What exactly is the ZEC?
The Canary Islands Special Zone or ZEC is a low tax zone approved by the EU, included in Law 19/1994 of July 6, modifying the Economic and Fiscal Regime of the Canary Islands, which aims to promote economic development in the islands. In the ZEC, companies can establish themselves and pay a reduced tax rate of 4% in Corporation Tax instead of the general rate of 25% in force in Spain.
What are the requirements to be a ZEC entity?
The ZEC is aimed at all those entities and branches that are going to develop an industrial, commercial or service activity in the islands (check the list of permitted activities here).
The requirements for these companies include:
- Being a newly created entity – or branch -.
- At least one of the administrators to be resident in the Canary Islands.
- Minimum investment of € 100,000 (in Gran Canaria or Tenerife) or € 50,000 (in Lanzarote, Fuerteventura, La Palma, La Gomera or El Hierro) in tangible and intangible fixed assets related to the activity, within a period of two years since the ZEC company is registered.
- Create at least 5 jobs (for Gran Canaria or Tenerife) or 3 (other islands) in the first six months of the activity, maintaining this annual average throughout the life of the company in the ZEC.
- Establish the corporate purpose, within the scope of the ZEC, to carry out authorized activities.
What are benefits of being a ZEC entity?
- Corporation Tax of 4%.
- Exemption in the Tax on Patrimonial Transmissions and Documented Legal Acts.
- Exemption in the IGIC (the equivalent of VAT in the Canary Islands) to import (both raw material, investment material or finished products), and exemption in operations between ZEC entities.
- Application of the International Double Taxation Agreements, and exemption at source from withholding for repatriation of capital applying the parent-subsidiary Directive.
- Elimination of the restriction on the application of the deduction for internal double taxation of dividends.
What sectors can be developed in the ZEC?
Without a doubt, the ZEC offers development opportunities for various sectors, including audiovisual, maritime, tourism activities or ICT, to highlight a few.
In the case of ICT, the Canary Islands offer an ideal business hub where to develop activities related to technologies that are applicable to other sectors, including tourism, training or smart destinations. Hence, many companies have already decided to settle in the ZEC and carry out their data mining activities, call center services, software and digital services, or simply establish their technological platforms.
Having this said, we could agree that the ICT segment is in the midst of an expansion phase in the archipelago, mainly due to:
- Location and geostrategic links
- Leading technological research
- Optimal service and communication infrastructures
- Highly qualified and competitive staff
All this, together with the fact that the Canary Islands have one of the highest standards of living in Europe (cost of living, leisure, climate, security, internet speed), places the islands in a privileged situation for both companies and for their employees. It’s no wonder that many digital nomads are taking advantage of this opportunity to work from the islands.
In fact, Nomad List positions the city of Las Palmas de Gran Canaria among the best cities in the world to live and work in, so ZEC companies wouldn’t have a problem transferring their most qualified employees to the Canary Islands.
In brief, the ZEC has been the great unknown for many, including the greater Europe, but more and more international companies are just realizing the many advantages of establishing themselves in the Canary Islands and making their investments there, thus taking advantage of the exceptional fiscal and strategic situation they have. Without a doubt, there are few destinations in the world that can compete with the Canary archipelago in this scenario.
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