Eternity Law International News The Canary Islands reduced tax regime

The Canary Islands reduced tax regime

September 5, 2023

The introduction by the Canary-authorities of a new tax-regime with a corporate rate of 4% has not been noticed by all specialists. However, this decision directly affects the lost revenue of corporations that open their accounts outside this region. This regime in the country was called the Canary Special Zone and this name makes many specialists mistaken because this status is not related to the geographical principle.

Therefore, it is important to understand where such rates apply and who can take advantage of them to get a clear benefit for their business. Let’s try to understand this issue.

Where the reduced tax regime in the Special Canary Zone applies

Today the Canary Islands are considered part of Spain and because of this many companies are confused about how to correctly calculate tax deductions. According to European Union directives and the Tax Treaties signed by the Spanish-authorities, all lawmaking applies to tax assessments in the Canaries, except for the VAT directive.

Accordingly, this corporate rate of 4% applies not only to a certain zone but to all corporations that have been registered in the Canary Islands. This tax regime was approved by the representatives of the EU and is valid until at least 2026. Also in the agreement, there are variations for prolongation of the agreement of the so-called tax heaven on Canary Islands. But it is too early to talk about it.

Prerequisites for obtaining special tax status

To obtain the status of a company that can operate under the reduced tax regime on Canary Islands, the following requirements must be met:

  • have a registered office and salaried employees in the territory of these islands;
  • at least one representative in a management position must reside in the islands;
  • the corps undertakes to carry out economic actions that will be subject to these prerequisites (in case the corporation or its branch violates this rule, the corporate tax rates may not apply);
  • any activity carried out by the company must be carried out through offices located in the territory of the islands;
  • the company may invest within 2 years from the date of establishment in the purchase of real estate, businesses, and other intangible acquisitions for stakes ranging from 50 to 100 thousand euros, and exceeding these amounts deprives the firm of corporate-tax-rates;
  • mandatory employment of 4 employees (if the enrollment is on a small island, then 3 workers) among the local population within six months from the date of enrollment of the legal entity.

If these essentials are met, the company will be able to get good opportunities for company development and not overpay taxes while carrying out its activities.

Why one should strive to obtain this status

First of all, the main incentive for obtaining this status is to pay a lessened tax-rate of 4%. At the same time, it will be applied to the company’s income of up to 1.8 million euros. But at the same time for each supplementary worker who is hired among residents above the minimum requirements for the island, this amount may increase by 0.5 million euros. Accordingly, the more such employees, the greater the savings on tax liabilities.

Another important point is the provision of dividend exemptions for foreign shareholders. According to local law, they are determined from qualifying gains from the parent company. Accordingly, they are not taxed on Spanish territory. But there are exceptions to this rule. Tax will be levied when the parent company is located in an offshore zone or in the territory of countries with which Spain does not cooperate under double taxation treaties. Parent corporations include companies that own at least 5% of the company’s shares during the year.

Also, free capital gains, if it was obtained from the sale of shares in a corp that has a status in the special tax zone of Spain. Likewise, taxes are not applied to interest paid to units or individuals who hold shares.

As you can see, setting up a corporation in the Canary Islands is a very profitable solution and can generate a good income compared to working in other regions.

Who can help in formalizing the company

To create a legal entity in a special Canary zone, you need to go through several important stages. Of course, you can do everything on your own, but the most correct way is to apply to professionals.

Representatives of our company are ready to help you with consultation at all stages of corps enrollment with the collection of the necessary documentation. Thanks to our cooperation, corporations collect the necessary package of documents for registration faster and understand why it is important to work with the Directorate of the Canary Islands.

We will not only help you to collect the necessary documents but also check them to eliminate errors. With our help, companies come to the regulatory authorities with a more qualified set of documents and the likelihood of a quick registration increases many times over. For a consultation, please contact our staff in any convenient way for you.

What is the special-tax-regime in the Canary Islands?

In reducing the payment of the tax rate to 4% and not paying taxes for paying dividends or for receiving income from the sale of shares in a corp enlisted in the CSZ.

Why are the Canary Islands a tax haven?

These rules only apply in the Canary Islands and not throughout the Spanish jurisdiction.

What is the tax-regime in Tenerife?

This island has a corporate-tax-rate of 4%. At the same time, a company can buy real estate or other assets on this island for an amount of up to 100 thousand euros.

What is the income-tax in the Canary Islands?

A rate of 4% applies on income up to 1.8 million euros and an additional 0.5 million euros on the engagement of locals above the min prerequisite for status in the CSZ.

You could be interested

Company registration in Argentina

Argentina still has not been able to fully overcome the economic crisis that has been going on over the past decade. The state must still make a lot of efforts to revive the economy. Therefore, the country’s government is trying its best to attract foreign investors. In recent years, experts say, Argentina has been moving...

Opening a bank account in Armenia 2023

Different banking institutions having local or external origin operate in Armenia. The jurisdiction has created a favorable environment for the development and support of the banking sector as a whole. In particular, the state apparatus takes the strictest measures to protect the interests of monetary means holders. Opening a bank account in Armenia is possible...

Segregated Forex Brokerage Account

“Segregated account” concept means separation of client savings and operating funds of the Forex broker. This scheme helps to ensure complete security of trading operations carried out within the foreign exchange market. The segregated account is guarantee that any fees associated with trading transactions, in particular, commissions, will be charged fairly, and this is a...

Ready-made company in Armenia

Armenia is a country located in the south of the Caucasus and does not belong to offshore zones. This jurisdiction is attractive for investors with comprehensive support for start-ups, simple registration of activities and loyal conditions of the commercial environment. Armenia is a link between Europe, the Eurasian Economic Union, Iran, as well as Canada,...

What is CBDC?

A central bank digital currency or, shortly, CBDC is explained as a virtual asset that is backed and issued by central banks. As cryptocoins and stablecoins have obtained boosted engrossment from holders, monetary authorities across the globe have decided to create a substitute to physical money or risk missing out on the future of funds....

Ukrainian Parliament adopted a law on the legalization of virtual assets

On February 17, 2022, the Verkhovna Rada of Ukraine re-adopted a law designed to set a legal framework for the digital asset market. The decision was supported by 272 deputies. The draft law No. 3637 “On Virtual Assets” was adopted at the first reading in December 2020 and at the second – on September 8,...
Fill the blank:


Dreikonigstrasse, 31A, Stockerhof


Baseina street, 7


Grosvenor Gardens, 52

New York

1178 Broadway, 3rd Floor #3353 New York, NY 10001


Gediminas Avenue, 44A


Kesklinna linnaosa, Tuukri 19


Lochrin Square, 1


Jacovides Tower, 5 floor


Esplanade, 7 floor

Hong Kong

18 Harbour Road, 35/F, Central Plaza, Wanchai


Level 42, Suntec Tower Three, 8 Temasek Boulevard


20 Martin Place


2609 Avenida da Boavista


Revaz Tabukashvili Str., N 45, area N 7