Canary Islands ZEC: 4% corporate tax — requirements and who it suits

The Canary Islands Special Zone (Zona Especial Canaria, ZEC) lets a new company in the Canaries pay 4% corporate income tax instead of 23–25%. The conditions: management and a director on the islands, an activity on the legal list, an investment of €50,000–100,000 and 3–5 jobs. Under current law, authorisation to register must be granted by 31 December 2026.

Not every Canary company pays 4% — only those entered in the ZEC register, and only on profit earned by their people and premises on the islands. Below: the four conditions under Law 19/1994, how the 4% base is calculated, worked examples on €500,000 and €3 million of profit, why the regime does not suit a one-person consultancy, what happens if you breach the rules, and what changes for you as the owner.

What the ZEC is and how it differs from “4% tax in the Canaries”

The ZEC was created in 1994 by the law on the Canary Islands Economic and Tax Regime (Régimen Económico y Fiscal, REF) — Law 19/1994, articles 28–52. Its purpose is to attract companies that create jobs on the islands. It is run by the ZEC Consortium (Consorcio de la Zona Especial Canaria), part of the Ministry of Finance, which grants authorisations and keeps the Official Register of ZEC Entities.

An ordinary SL registered on Tenerife or Gran Canaria pays the same corporate income tax (Impuesto sobre Sociedades, IS) as a company in Madrid: in 2026, 25%, 23% with turnover under €10 million, and 19–21% with turnover under €1 million. The Canary differences for such a company are IGIC instead of IVA and local reliefs such as the investment reserve. The 4% rate applies only once a company has been approved by the Consortium and keeps meeting its conditions every year. Spanish company taxation in general is covered in our guide to starting a business in Spain, and the islands themselves in the Canary Islands.

The four requirements: who can join the ZEC

The conditions are set out in article 31 of Law 19/1994 and detailed in Royal Decree 1758/2007. All of them must be met.

• A new company or a new branch. An SL or SA set up for the ZEC qualifies, as does a branch (sucursal), including the branch of a foreign company. An existing company cannot be moved into the regime. A company incorporated before authorisation still counts as new if it carried out no activity before registration.
• Registered office and management in the Canaries. Both the registered office and the place of effective management (sede de dirección efectiva) must be on the islands. At least one director — for a branch, its legal representative — must live in the Canaries.
• An activity on the list. The annex to the law lists activities by NACE code: software and IT consulting, legal and accounting services, management consulting, engineering, research, advertising, publishing and film, wholesale trade, logistics and manufacturing. Retail, hotels and restaurants, real estate and financial services are not on the list. Intra-group service centres are expressly excluded. Other activities can only be carried on through a separate branch with separate accounts and no relief.
• Investment within the first two years. At least €100,000 on Gran Canaria and Tenerife and €50,000 on El Hierro, Fuerteventura, La Gomera, Lanzarote and La Palma, in fixed or intangible assets located in the Canaries and needed for the business. The assets must be kept for the whole period of the regime or their useful life and cannot be sold or leased to related parties. Assets received in a reorganisation do not count. If you create more jobs than the minimum, the Consortium may waive the investment.
• Jobs within the first six months. Five on Gran Canaria and Tenerife, three on the other islands. If the company has premises on Tenerife or Gran Canaria, the requirements for those islands apply. The average annual headcount must not fall below that number while the regime lasts. If the same activity was already carried on in the islands, net job creation is required.

The application comes with a business report (memoria): projected profit and loss and balance sheet for three years, how the investment will be financed, bank certificates of solvency, the founders’ experience and the project’s contribution to the Canary economy. Its content becomes binding: the company can only change its activity with the Consortium’s permission. The decision takes up to two months; if there is no answer, the application is deemed refused.

Fees to the Consortium: €1,500 to process the application, not refunded if refused, and an annual registration fee of €1,500 on Tenerife and Gran Canaria and €1,300 on the other islands. Notary and registry costs for setting up the company come on top — see company registration in Spain.

How the 4% works: two limits on the tax base

The 4% rate does not apply to all of the company’s profit but to the lower of two amounts.

The first is the share of operations carried out in the Canaries. This is the proportion of income from work the company did on the islands with its own people and resources, out of all its income (article 44). Goods count if they are shipped from the Canaries, or if the deal is organised, contracted and invoiced from the Canaries and at least 90% of the related costs are people and resources on the islands. Services count if they are provided by staff and resources located in the Canaries. Software, patents and copyrights count in the proportion in which they were created on the islands. Transactions with non-cooperative tax jurisdictions never count.

The second is a cap linked to jobs. €1,800,000 of tax base if the minimum number of jobs is created, plus €500,000 for each job above the minimum, up to 50 jobs. On top of that there is a ceiling: the annual saving compared with the general rate cannot exceed 30% of the company’s turnover. Changes in headcount count in the year they happen.

Anything above the lower of the two limits is taxed at the normal rate. A company with €4 million of profit and five staff on Tenerife pays 4% on €1.8 million and the normal rate on the remaining €2.2 million. A company whose services are half delivered by people on the mainland gets 4% on only half of its base.

Worked example: a company with €500,000 of profit

Example: an SL on Tenerife with 6 employees, €500,000 of profit, turnover under €10 million, all services delivered from the island. The cap is €1,800,000 + €500,000 for one job above the minimum = €2,300,000, so all of the profit is taxed at 4%. We compare it with the same company on the mainland at 23% and, for reference, at the general 25%.

If all the after-tax profit is paid to you as a dividend, as a Spanish resident you pay tax on savings income: 19% up to €6,000, 21% up to €50,000, 23% up to €200,000, 27% up to €300,000 and 30% above. From the ZEC company you receive a €480,000 dividend, pay €125,880 and keep €354,120. From the mainland company at 23%, the dividend is €385,000, the tax €97,380 and you keep €287,620. The difference is €66,500 a year, because the extra €95,000 is taxed at the top 30% rate.

The saving is real if the business needs those six people anyway. If you have to hire staff just for the regime, count the cost. We assume €35,000 a year per employee — an estimate: a salary of about €26,500 plus employer social security of about 32%. Five people on Tenerife plus the annual fee cost €176,500 a year. That only pays off with profit of at least €930,000 at a 23% rate (€176,500 / 19 points) or €840,000 at 25% (€176,500 / 21 points) — before the €100,000 investment and the risk that the Consortium or the tax office treats the staff as a formality.

Remember too that new companies on the mainland pay 15% in their first profitable year and the following one. In those two years the gap with the ZEC is 11 points, not 19–21.

Large profit: €3 million and the value of each job

The bigger the profit, the more the headcount matters. Example: a company on Tenerife with €3,000,000 of profit and €12 million of turnover, general rate 25%.

Three extra employees cost about €105,000 a year and save another €252,000. The 30%-of-turnover ceiling does not bite here: 30% of €12 million is €3.6 million, while the saving is €630,000.

Why the ZEC does not suit a one-person consultancy

Consulting is on the list of permitted activities, but the regime is built for companies with staff. Example: you are a consultant with €150,000 of profit and turnover under €1 million. On the mainland the company pays 19% on the first €50,000 and 21% on the rest — €30,500. In the ZEC it pays €6,000. The saving is €24,500 a year.

Against that stand at least three jobs on the smaller islands and five on Tenerife or Gran Canaria. Even if your own position counts (a question for the Consortium), that means two more employees on Lanzarote, about €70,000 a year, or four on Tenerife, about €140,000 — plus a €50,000–100,000 investment and the annual fee. A solo consultant is better off with an ordinary SL or self-employment, and when relocating, with a well-planned Beckham Law application.

Deadlines: how long you can still join

The regime’s timeline is tied to the EU General Block Exemption Regulation on state aid — Regulation (EU) 651/2014 (article 29 of Law 19/1994). Authorisation to register in the ZEC can be granted until that regulation expires, and the relief can be enjoyed for six years afterwards. Regulation (EU) 2023/1315 extended it to 31 December 2026. Hence the dates: authorisation by 31 December 2026, relief until 31 December 2032.

The Consortium takes up to two months to decide. If you want to join under the current rules, the business report and documents should be filed as early as possible in autumn 2026: an application filed at the end of November may not make it.

What happens after 2026 is not yet settled. The European Commission published a draft of the new block exemption regulation in February 2026 and plans to apply it from 1 January 2027. Article 29 also refers to “the rule that replaces” Regulation 651/2014, but as of October 2026 there is neither an official clarification nor a decision on a new ZEC registration window. Do not build a plan on an extension yet.

Other ZEC benefits: IGIC, transfer tax and payments to non-residents

• IGIC instead of IVA. The Canaries have their own sales tax, IGIC (Impuesto General Indirecto Canario): a general rate of 7% against 21% IVA on the mainland, with 0%, 3% and 5% rates and higher ones. This applies to all Canary companies. On top of that, ZEC companies do not charge each other IGIC and pay none on imports. How the mainland tax works is explained in our guide to IVA tax.
• Transfer tax and stamp duty (ITP/AJD). A ZEC company is exempt when buying assets for its business in the Canaries, on corporate transactions other than liquidation, and on documents linked to its ZEC operations.
• Dividends and interest to non-residents. Spain exempts from withholding the dividends paid to an EU parent company holding at least 5% for at least a year. For the ZEC, this rule extends to parent companies outside the EU, provided the profit was earned in the ZEC and their country exchanges tax information with Spain. This applies to corporate shareholders. An individual who is not resident in Spain pays the normal non-resident tax on dividends, or the treaty rate.

ZEC, RIC and other Canary tax reliefs

Ordinary Canary companies have reliefs of their own, without the Consortium’s approval:

• Canary Islands Investment Reserve (Reserva para Inversiones en Canarias, RIC). The company reduces its tax base by the amount it allocates to the reserve — up to 90% of the undistributed profit of its Canary establishments. The reserve must be invested within three years: in new fixed assets, job creation, shares in new ZEC companies and other items listed in the law. The tax is deferred, not cancelled: if the investment is not made or the asset is sold early, the amount is added back with late-payment interest.
• Enhanced investment deduction in the Canaries. The cap on the corporate tax deduction is 80% higher than the general one, and at least 35 points higher.
• 50% relief for production. Corporate tax on profit from selling goods produced in the Canaries — agriculture, industry, fishing — is halved.

These reliefs and the ZEC can be combined only within EU state aid limits. Capital contributed to a ZEC company out of the RIC does not count towards its required investment. How to combine the regimes for a given company should be worked out with an adviser before applying. If profit is being accumulated for reinvestment, compare the ZEC with a holding company in Spain.

A foreign company’s branch and living on the mainland

A common question from founders: can you open a Canary branch of a non-EU company, work on the mainland with Spanish staff and pay Canary taxes? Some suggest buying a car or a flat on the island to “show presence”. That does not work.

The law does allow a ZEC branch: it must be new, have a representative living in the Canaries, and meet the same activity, investment and headcount conditions. But 4% applies only to profit from work done by people and resources on the islands. Staff in Madrid generate profit taxed at the normal rate, and management from the mainland puts the regime itself at risk. A car and a flat on the island change neither. One more point for a branch: when it remits profit to a head office outside the EU, an additional 19% applies unless the double tax treaty with that country removes it. Check the specific treaty.

The same answer applies to running an SL from the Canaries — for example one needed for a startup visa — while living on the mainland: 4% goes to a company that actually operates on the islands. For the regime to make sense, you or your team need to live in the Canaries. What that looks like on Tenerife is covered in moving to Tenerife.

Where companies lose the relief

• Breaching any condition. Average headcount below the minimum, the director leaving the islands, activities outside the business report — the company loses the 4% for the year of the breach and may be struck off the register.
• Not making or selling the investment. The most expensive case: the tax for the year of the breach is increased by the difference between 4% and the general rate for all previous years, plus late-payment interest. For the company in the first example that is €95,000–105,000 for each year. An asset can be sold if the money is reinvested in a new one on the same terms within a year.
• Work not done in the Canaries. Remote staff on the mainland, contractors abroad and decisions taken off the islands all reduce the share of the base taxed at 4%.
• Intra-group services. A centre serving only its own group is outside the regime.
• Staff costs in a bad year. The average headcount must be kept for the whole period, even if revenue falls.
• Deadlines. Under current law, no authorisation will be granted after 31 December 2026.

After a penalty, the company can ask to recover the relief for later years if it again meets all the conditions.

The owner: dividend tax and residence

The ZEC reduces the company’s tax, not yours. A Spanish resident’s dividends are taxed on the savings scale of 19–30%, and in the Canaries it is the same as on the mainland. The Canary regional scale applies only to an individual’s employment and business income; it does not affect dividends. How dividends are taxed after relocating is covered in dividends after moving to Spain, and the bigger picture in taxes in Spain for individuals.

If you live in the Canaries for more than 183 days a year as the company’s director, you become a Spanish tax resident with all that follows: worldwide income, reporting of foreign assets, wealth tax. When residence starts is explained in Spanish tax residency. That is why the ZEC should be planned together with the family move and the ownership structure, not on its own.

Key points on the Canary Islands ZEC

• The ZEC means 4% corporate tax instead of 23–25% for a new company or branch in the Canaries approved by the ZEC Consortium.
• Conditions: registered office, management and a director on the islands, an activity on the list, an investment of €100,000 on Tenerife and Gran Canaria or €50,000 on the other islands, and 5 or 3 jobs.
• The 4% applies to the lower of two amounts: profit from work done in the Canaries, and a cap of €1.8 million plus €0.5 million for each job above the minimum.
• With €500,000 of profit and genuine staff the saving is about €95,000–105,000 a year; for a solo consultant the regime does not pay off.
• Under current law, authorisation must be granted by 31 December 2026, with relief until the end of 2032; the Consortium takes up to two months to decide.
• Breaching the conditions removes the relief, and a missed investment also triggers back tax for all previous years with interest.
• Dividends to the owner are taxed at 19–30%, as everywhere in Spain. We can model the ZEC for your company and family in a consultation.

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Frequently asked questions about the Canary Islands ZEC

Can I live on the mainland and pay 4% through a Canary company?

No. The company’s place of effective management must be in the Canaries, one director must live there, and 4% applies only to profit from work done by the company’s people and resources on the islands. A company with a Canary address that is run from the mainland pays the normal rate and risks losing the regime.

How many employees does a ZEC company need?

Five on Tenerife and Gran Canaria and three on El Hierro, Fuerteventura, La Gomera, Lanzarote and La Palma. They must be hired within six months of registration in the ZEC register, and the average annual headcount must stay at least at that level for as long as the regime applies.

Can a foreign company open a branch in the ZEC?

Yes, the law allows new branches, including those of companies from outside the EU. The conditions are the same: a representative living in the Canaries, an activity on the list, and investment and jobs on the islands. When profit is remitted to a head office outside the EU, an additional 19% may apply unless the double tax treaty removes it.

What is the deadline to join the ZEC?

Under current law, authorisation to register in the ZEC must be granted by 31 December 2026, and the relief can be enjoyed until 31 December 2032. The Consortium takes up to two months to decide. Whether the new EU state aid regulation from 2027 will move these dates was still undecided as of October 2026.

What happens if a ZEC company breaches the conditions?

The company loses the 4% rate for the year of the breach and may be struck off the register. If the investment condition is breached, the tax for that year is increased by the difference between 4% and the general rate for all previous years, plus late-payment interest.

Does the owner pay tax on dividends from a ZEC company?

Yes. A Spanish resident pays 19–30% on dividends under the savings income scale, the same in the Canaries as on the mainland. Only a corporate shareholder holding at least 5% for at least a year receives dividends free of withholding, including one from outside the EU, if the profit was earned in the ZEC.

Does the ZEC suit a consultant working alone?

Usually not. With €150,000 of profit the saving over an ordinary SL is about €24,500 a year, while the two to four required employees besides you cost €70,000–140,000. On top of that come a €50,000–100,000 investment and the annual fee.

How much does it cost to join the ZEC?

The application fee is €1,500, and the annual fee is €1,500 on Tenerife and Gran Canaria and €1,300 on the other islands. On top of that come setting up the company, a €50,000–100,000 investment in fixed assets and the salaries of the required staff.

Sources

• Law 19/1994 on the Canary Islands Economic and Tax Regime: articles 26, 27, 29, 31, 41–47, 50, 52, additional provision 4, annex (BOE)
• Royal Decree 1758/2007: articles 37–45, 56 (BOE)
• Corporate Income Tax Law 27/2014: article 29, transitional provision 44 (BOE)
• Non-Resident Income Tax Law, RDLeg 5/2004: articles 14 and 19 (BOE)
• Canary Islands Law 4/2012: article 51, IGIC rates (BOE)
• Regulation (EU) 2023/1315: extension of Regulation 651/2014 to 31 December 2026 (EUR-Lex)
• Government of the Canary Islands: the European Commission approves extending ZEC benefits to the end of 2032
• European Commission: GBER review