ZEC Canary Islands — 20 Questions Answered

The ZEC is a special low-tax regime authorised by the European Union exclusively for the Canary Islands, Spain. Companies registered under ZEC pay only 4% corporate income tax instead of Spain's standard 25% — one of the lowest rates in the EU. It was created to promote economic development in the Canary Islands and has been approved and renewed by the European Commission.

Any new company or permanent establishment created in the Canary Islands can apply, regardless of the nationality of its shareholders or directors. Non-EU founders (UK, US, Canada, Australia, etc.) are fully eligible. The key requirements are: (1) minimum investment of €50,000 (Gran Canaria or Tenerife) or €100,000 (other islands), and (2) creation of at least 3 new full-time jobs (or 5 for other islands) within 6 months of registration.

Yes. The ZEC was authorised by the European Commission as a state aid measure compatible with EU law, given the outermost region status of the Canary Islands. It has been renewed multiple times and is currently approved until at least 2027. It is fully legal and not considered a "tax haven" under OECD or EU standards.

The ZEC covers a wide range of activities including: technology and software, e-commerce, consulting, financial services, logistics, telecommunications, audiovisual production, industry and manufacturing. Most digital and service businesses qualify. Excluded activities include financial intermediation, insurance, and certain regulated services. We assess your specific activity during a free consultation.

The 4% rate applies to the "special ZEC tax base", which has an annual cap depending on the number of employees: €1.8M for 3–5 employees, €3.6M for 6–8 employees, up to €54M for 50+ employees. Profits above the cap are taxed at the standard 25% rate. Most SMEs and startups operate entirely within the cap and pay 4% on all their corporate tax.

The Canary Islands use IGIC (Impuesto General Indirecto Canario) instead of VAT. The standard IGIC rate is 7% (vs 21% VAT in mainland Spain). For B2B transactions within the EU, the same reverse-charge mechanisms apply. Many ZEC companies can also benefit from IGIC exemptions on certain goods and services, further reducing their tax burden.

Yes. ZEC companies can also benefit from: (1) RIC (Reserva para Inversiones en Canarias) — up to 90% of profits can be reserved tax-free if reinvested within 4 years; (2) Deduction for investment in fixed assets (40% for Gran Canaria/Tenerife, 50% for other islands); (3) Exemption from ITPAJD (Transfer Tax) on company formation; (4) Reduced IGIC rates. Combined, these incentives can reduce your effective tax rate to near zero.

Yes. Dividends paid to EU resident shareholders benefit from the EU Parent-Subsidiary Directive (0% withholding tax if ≥10% shareholding for 12+ months). For non-EU shareholders, Spain's tax treaties apply — rates typically range from 0% to 15% depending on the country. Many jurisdictions have favourable treaties with Spain.

ZEC companies are subject to standard Spanish transfer pricing rules, which follow OECD guidelines. Transactions between the ZEC entity and related parties must be at arm's length. This is particularly relevant if you have a parent company or subsidiaries outside Spain. We provide transfer pricing documentation as part of our compliance service.

No. Shareholders do not need to be residents of the Canary Islands or even Spain. However, the company itself must have genuine economic substance in the Canary Islands: a real office or registered address, at least one director with authority to make decisions locally, and the required employees. A purely shell company without real activity does not qualify.

Yes. A ZEC company can be 100% owned by a US LLC, UK Ltd, GmbH, BV, or any other foreign legal entity. The ZEC company is a Spanish S.L. (Sociedad Limitada) — the Spanish equivalent of an LLC — fully owned by whatever structure you choose. We regularly set up ZEC subsidiaries for US, UK, German and Dutch parent companies.

Substance means the ZEC company must genuinely operate from the Canary Islands. In practice, this requires: (1) a physical or virtual office address in the Canary Islands; (2) at least 3 employees with local employment contracts; (3) a director who can demonstrate decision-making authority from the Canary Islands; (4) bank accounts and operations managed locally. We help you set up all of this.

No. Employees can be of any nationality. They simply need to have a valid work permit for Spain (if non-EU) and a Spanish Social Security number. EU citizens can work in Spain without a work permit. We can assist with the HR and employment compliance aspects of setting up your team.

The full process typically takes 6–10 weeks: (1) Drafting and notarising the company deed: 1–2 weeks; (2) Registration at the Commercial Registry: 2–3 weeks; (3) ZEC Consortium registration and authorisation: 3–4 weeks. We handle the entire process. You do not need to be physically present — everything can be done with a power of attorney.

For companies on Gran Canaria or Tenerife: €50,000 in fixed assets (equipment, software, leasehold improvements, etc.) within 2 years of ZEC registration. For companies on other islands (Lanzarote, Fuerteventura, La Palma, etc.): €100,000. This investment threshold is verifiable and documented.

ZEC companies must: (1) File annual corporate tax returns; (2) Submit annual accounts to the Commercial Registry; (3) Maintain ZEC registration with the Consorcio ZEC; (4) Prove ongoing compliance with employee and investment requirements; (5) File IGIC quarterly returns. We provide a full annual compliance service so you never miss a deadline.

The ZEC regime applies to newly created entities or new permanent establishments. You cannot convert an existing mainland Spanish company into a ZEC entity. However, you can create a new ZEC subsidiary that takes over operations. We design the optimal migration structure depending on your current setup.

Several options apply depending on your situation: (1) Entrepreneur Visa (Ley de Emprendedores): for non-EU nationals starting a business of public interest in Spain — fast-tracked to 3 months; (2) Digital Nomad Visa: for remote workers and startup founders — launched 2023; (3) Golden Visa: for investment of €500,000+ in real estate or €1M+ in business assets; (4) Intra-company transfer for executives. We advise on the best route for your profile.

Yes. The Canary Islands apply Spain's national Digital Nomad Visa (Visado para Teletrabajadores de Carácter Internacional), approved in 2023. It allows non-EU remote workers and startup founders to live in Spain while working for foreign companies or clients. It can be combined with ZEC company formation for maximum tax efficiency.

Yes, though opening a business bank account in Spain as a non-resident requires some preparation. We work with banks that are experienced with ZEC entities and foreign shareholders, including Santander, CaixaBank and BBVA, as well as fintech options like Wise Business and Revolut Business for operational accounts. We guide you through the account opening process.