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Company formation: the Canary Islands Special Zone (ZEC)

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Offshore Company Formation: The Canary Islands Special Zone (ZEC)

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What is the Canary Islands Special Zone?

The Canary Islands Special Zone is a low tax zone created within the framework of the Canary Islands Economic and Fiscal Regime (REF) for the purpose of promoting the economic and social development of the Islands and diversifying their production structure.

The Canary Islands Special Zone was authorised by the European Commission in January 2000 and extended in December 2006. The Spanish Government subsequently adapted the regulations concerning the ZEC contained in the Canary Islands Economic and Fiscal Regime, in accordance with the terms of the corresponding authorisations (Title V of Law 19/1994, as amended by Royal Decree-Law 12/2006 and implemented by Royal Decree-Law 1758/2007).

The benefits provided by the Canary Islands Special Zone will initially remain in force until 31 December 2019, and this time frame may be extended on the authorisation of the European Commission. The final date for authorisation to register in the Official ZEC Register (ROEZEC) will initially be 31 December 2013.

Corporate Income Tax

ZEC entities are subject to the Corporate Income Tax in force in Spain, at a reduced rate of 4%. As of 2008, the Corporate Income Tax rate in Spain ranges from 25 to 30%. The special rate of 4% shall be applied to a maximum amount of the tax base, depending on the number of jobs created and the type of activity carried out by the ZEC Entity.

Net Employment Creation

Industrial Activities

Service Activities

Other services *

From 3 to 8 workers




More than 8 and up to 12 workers




More than 12 and up to 20 workers




More than 20 and up to 50 workers




More than 50 and up to 100 workers




More than 100 workers




*“Other Services” are considered to be: wholesale trade and commission trade (except of motor vehicles and motorcycles); activities of travel agencies and tour operators; other tourist assistance activities; computer and related activities; legal, accounting and book-keeping activities; tax consultancy; market research and public opinion polling; business and management consultancy; management activities of holding companies; and advertising and public relations services.


The Canary Islands form part of the Spanish and European Union territory, which means that:

  • Double Taxation Agreements signed by Spain apply to ZEC Entities.
  • The European Union Parent-Subsidiary Directive applies to ZEC Entities. Therefore, dividends paid by subsidiaries of ZEC Entities to their parent companies resident in other countries within the European Union are exempt from withholding tax.
  • ZEC regulations include application of the following exemptions to income obtained by residents in non-EU states when the income is paid by a ZEC Entity and results from operations materially and effectively carried out within the geographical area of the ZEC.
  • Individuals: Interest and other returns obtained by the assignment of own capital to a third party, as well as capital gains on movable assets, obtained without the intermediation of a permanent establishment.
    Corporate Entities: profits paid to parent companies by its subsidiaries domiciled in Spain.

These exemptions will not apply when the income is obtained through tax havens or territories with which there is no effective exchange of tax information, or when the parent company has its tax residence in such countries or territories.


ZEC Entities are exempt from Transfer Tax and Stamp Duty in the following cases:

  • The acquisition of assets and rights to be used for carrying out the activity of the ZEC Entity within the geographical area of the ZEC.
  • Company operations carried out by ZEC Entities, except in the case of their dissolution.
  • Stamp Duty on documents associated with operations carried out by ZEC Entities within the geographical area of the ZEC.


IGIC is the Canary Islands indirect tax levied on final consumption, in substitution of the European Union Value Added Tax (VAT). It is similar in nature to VAT, although there are major differences such as the lower tax rates. The general IGIC rate is 5%.

Within the regime of the ZEC, the provision of goods and services among ZEC Entities is exempt from IGIC, as is the importing of goods by ZEC Entities.


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