Canary Islands Corporate Tax - Guide for International Expansion

Are you planning to do business in the Canary Islands? Then it's essential to understand how corporate income tax works in this Spanish autonomous community and what special opportunities it offers for your company.

The Canary Islands benefit from unique tax advantages within Spain, including the special ZEC (Zona Especial Canaria) regime that can significantly reduce your corporate tax burden. Whether you're launching a new venture or expanding your business to this strategic Atlantic archipelago, understanding these tax benefits is key to maximising your investment returns. And if you're looking for smart ways to manage international payments and reduce currency exchange costs, Wise Business can help streamline your cross-border transactions while keeping your finances running smoothly.

💡Learn more about Wise Business

This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Canary Islands Corporate tax rate in 2025

The Canary Islands offer one of the most attractive corporate tax regimes in Europe through the Zona Especial Canaria (ZEC). While Spain’s standard corporate income tax rate is 25%, companies authorised under the ZEC regime can apply a reduced rate of 4% on the portion of their taxable income derived from activities materially and effectively carried out within the Canary Islands.¹

To qualify, a company or branch must be newly created, have its registered office and effective management located in the Canary Islands, and conduct its main business activity there. It must also operate within an approved ZEC activity, create and maintain a minimum number of jobs, and meet a minimum investment requirement. Certain innovative or knowledge-based businesses may be exempt from the investment threshold.¹

The ZEC regime forms part of the broader Economic and Fiscal Regime of the Canary Islands (REF), which provides additional tax incentives. ZEC entities benefit from exemptions from the Canary Islands’ indirect tax (IGIC) on transactions between authorised entities and on imports related to their activities, as well as exemptions from transfer tax and stamp duty for qualifying assets.¹

Read more about Corporate Tax Planning best practices

How to pay corporate tax in Canary Islands

Companies in the Canary Islands must file their corporate tax returns and make payments through the Spanish Tax Agency (Agencia Estatal de Administración Tributaria – AEAT) using its online platform. Payments are made in euros, and all statutory deadlines must be strictly observed.

The corporate tax filing and payment process in the Canary Islands follows the same rules as in the rest of Spain, as the archipelago is part of Spain’s tax territory. Companies are required to file their annual corporate income tax return (Form 200) electronically through the AEAT system.²

The standard filing deadline is within 25 calendar days following the six months after the end of the tax period, typically by 25 July for companies using a calendar year. Throughout the year, companies must also make three advance payments (pagos fraccionados), due by 20 April, 20 October, and 20 December. These are generally calculated as 18% of the previous year’s tax liability, with special rules for larger entities.³

Late filing or payment can result in surcharges of 1% per month of delay, capped at 15% for delays over 12 months, plus daily interest (currently 4.0625% annually). Additional penalties may apply for persistent non-compliance.^{4 5 6}

Let's calculate the annual tax due for a company with a turnover of €1.5 million. Assuming a profit margin of 10%, the taxable profit would be €150,000.

Under the standard Spanish corporate tax rate of 25%:

€150,000 × 25% = €37,500

However, if the company qualifies for the ZEC regime at 4%:

€150,000 × 4% = €6,000

This represents a tax saving of €31,500 annually, demonstrating the significant advantage of the ZEC regime.

When expanding your business to the Canary Islands, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to expand internationally with local EUR account details. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

Get started with Wise Business 🚀

Tax Compliance in the Canary Islands

To stay compliant with corporate tax law and planning in the Canary Islands, it’s essential to understand the Spanish tax framework under which the islands operate. Businesses must register for taxes soon after incorporation to avoid penalties and ensure smooth operations. Registration covers Corporate Tax, VAT, Income Tax, Customs Duties, and Social Security contributions.

Inspections and Compliance

The Spanish tax authorities conduct regular tax inspections to verify the accuracy of filed returns and ensure full compliance. They can review tax affairs and issue revised assessments if discrepancies are found. The statute of limitations for tax assessments is typically four years from the end of the voluntary filing period.³

For smooth compliance, companies should maintain detailed records, track corporate tax allowances, and ensure proper corporate tax provisions throughout the year.

International Expansion to the Canary Islands

Expanding your business to the Canary Islands can be a well-paying move for companies looking to enter the European market while enjoying major tax benefits. The Canary Islands are an autonomous region of Spain located just off the northwest coast of Africa. Their position makes them a gateway between Europe, Africa, and the Americas, making them ideal for trade, logistics, and international business.⁷

The islands have a stable economy, modern infrastructure, and a business-friendly environment. One of the biggest advantages is the Canary Islands Special Zone (ZEC). It’s a low-tax area designed to attract investment. Companies approved under this scheme can enjoy a corporate tax rate of just 4%, compared to Spain’s general rate of 25%.⁷

Businesses must meet certain conditions to qualify for the ZEC regime, such as investing in local assets and creating jobs. It’s best to work with a corporate tax accountant who understands the Canary Islands’ tax structure and can help with corporate tax return filing and ZEC registration.

Below are some more pointers on how the Canary Islands' outstanding connectivity and logistics benefit companies:⁸

• The region has two free trade zones located in the main ports (Las Palmas and Tenerife), where companies are exempt from import taxes for unlimited periods on storage, import, processing, handling, and re-export.
• These ports handle over 1.5 million containers (TEUs) annually and provide maintenance, repair, and emergency services all year round, serving about 20% of oil platforms in West Africa.
• The islands’ three airports connect to 132 destinations, including Madrid, Barcelona, major French cities, and several African capitals, ensuring smooth transport links for goods and personnel.
• With daily maritime and air connections to Europe and Africa, the Canaries have become a central hub of maritime and commercial activity in the Mid-Atlantic.

The steps for setting up a business in the Canary Islands are:⁷

1. Research the market to understand your target audience and industry potential.
2. Create a business plan aligned with ZEC and free trade zone requirements.
3. Consult a corporate tax accountant to optimise your structure for the 4% corporate tax rate.
4. Register your company and apply for ZEC approval through Spanish authorities.
5. Maintain compliance with accounting and corporate tax return filing rules.

Its strategic location and ultra-low corporate tax rates make the Canary Islands an excellent base for companies expanding internationally.

Discover the top 5 best Corporate Tax softwares

Incorporation of Business in the Canary Islands

Incorporating a business in the Canary Islands follows Spanish commercial law, providing two main routes: the standard incorporation process and the ZEC (Zona Especial Canaria) regime. The standard route aligns with the general process for forming a company in Spain, while the ZEC regime, approved by the European Commission, provides significant tax advantages.

Given the global trend of corporate tax increases, the Canary Islands’ low corporate tax rate makes it appealing to international investors.

Required Documents⁷

To form a company, you’ll need:

• Valid passport or national ID of all shareholders and directors
• NIE (Número de Identidad de Extranjero) for all foreign stakeholders
• Certificate of company name reservation from the Spanish Mercantile Registry
• Bank certificate confirming capital deposit
• Drafted company statutes (bylaws)
• Public Deed of Incorporation before a Spanish notary
• Corporate Tax Identification Number (NIF) from the Spanish Tax Agency
• Proof of registered office address in the Canary Islands
• Opening a license from the local town hall
• Social Security registration (if hiring employees)

Additional ZEC documents: business plan, ZEC application form, proof of eligibility (sector, investment, job creation), criminal record certificate, and proof of local residency for at least one director. ZEC companies must also receive approval from the ZEC Consortium before operations begin.

Business Entity Types in the Canary Islands⁹

• Sole Trader (Autónomo): Perfect for freelancers and consultants. No minimum capital is required, but the owner has full personal liability. Taxed under individual income tax (IRPF).
• Limited Liability Company (Sociedad Limitada, SL): The most common entity for small and medium businesses. Requires at least €3,000 in share capital. Liability is limited to the shareholders’ contributions and taxed at Spain’s standard 25% corporate rate, though some startups qualify for a temporary 15% rate.
• Stock Corporation (Sociedad Anónima, SA): Suited for large businesses or those planning to go public. Requires €60,000 in share capital (25% paid up). Liability is limited to shareholders’ investment.
• Jointly Owned Company (Comunidad de Bienes, CB): A simple structure for partnerships without forming a separate legal entity. Partners share unlimited liability and are taxed individually.

International corporate tax best practices

Here are some of the best strategies to ensure compliance with local tax laws, optimise your tax position, and reduce administrative burdens when operating internationally.

Stay compliant with local and international tax laws by completing proper legal registration in every jurisdiction where your business operates. File all required tax returns on time to avoid penalties, and ensure you stay current with local tax law changes to remain fully compliant. This is particularly important in special regimes like the Canary Islands' ZEC, where compliance requirements are strictly monitored.

Understanding and leveraging double taxation treaties is essential for international businesses. Spain has an extensive network of double taxation agreements with over 100 countries, which can help prevent the same income from being taxed twice and may provide reduced withholding tax rates on dividends, royalties, and interest payments.

Maintain comprehensive and up-to-date financial records in accordance with both local requirements and international standards. This not only helps ensure accurate tax filings but also facilitates audits and can support claims for tax incentives like the ZEC regime. Consider implementing robust transfer pricing documentation if you have related-party transactions, as tax authorities increasingly focus on this area.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to the Canary Islands efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

Get started with Wise Business 🚀

FAQs - Corporate tax in Canary Islands

Who is liable for corporate tax in the Canary Islands?

All companies that are tax resident in the Canary Islands are liable for corporate income tax on their worldwide income. A company is considered tax resident if it has its registered office, place of effective management, or main business activity in the Canary Islands. Non-resident companies are only taxed on income derived from Spanish sources, including income from permanent establishments in the Canary Islands.

Are there any tax incentives for businesses in the Canary Islands?

Yes, the Canary Islands offer several significant tax incentives. The most notable is the ZEC (Zona Especial Canaria) regime, which provides a reduced corporate tax rate of 4% for qualifying companies. Additionally, businesses benefit from the REF (Régimen Económico y Fiscal) system, reduced rates on the AIEM (which replaces VAT), and various investment incentives. The Reserve for Investments in the Canary Islands (RIC) allows companies to defer taxation on profits reinvested locally.

What is the tax treatment of dividends in the Canary Islands?

Dividends received by Canary Islands companies from Spanish and EU subsidiaries are generally exempt from corporate income tax under the participation exemption regime, provided certain conditions are met (including a minimum 5% shareholding held for at least one year). Dividends paid by Canary Islands companies to non-residents may be subject to withholding tax, though rates may be reduced under applicable double taxation treaties.

What is the process for registering for corporate tax in the Canary Islands?

Companies must register with the Spanish tax authorities (AEAT) and obtain a tax identification number (NIF). This involves submitting incorporation documents, registering the company's tax domicile, and completing the relevant tax registration forms. For ZEC companies, additional registration with the ZEC Entity is required, including submission of a business plan and compliance with specific requirements regarding employment, investment, and business activities.

What are the common pitfalls to avoid regarding corporate tax in the Canary Islands?

Common pitfalls include failing to meet ZEC regime requirements (such as employment creation or investment thresholds), which can result in loss of the 4% tax rate and retroactive application of standard rates. Other issues include inadequate transfer pricing documentation, late filing of returns or payments, and failure to properly account for the different tax rules that apply to various types of income. Companies should also ensure they understand the interaction between Canary Islands special regimes and EU state aid rules.

Sources used in this article:

1. PwC Tax Summaries: Spain Tax Credits and Incentives
2. AEAT (Tax Agency): Corporate Tax Return Models
3. PwC Tax Summaries: Spain Tax Administration
4. Banco de España (BDE): Default Interest Rates Table
5. AEAT (Tax Agency): Surcharges Applicable to Supplementary Self-Assessments (IRPF Manual)
6. AEAT (Tax Agency): Types of Surcharges (Debt/Distraint)
7. Global Citizen Solutions: Canary Islands Company Formation
8. Invest Hub: The Canary Islands Territory Overview
9. Lawants: Types of Companies in Spain
   Sources last checked 29/10/2025