The Canary Islands offer a series of tax advantages and benefits that make the archipelago a perfect place for launching new projects and ideas that can also benefit remote workers who relocate to the Canaries.
Remember that the Canary Islands has a different tax system from mainland Spain and Europe in general. The equivalent to VAT in the Canary Islands is the well-known IGIC or Canary Island General Indirect Tax, generally charged at a lower rate. In the case of IGIC, the general rate of tax is just 7% compared to 21% VAT.
Since 2000, the islands have had a special low tax rate for businesses operating on the islands. Understanding these advantages and benefits is useful for everyone wanting to live and work in the Canary Islands.
Tax advantages
As well as the tax advantages available on the islands, there are numerous business development and incentives in a legal and taxation framework guarantee by the European Union (EU). These are some of the tax incentives:
- Canary Islands Special Zone (ZEC): A special low-taxation system which allows companies from different sectors to pay a special corporation tax rate of 4%, implying a significant fiscal saving if compared to the European Union average of 21.3%. In the rest of Spain, this tax is payable at a rate of 25% for SMEs.
- Fiscal deduction for production of material assets: Bonus of 50% on Corporation tax applicable to companies which produce assets in the agriculture, livestock, fishing and industrial goods.
- Reserve for Investments in the Canary Islands (RIC): Reduction of the tax rate to 90% of revenue provided certain investments in the growth of the business are made.
- Deduction for investments in fixed assets: It entails a reduction in corporate income tax equivalent to 25% of the amount earmarked for the acquisition of fixed assets.
- Deduction for investment in R&D+i and audiovisual productions: Includes the deduction for R&D and Technological Innovation, ranging from 45% to 75%, as well as a reduction of between 45% and 54% on national and international audiovisual productions, provided they comply with the requisites and within the legal limits established for this purpose.
Tax on consumption
Sale and purchase transactions with customers and suppliers in the Canary Islands is also subject to a tax system that differs from VAT:
- Canary Island General Indirect Tax (IGIC): An indirect tax applicable to sales and service providers in the Canary Islands, with much lower rates. The general rate is 7% as opposed to 21% VAT.
- Special taxes: Taxes on alcoholic beverages, tobacco products and fuels and certain modes of transport are lower than those charged in the rest of Europe.
These tax advantages and incentives and a cost of living slightly lower than the rest of Europe make the Canary Islands the perfect place to do business in excellent conditions.
How to obtain these benefits
Getting these benefits requires fulfilling a series of requirements and characteristics:
Businesses wanting to make use of the Canary Islands Special Zone (ZEC) must be legal persons. One of the requirements for operating in this scheme is having a new company or branch registered or with headquarters in the ZEC geographical zone. Sole traders (individual people) are excluded from this scheme, but not self-employed corporate entities who are eligible regardless of the size of their project.
This Canary Islands Special Zone (ZEC) is also available to non-Spanish resident business income. However, an exception applies to foreign companies based in companies that do not have information-sharing agreements with Spain.
Remote workers wanting to set up a company have an opportunity in the Canary Islands because these tax benefits and advantages can be very helpful in the initial stages. If you are interested and would like more information about these matters, we recommend you obtain more information from the Canary Islands website here: Agencia Tributaria.