ZEC vs EU Tax Regimes 2026:
Which Is the Most Efficient?
The Canary Islands ZEC is a special economic zone with a 4% corporate tax rate, compatible with EU law and covered by the EU General Block Exemption Regulation, with full access to EU treaties, the Spain-EU market, and Canary Islands REF benefits.
4%
ZEC statutory corporate tax
vs 25%
Spain standard IS rate
vs 12.5%
Ireland's rate
5 employees
Minimum in Gran Canaria / Tenerife (3 elsewhere)
Full comparison table 2026
Key parameters for the leading low-tax regimes available to international businesses.
| Regime | Corp. Tax | EU | VAT | Minimum | Substance |
|---|---|---|---|---|---|
| ZEC (Canary Islands)LOWEST IN EU | 4% IS | EU Member | IGIC 7% | 5 employees + €100K (3 + €50K on smaller islands) | Yes (real activity) |
| Ireland | 12.5% | EU Member | VAT 23% | No special zone | Strong substance needed |
| Malta | 5% effective (after refunds) | EU Member | VAT 18% | Complex refund system | Strict post-2020 |
| Netherlands | 25.8% | EU Member | VAT 21% | Participation exemption | Strong substance |
| Madeira (Portugal) | 5% (MIBC) | EU Member | VAT 22% | Minimum jobs + investment | Zone limited scope |
| UAE (Free Zones) | 0% | Non-EU | No VAT | Easy setup | Non-EU treaty network |
* Malta effective 5% achieved through 6/7 shareholder refund on 35% corporate tax. UAE 0% applies in free zones; mainland UAE now has 9% corporate tax. All rates as of 2026.
Why ZEC wins on substance
Tax rate alone is not enough: legal certainty, treaty access and operational simplicity matter. Here's where ZEC has structural advantages.
Only 4% flat rate in EU
This is the statutory rate set by art. 43 of Law 19/1994, not an effective rate achieved through rebates or refunds. It applies only to the part of the tax base from operations carried out materially and effectively in the ZEC, up to the cap in art. 44.6 (€1.8 million with the minimum jobs, plus €500,000 for each additional job up to 50; the saving may not exceed 30% of net turnover). The rest of the tax base is taxed at the ordinary corporate tax rate.
Spain's 90+ double taxation treaties
ZEC entities are Spanish companies. They access Spain's extensive treaty network, one of the largest in the world, for withholding tax relief on dividends, interest and royalties.
No "substance through dividends" complexity
Unlike Malta's refund mechanism (where shareholders receive 6/7 of tax back) or Dutch participation exemption structures, ZEC's 4% involves no refund cycle: you pay 4% on the qualifying tax base (arts. 42.1.a and 44.6 of Law 19/1994).
EU + Schengen + freedom of movement
Unlike UAE or Gibraltar, ZEC is located in EU territory. Full EU market access, EU banking, Schengen travel and freedom of movement for staff.
ZEC limitations: be clear-eyed
ZEC is genuinely powerful, but it is not a letterbox company scheme. These are real requirements that must be met.
Minimum 5 employees (3 on smaller islands)
At least 5 employees must be physically based in Gran Canaria or Tenerife, or 3 in El Hierro, Fuerteventura, La Gomera, Lanzarote or La Palma, within 6 months of registration.
Minimum €100,000 investment (€50,000 on smaller islands)
Investment in tangible or intangible fixed assets must reach €100,000 in Gran Canaria or Tenerife, or €50,000 on the other islands, within 2 years of registration.
Real economic activity required
The entity must have genuine business operations in the Canary Islands, not just a registered address.
ZEC Consortium authorisation needed
Prior authorisation from the ZEC Consortium is required; by law it must decide within two months of receiving the application (art. 41 of Law 19/1994). Only the activities listed in the annex to the law qualify.
Who uses ZEC?
ZEC works well for businesses with international clients and income, where the Canary Islands serves as the EU operational base. These are the most common business profiles we advise:
- Latin American companies expanding to the EU market
- Digital agencies and SaaS companies serving international clients
- Wholesale trading businesses with EU and international customers
- Blockchain and software development companies
- Professional services firms (consulting, tech, design)
- International groups setting up an operating subsidiary in the Canary Islands
- Remote-first companies wanting EU legal certainty
ZEC at a glance
Frequently asked questions
Is the ZEC really 4% or is there a catch?
The 4% is the actual statutory corporate tax rate applied to qualifying income, not an effective rate achieved through rebates or complex structures. It's EU state-aid approved and has been operating since 2000. There are requirements (minimum 5 employees and €100K investment in Gran Canaria or Tenerife [3 employees and €50K in the smaller islands], ZEC Consortium authorisation, real economic activity), and the 4% applies only to the part of the tax base from operations carried out in the ZEC, up to the cap in art. 44.6 of Law 19/1994 (€1.8 million with the minimum jobs, plus €500,000 for each additional job up to 50; the saving may not exceed 30% of net turnover). The rest of the tax base is taxed at the ordinary corporate tax rate.
How does ZEC compare to Malta's 5% regime?
Malta's effective 5% requires a complex shareholder refund mechanism: the company pays 35% corporate tax, then shareholders claim back 6/7 (leaving a net 5%). This involves a refund cycle, administrative complexity and has faced increasing substance scrutiny. ZEC's 4% is straightforward: pay 4% on the qualifying tax base, no refund cycle needed. Malta also involves standard EU VAT (18%) for most transactions; ZEC uses IGIC (7%), often advantageous for B2B international sales.
Can I run my ZEC company remotely?
The ZEC requires genuine economic substance in the Canary Islands: at least 5 employees physically based in Gran Canaria or Tenerife, or 3 in the smaller islands (art. 31.2.e Law 19/1994). Shareholders can live anywhere in the world, but the registered office and place of effective management of the company must be in the ZEC area (art. 31.2.a) and at least one director must be resident in the Canary Islands (art. 31.2.b). Digital businesses and SaaS companies typically build a small local operations team to meet the threshold.
How long to set up a ZEC entity?
There is no single statutory timeline for the whole project. The process involves: company incorporation (notary + Commercial Registry); ZEC Consortium authorisation (by law the Consortium must decide within two months of receiving the application, and registration follows within ten days of filing the incorporation documents, art. 41 of Law 19/1994); and bank account opening. During this time we handle all compliance setup, statutes, employment contracts and banking introductions. A company incorporated before authorisation only counts as a newly created ZEC entity if it carries out no economic activity until it is registered (art. 41 of Royal Decree 1758/2007).
Keep reading
Is ZEC the right structure for your business?
We advise international businesses on ZEC incorporation. A 30-minute consultation to assess your situation. Your first consultation fee is deducted from our fees if you instruct us.