The Canary Islands are an ideal place to do business. Many entrepreneurs choose the islands as a paradisiacal place to live, with excellent beaches and a superb quality of life. But you should bear in mind that, as far as taxation is concerned, there are also many tax advantages of living in the Canary Islands.
The strategic location of the islands, which can only be reached by boat or plane, and their status as a peripheral region, means that tax conditions for companies are often much more beneficial.
Whether you want to set up a business and start a self-employed activity as a freelancer or you would like to change your tax residence to the Canary Islands and create a company, we would like you to know some of the benefits of living and creating your company or project in our land.
What are the tax advantages of living in the Canary Islands?
There are a number of benefits/incentives that have made the Canary Islands a hugely attractive place to live and do business. Here are some of the most important elements.
1. Canary Islands Special Zone (ZEC)
One of the most powerful tax incentives that exists in the Canary Islands is the so-called Canary Islands Special Zone (ZEC), which allows companies from different sectors to be taxed at a rate of 4% in the EU. Corporate income tax, instead of the general tax rate of 23% (companies with a turnover of less than one million euros) and 25% for the rest.
If you are looking for a place in Spain to live and set up a business, the Canary Islands offer you the opportunity to make significant tax savings compared to the rest of Spain.
2. Canary Islands General Indirect Tax (IGIC)
Living in the Canary Islands does not only have tax advantages if you are going to set up a company and want your company to pay less tax. You should also bear in mind that we all pay indirect taxes on the products and services we buy.
Fortunately, the tax burden in the Canary Islands is the lowest in the world. IGIC (Canary Islands General Indirect Tax), The general tax rate is 7%, which is much lower than the 21% VAT paid on the mainland.
3. Reserve for investments in the Canary Islands (RIC)
Another tax incentive that you can find in the Canary Islands is the RIC (Reserve for Investments in the Canary Islands). This is a tax deduction that allows companies and the self-employed to save up to 80% (for individual entrepreneurs) and 90% (for companies) of the tax burden, in exchange for investing the money saved in taxes in assets necessary for the activity, job creation, etc.
The RIC benefits both taxpayers who have their tax residence in the Canary Islands and those who operate in the Canary Islands with a permanent establishment.
4. Deduction of Fixed Asset Investments (DIC)
Another of the tax advantages of having your company's tax residence in the Canary Islands is being able to access to the Deduction for Fixed Asset Investments (DIC). You can get up to 25% deduction on fixed assets acquired.
Fixed assets are assets of the company that cannot be converted into cash in the short term, can be tangible or intangible and are normally related to the operation of the company.
5. Deductions for investment in R&D&I and audiovisual productions
Companies that are committed to R&D can also access important tax advantages in the Canary Islands, as you can see on the website of the Government of the Canary Islands. Specifically, a deduction from 28% to 90% is available for companies investing in research, development or technological innovation.
Although this deduction also exists in the rest of Spain, the amount is higher in the Canary Islands. Thus, for example, companies can deduct up to 37% for additional personnel in exclusive R&D, 28% for investments in R&D and 45% for technological innovation, with a limit of up to 90%, compared to the limit of 50% in the rest of the country.
How to change your tax domicile to the Canary Islands?
Perhaps you have already set up a business and your tax domicile is on the mainland, but you would like to move the tax domicile to the Canary Islands to obtain better conditions.
In this case, you would need to make a change of tax address on form 036, indicating the new address for tax purposes for your business.
The tax domicile is defined in Article 48 of the General Tax Law as the place where the taxpayer is located when dealing with the tax administration. You should bear in mind that in order to change your tax domicile, your business address and administrative management must be centralised in the new location in the Canary Islands, as it will be this new address that will be taken into consideration for the purposes of administrative procedures and tax control.
From Exim Asesores we encourage you to contact with our tax consultancy service, Whether you wish to register as a self-employed person and set up a company in the Canary Islands, or move your tax domicile to the Canary Islands.
