which is levied on the end product, substituting Value Added Tax applied in the EU. Its nature is similar to that of VAT, although with important differences such as lower tax rates. The general IGIC rate is 5%.

As a general rule, ZEC Entities are exempt from IGIC when selling goods and delivering services to other ZEC Entities, as well as when importing goods.

The ZEC extends over the whole Canarian territory with the following specifications:

  • Those companies whose corporate purpose consists of service activities may be established anywhere within the Canarian territory.
  • Those companies whose corporate purpose is the production, transformation, handling or commercialization of goods may be established only within certain areas specified for that purpose.

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