Canary Islands Tax Guide 2026:
Lower Taxes, Special Regime
The Canary Islands operate a unique tax framework, separate from mainland Spain, with IGIC instead of VAT, ZEC's 4% corporate tax, and special deductions unavailable anywhere else in the EU.
4%
ZEC corporate tax (vs 25% standard)
7%
IGIC standard rate (vs 21% VAT)
90%
RIC profit reinvestment deduction
24%
Beckham Law flat personal rate
How the Canary Islands differ from mainland Spain
Four structural advantages built into the Canary Islands' constitutional tax framework (REF).
IGIC instead of VAT
The Canary Islands are outside the EU VAT area. IGIC (Impuesto General Indirecto Canario) applies at a 7% standard rate (mainland Spain charges 21% VAT). Basic foods, medicines and books carry 0% IGIC.
ZEC: 4% corporate tax
The Zona Especial Canaria offers a 4% corporate income tax rate for qualifying entities, the lowest statutory corporate rate in the EU, fully state-aid approved.
RIC: reinvestment deduction up to 90%
The Canary Islands Investment Reserve (RIC) allows companies to reduce their tax base by up to 90% of their undistributed profits from Canary Islands establishments, provided the reserve is invested in qualifying assets in the islands within 3 years.
REF: the overall framework
The Régimen Económico Fiscal de Canarias (REF) is the constitutional framework behind all Canary Islands tax benefits. Its current tax rules are set out mainly in Law 20/1991 and Law 19/1994, and it is protected by EU treaty.
The ZEC: 4% Corporate Tax
The Zona Especial Canaria (ZEC) is a special low-tax area within the Canary Islands with EU state-aid approval. Companies incorporated within the ZEC pay only 4% corporate income tax (IS) on their qualifying income base, compared to Spain's standard 25%.
The ZEC has operated since 2000 and is managed by the ZEC Consortium (Consorcio de la Zona Especial Canaria). It has no end date of its own: since the 2023 reform, Art. 29 of Law 19/1994 ties the authorisation of new entities to the validity of the EU General Block Exemption Regulation (currently Regulation (EU) 651/2014, which applies until 31 December 2026) or of the regulation replacing it, so the limit moves when the European Commission extends or replaces it (see Does the ZEC end in 2026?). It is fully compatible with EU treaty obligations and Spain's network of 90+ double taxation agreements.
ZEC is open to companies whose activity is on the list annexed to Law 19/1994 (Art. 31.2.c): software and IT services, wholesale trade, professional services, manufacturing, logistics and more. Financial, insurance and real estate activities are not on the list.
ZEC requirements at a glance
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Requirements by island, substance rules, application process, EU comparison and costs: everything in one free guide.
For individuals: your tax position
Three different tax regimes apply depending on your residency status and circumstances.
Spanish Tax Resident (IRPF)
- Progressive 19-47% on worldwide income
- Canary Islands regional deductions apply
- RIC deduction if you run a business in the islands (direct assessment)
- File annual Declaración de la Renta
Beckham Law (IRPF Special)
- 24% flat rate for 6 years
- Only Spanish-source income taxed
- Apply via Modelo 149 within 6 months
- Compatible with ZEC company structure
Non-Resident (IRNR)
- 19% (EU/EEA) or 24% on Spanish-source income
- Rental income via Modelo 210 (yearly, 1–20 April, from Q4 2026 income)
- Capital gains at 19%
- No worldwide income declaration
IGIC vs Spanish VAT
The Canary Islands use IGIC instead of Spanish IVA (VAT). Rates are significantly lower, providing a structural cost advantage for businesses and consumers.
| IGIC rate | Applies to | Equivalent mainland VAT |
|---|---|---|
| 0% | Basic foods (bread, milk, eggs, fresh fruit and vegetables), medicines, books, inter-island sea and air transport | 4% / 10% |
| 3% | Other foodstuffs, clothing, furniture, land transport, theatre, cinema and concert tickets | 10% / 21% |
| 5% | Soft drinks and fizzy drinks with added sugar or sweeteners | 21% |
| 7% | Standard rate: most goods and services | 21% |
| 9.5% | Cars up to 11 fiscal HP and other vehicles not taxed at another rate | 21% |
| 15% | Cars over 11 fiscal HP, spirits, cigars over €2.50, jewellery, perfumes | 21% |
| 20% | Tobacco products other than cigars and cigarillos (special rate) | 21% |
* IGIC applies to supplies in the Canary Islands. Exports to mainland Spain or EU are treated as zero-rated for IGIC but may trigger VAT obligations elsewhere.
Frequently asked questions
Do I pay VAT or IGIC in the Canary Islands?
IGIC. The Canary Islands are not part of the EU VAT area. The standard IGIC rate is 7% (vs 21% VAT on mainland). Some services carry 0% IGIC. Businesses in the Canary Islands that supply to mainland Spain or the EU may still need to deal with VAT on those transactions, depending on the nature of the supply.
Can a foreign company benefit from ZEC?
Yes. A foreign company can incorporate a ZEC entity in the Canary Islands. The entity must have real economic activity there, at least 5 employees in Gran Canaria or Tenerife (3 in the other islands) within 6 months, and meet the minimum investment requirement: €100,000 in Gran Canaria or Tenerife, €50,000 in the other islands, within 2 years. The ZEC entity is then subject to Spanish corporate law with 4% IS on its qualifying income base.
I receive rental income from a Canary Islands property. How am I taxed?
Non-residents pay IRNR via Modelo 210: 19% if EU/EEA resident, 24% otherwise (including UK residents). EU/EEA residents may deduct the expenses directly related to the rental; other non-residents are taxed on the gross rent (Article 24 of the Non-Resident Income Tax Act). Rent is no longer filed quarterly as a rule: where there is tax to pay, rental income accrued from the fourth quarter of 2026 onwards (or all 2026 rent, if you declare the year on an aggregated basis) is filed once a year, from 1 to 20 April of the following year (Order HAC/623/2026); nil returns are filed from 1 to 20 January. Third-quarter 2026 rent filed separately was due from 1 to 20 October 2026. If you are Spanish tax resident, rental income is included in your IRPF return. Canary Islands residents benefit from regional deductions. You must also consider local IBI (property tax) regardless of residency status.
Does the Beckham Law apply in the Canary Islands?
Yes. The Beckham special IRPF regime (Art. 93 LIRPF) applies throughout Spain, including the Canary Islands. You pay 24% flat on your employment income and other Spanish-source income up to €600,000 for 6 years (dividends, interest and capital gains are taxed on a separate scale). This can be combined with ZEC for maximum tax efficiency: ZEC pays 4% corporate tax; you as director/employee pay 24% personal tax under Beckham.
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