Company Formation in the Canary Islands
Forming a company in the Canary Islands gives you a significant advantage over your competition:
no VAT tax charged to your clients. There is a local “IGIC” tax of 7%, but this only applies when billing clients who are also resident in the Canary Islands. When billing clients outside the Canary Islands, there is no VAT tax nor IGIC tax.
Company formation in the Canary Islands makes the most sense for online businesses selling services. For businesses that ship goods, you will pay VAT tax to the customs authorities on arrival to mainland Spain or other countries in the EU.
There are other advantages to forming a company in the Canary Islands, all fully backed by the European Union. These advantages derive from the Canary Islands’ special Fiscal and Economic Regime (REF), aimed at encouraging investment in the Canaries by offering a lower tax burden.
- The Canary Islands Special Zone (ZEC)
Instead of the usual Spanish corporate income tax rate of 25-30%, companies approved for ZEC pay a corporate tax rate of 4%. See brochure for more information. Compare this with the rest of the EU
- Reserve for Investments in the Canaries (RIC)
Permits a company to divert up to 90% of pre-tax profits to a special fund. This fund is generally used for investment in new business (more specifically for the purchase of new or used fixed assets, subscription of bonds or account entries of Canarian public debt, or subscription of shares or stockholdings in the capital of companies in the Canary Islands). The fund must be spent within 5 years. Individuals who determine their net profits by means of the self-assessment method on their income tax form are entitled to a deduction in their total tax liability for the net operating profits devoted to the RIC.
- Deduction in corporation tax for investments
A fiscal incentive which reduces the corporation tax or income tax liability. The percentages deducted are 80% greater than those of the general regime, with a minimum differential of twenty percentage points.
- Allowance for production of tangible assets
Allowance on the corporation tax or income tax liability deriving from the sale of tangible assets produced in the Canary Islands and which are connected with industrial, agricultural, livestock, and fishing activities. These allowances are of 50%.
- Exemption from Capital Transfer Tax and Stamp Duty (ITP Y AJD)
Exemption, under certain conditions, for incorporation, capital increases, and the purchase of goods and rights.
Do I need to live in the Canary Islands in order to form a company in the Canary Islands?
No. As with anywhere else, the administrator is not required to live in the Canary Islands, nor have an office in the Canary Islands. The company does need to have a registered address in the Canary Islands for communications with the tax office. If you do not have an address, our address may be used as the registered address if you hire our accounting service.
Are the Canary Islands considered as an offshore tax haven by the European Union?
Exactly the contrary. The Canary Islands tax advantages are fully supported by the EU, and Canary Islands bank accounts are fully transparent; reporting to the Bank of Spain is the same as in the rest of Spain. See the list of countries considered as offshore tax havens.