Spain: How to pay 4% Corporate Tax in the Canary Islands23 September 2019
Martin Pech Ariar
Why the Canary Islands?
The Canary Islands offer great quality of life, a friendly population, amazing cuisine, eternal spring - but also fiscal savings.
The Canary Islands are a Spanish archipelago in the Atlantic Ocean that is an autonomous community and the outermost region of the European Union.
The Canary Islands are located about 100 km from Africa’s Coast and a 3 hour flight from the Iberian Peninsula. Different connections by air and sea join the Canary Islands with three continents; therefore the Canary Islands can be considered a "hub" between Europe, Africa and America.
More than two million inhabitants live among the eight Canary Islands (El Hierro, La Palma, La Gomera, Tenerife, Gran Canaria, Fuerteventura, Lanzarote and La Graciosa). Many of them are Germans, British, Nordic and Peninsular who have decided to establish their permanent residence in the islands.
The Canary Islands have a subtropical climate. Despite their geographical location near the Sahara, temperatures are reduced by the sea and the trade wind which allows people to enjoy temperatures between 18 and 25 degrees almost all year round. These pleasant temperatures are the reason why the Canary Islands are called the islands of eternal spring.
However, it is not only good weather that attracts tourists and new residents to the islands. The low cost of living for both individuals and companies plays a fundamental role in attracting investment to the Canary Islands. A key element for the low costs is the Canary Islands Economic and Fiscal Regime (REC) which includes a Canary Islands Indirect General Tax (IGIC) of 6.5% (The peninsular VAT is 21%) and the Canary Islands Special Zone (ZEC).
Investors will find the Canary Islands to be a modern region with good infrastructure. The Islands have a lot of human capital with know-how in the tourism sector, renewable energy, logistics and port goods, agriculture and livestock, environment, and of course, the IT sector. Working with a laptop on the beach under a palm tree has become a goal for many. The Canary Islands offers precisely that but with the legal security offered by Spanish and European regulations.
With ZEC there are no more excuses!
The ZEC is an area with a low tax rate which was authorized by the European Commission and is regulated by Law 19/94 of July 6 1994, whose purpose is to promote the economic and social development of the Archipelago.
a) Main advantages
The entities that set up in the ZEC will be subject to a Corporate Tax of 4% (compared to the general rate of 25% in Spain. The general rate in EU is 20 %)
In addition, the dividends distributed by the ZEC entities to their parent companies residing in another country will be exempt from withholding the Non-resident Income Tax.
Tax on Property Transfers and Documented Legal Acts are also exempt from taxation which includes the acquisition of assets destined to the development of the activity of the ZEC entity, the corporate operations of the ZEC entity and the documented legal acts related to the operations of the ZEC entity. This will apply as long as these actions are carried out in the geographical scope of the ZEC.
Finally, the deliveries of goods and services made by the ZEC entities to each other, as well as the imports of goods made for themselves, are exempt from the IGIC.
The requirements to qualify for the ZEC are:
- Be a newly created entity or branch with its registered address and effective place of management in the Canary Islands;
- At least one administrator must reside in the islands;
- A minimum investment of 100,000 Euros (in Tenerife and Gran Canarias) or 50,000 Euros (in the rest of the islands) must be made in fixed assets related to the activity;
- Create 5 jobs (Tenerife and Gran Canarias) or 3 (in the rest of the islands);
- The corporate purpose must be within the economic activities permitted in the ZEC.
If you are interested in establishing yourself for private purposes or start a new business in the Canary Islands we can offer you the necessary advice.
The Canary Islands are waiting for you!
For further information, contact:
Martin Pech Ariar, Advogado
Bufete Mañá-Krier Elvira, Barcelona
t: +34 (669) 912 581