ZEC, IGIC and AIEM: the Canary Islands tax regime for companies

The Canary Islands have their own tax regime, recognised by European Union law due to their status as an outermost region. It is not a discount on the state rule or a regional bonus: it is different legislation, with different taxes and different administrations managing them. That is why a valid figure in Madrid or Barcelona may simply be inapplicable in Las Palmas.

The regime is based on 3 blocks. In direct taxation, the Canary Islands Special Zone (ZEC, with a 4% rate in Corporate Income Tax), the Reserve for Investments in the Canary Islands (RIC) and the Deduction for Investments in the Canary Islands. In indirect taxation, the IGIC instead of VAT and the AIEM on production and import. And, above all, the European state aid rules, which set how far the savings can go.

It is worth being clear about who manages what, because half of all breaches stem from there. The State Tax Agency (Agencia Tributaria) handles Corporate Income Tax, the state census and the aid declaration. The Canary Islands Tax Agency handles the IGIC and the AIEM, with its own forms and its own census. And the Canary Islands Special Zone Consortium is the body that authorises and registers ZEC entities.

A starting warning: being domiciled in the Canary Islands does not make you a ZEC entity. The ZEC requires prior authorisation, registration in an official register and the ongoing fulfilment of investment and employment requirements. The rest of the Canary Islands regime (the IGIC, the AIEM, the RIC or the investment deduction) does apply to any company operating on the islands.

The ZEC entity must be newly created, a legal person or branch, and be registered in the Official Register of Canary Islands Special Zone Entities (ROEZEC). It must have its registered office and effective place of management in the Canary Islands, and at least 1 administrator (or a legal representative, if it is a branch) resident on the islands.

The corporate purpose must fall within the closed list of activities in the annex to Ley 19/1994 (the Canary Islands Economic and Tax Regime Act). This includes, among others, manufacturing, waste management, wholesale trade, transport and storage, publishing and audiovisual, telecommunications, IT programming and consulting, research and development, engineering, advertising and auxiliary services to companies. Excluded are, for example, retail trade, hospitality and catering, construction, real estate activity, banking and insurance. And there is an express exclusion that surprises many groups: coordination centres and intra-group services are not admitted under headquarters or business management consulting activities.

The 2 requirements that bring down the most files are investment and employment. You must invest in tangible or intangible fixed assets located and used in the Canary Islands within the first 2 years from registration, for a minimum of €100,000 in Gran Canaria and Tenerife or €50,000 in El Hierro, Fuerteventura, La Gomera, Lanzarote and La Palma. And you must create jobs in the Canary Islands within 6 months following registration, with a minimum of 5 jobs in the capital islands and 3 in the rest, maintaining this average workforce throughout the regime's enjoyment period.

The application is accompanied by a descriptive memorandum of the activities that supports the solvency and viability of the project, and this memorandum is binding: if you later change activity without express authorisation from the Governing Council, you are in breach. Entry or permanence can be authorised without meeting the minimum investment, but only if the minimum required employment is exceeded.

And there is the calendar, which is the most urgent part of this entire guide. The authorisation for registration in the ROEZEC is tied to the validity of the European Union's General Block Exemption Regulation, which expires on 31 December 2026. Regarding how long the enjoyment of the incentives lasts once inside, we must be precise: the text of Ley 19/1994 currently in force sets the end of the regime's enjoyment period at 31 December 2027. The European Commission has authorised extending this enjoyment until the end of 2032, but this extension is not yet included in the consolidated legal text, so it is advisable to rely on the date the law currently states and review the rule before making the decision. In any case, months pass between the first consultation and effective registration: anyone considering the ZEC does not have the whole of 2026 ahead of them.

No, and this is the most expensive calculation error in the regime. The 4% applies only to the part of the tax base corresponding to operations materially and effectively carried out within the scope of the Canary Islands Special Zone. That part is determined by a percentage comparing the operations done in the ZEC with the entity's total operations.

A second filter is applied over that first one, which is a euro cap linked to employment: €1,800,000 for the entity meeting the minimum employment, plus an additional €500,000 for each job exceeding that minimum, up to 50 jobs. The special rate applies to the lower of the two amounts. Whatever exceeds that limit is taxed at the general Corporate Income Tax rate.

And there is a third ceiling, which always operates and is not the same for all entities: the savings obtained, meaning the reduction of the full quota compared to the general rate, is measured on the net turnover and its maximum percentage depends on the activity. For entities whose main activity is industrial in nature, the cap is 30%. For the rest of the entities, services included, the cap is 17.5%, and it drops to 10% when it is a large company. Confusing these percentages is the usual reason why a saving that seemed calculated falls short during regularisation. Furthermore, operations carried out, directly or indirectly, with persons or entities resident in non-cooperative jurisdictions do not count as operations carried out in the ZEC.

The regime brings formal obligations that are not optional: separate accounting for ZEC operations, a specific breakdown in the annual accounts memorandum, separate accounting for branches operating outside the ZEC scope and, for those trading goods that do not physically pass through the Canary Islands, a quarterly informative declaration of those operations.

Alongside the 4% rate come other exemptions that usually weigh more than they seem: exemption in Transfer Tax and Stamp Duty for acquiring business assets and for corporate operations (except dissolution), IGIC exemption on deliveries and services between ZEC entities and on their imports, and withholding tax exemption on interest and dividends paid to parent companies and non-residents under conditions equivalent to the EU regime.

The IGIC is the Canary Islands' own indirect tax and replaces VAT. It works with the same mechanics of passing on and deducting, but with its own rates and forms, and is managed by the Canary Islands Tax Agency. The general rate is 7%, and alongside it coexist the zero rate, a specific 1% rate, the reduced 3%, the increased 9.5% and 15% and the special 20% for tobacco products. Soft drinks are taxed on their own scale based on their sugar content (3%, 5% or 7%), and energy drinks, due to their caffeine content, are at 15%.

The Canary Islands are outside the VAT application territory. That is why a delivery of goods leaving the Peninsula for the islands is invoiced without VAT, as an exempt export, and you must keep proof of exit (the customs document) to support this exemption in an inspection. The Canary Islands client will settle the IGIC upon import. If you are providing services to a Canary Islands company, you do not charge VAT either, and it is the recipient established in the Canary Islands who self-assesses the IGIC through the reverse charge mechanism, because the provider is not established there.

The IGIC calendar is quarterly for the general regime: form 420 within the first 20 calendar days of April, July and October, and the 4th quarter self-assessment during January of the following year. Added to this is form 425, the annual summary, submitted by 31 January, and form 415 for operations with third parties, during February, for anyone who has exceeded €3,005.06 with the same supplier or client. If your volume of operations requires you to settle monthly, the form and calendar change, and you should check this before registering.

The special regime for small entrepreneurs or professionals exempts their operations below a certain volume, but it only covers natural persons established in the Canary Islands: a company can never use it. The threshold was €30,000 of the previous year's volume of operations and rises to €50,000 effective 1 January 2027, with a transitional window to opt in during July 2026.

Registration is double and is frequently forgotten: form 036 with the State Tax Agency, which sets your census obligations and assigns your NIF, and form 400 with the Canary Islands Tax Agency, which registers you in the IGIC census. Having 1 and not the other is the usual reason why self-assessments cannot be submitted. You can see the details and the updated census registration fee in our form 036 file.

The AIEM, the Tax on Imports and Deliveries of Goods in the Canary Islands, is a single-stage indirect tax that exists to protect Canary Islands industrial production. It taxes 2 things at the same rate: the import of certain goods and the delivery of those same goods when carried out by their producer in the Canary Islands.

It does not tax everything: only the goods listed in the annex of the Canary Islands consolidated text, identified by their statistical heading. The rates in that annex are 5%, 10% and 15% depending on the product, and there is a specific rule for imported cigarettes, with a minimum quota of €18 per 1,000 cigarettes. A large part of local production is also exempt, which is precisely the mechanism by which the tax protects the islands' industry.

The margin is not decided by the Canary Islands alone: the European Union authorised this tax differential in favour of local production through a Council decision in November 2020, applicable until 31 December 2027, with a maximum differential of 15% and an annual limit for the tax advantage granted.

In practice, it affects you if you manufacture any of the annex products in the Canary Islands, and then you submit form 450 on a quarterly basis, within the first 20 calendar days of the following month, except for the last quarter, which is submitted during January. If you only import, the tax is settled with the customs clearance of the goods and its impact is a cost, not a periodic form.

Yes, they are compatible regimes, but with accumulation rules. The law itself states that the tax benefits of the Canary Islands Special Zone can be combined with other investment and job creation aids within the limits and conditions of the European state aid regulations. The problem is never abstract compatibility, but the joint ceiling, which in the ZEC is measured on turnover and changes depending on whether the entity is industrial, services or a large company.

The most frequently breached rule is the same assets rule: the Reserve for Investments in the Canary Islands is incompatible, for the same assets and expenses, with the investment deduction and with deductions for certain Corporate Income Tax activities. Put simply, the same asset cannot finance 2 incentives at once. And used assets or land that previously benefited from the RIC or the investment deduction cannot be used again either.

The Deduction for Investments in the Canary Islands deserves its own reading because it is the most underused incentive. Its percentages are 80% higher than those of the general regime, with a minimum differential of 20 percentage points. And the limit on the quota also rises: where the general regime applies a joint cap of 25% (50% when research and development expenditure exceeds 10% of the quota), in the Canary Islands it is 60% and 90%, reaching 70% and 100% in La Palma, La Gomera and El Hierro.

This entire block is under European surveillance, and that surveillance has a specific form: 282, the annual informative declaration of aid received under the Canary Islands Economic and Tax Regime. It is submitted by anyone who has benefited from the ZEC, the RIC or the rest of the incentives, within the Corporate Income Tax declaration deadline. Not submitting it does not take away the incentive, but it leaves a trail of formal non-compliance right in the most reviewed file.

If your case involves the RIC, the allocation and materialisation plan depend on your accounts and the legal term you have consumed, so this service is studied and quoted: you can see the conditions in our Reserve for Investments in the Canary Islands file. For the annual declaration, our form 200 file has the Corporate Income Tax details and the updated fee.

If you are considering entering the ZEC, moving an activity to the Canary Islands or simply updating your company's IGIC and form 282, Managora prepares and submits it for you, from the memorandum for the Consortium to each quarter's self-assessments. You can see the scope and updated fee for each service in its file.