5 Main ZEC Benefits
The Canary Islands Special Zone (ZEC) is a low tax zone created within the framework of the Canary Islands Economic and Tax Regime (REF) for the promotion of the economic and social development of the Islands and to diversify their production structure.
ZEC was authorized by the European Commission in January 2000 and it is regulated in the Law number 19/94 of the 6th of July, 1994.
Companies registering within the Canary Islands Special Zone (ZEC) automatically and permanently benefit from this 4% rate applied on the gross tax base on operations carried out materially and effectively in or from the Canary Islands.
The main ZEC Benefits are:
1 - The entities subject to the ZEC special tax regime will be subject to the tax rate applicable of 4%.
The General rate in Spain is 25%.
2 - Income Tax Non Resident (IRNR) exemption.
Dividends paid by ZEC subsidiaries to parent companies resident in another country as well as the interest and other income from transfers to third parties of capital and capital gains from property, obtained without a permanent establishment are not subject from withholding tax (WHT) due to is not obtained through a black-listed jurisdiction for Spanish tax purposes.
3 - ZEC entities are exempt of Property Transfer Tax and Stamp Duty (ITP-AJD) in the following cases:
❏ The acquisition of goods and rights for the activity developed of the ZEC Entity in the geographical limits of the ZEC.
❏ Corporate operations done by the ZEC entities, except their dissolution (in that case should trigger capital duty at 1% rate over the fair market value of the goods and rights received by the shareholders):
❏ Documented legal acts related to transactions of these entities in the geographical limits of the ZEC.
4 - Canary Islands General Indirect Tax (IGIC) exemption. The IGIC is similar to the well known “VAT” but with a lower tax rate. The ZEC companies are exempt of IGIC in the following scenarios:
❏ Importation of goods carried out by ZEC entities, as well as imports of goods made by them.
❏ The supply of goods and the provision of services performed by ZEC entities to other ZEC entities.
5 - Compatibility with other Tax Incentives. The ZEC entities are entitled to apply all the double tax treaties (DTT) concluded by Spain and all the EU Directives. Also, ZEC tax advantages are compatible with other REF tax incentives for example, the Reserve for Investment, the regime of deductions for investments and the tax-free zones.
Taking into consideration the location, and especially the tax system the Canary Islands may be of interest for multinational Companies that would like to have better profits in the long-term.
If you want to know better about these benefits, the process to set-up your company or if you have any doubt our experts will be glad to help you.
Novara Capital Group is an international tax & capital investment consulting firm. We specialise in Corporate Structuring, European Union Tax Incentives, IP Positioning, and Transactions / M&A. We provide intelligent corporate structures, advice, and an integrated service which cross delivers in businesses. We advise companies globally to accelerate international growth, optimise net profits, and enhance equity value leveraging Intellectual Property and Licences. Our in-house experts specialise in International Tax Law, Company Law & Cross Border Jurisdiction, Investment & Asset Management, Mergers & Acquisitions, and Operational Management.
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