General
Information About the Canaries
The Canaries form an archipelago
made up by seven main islands, located in the Atlantic
Ocean near the Tropic of Cancer, near the African coast
of Western Sahara. The islands stretch in an East-West
500 Kms arch. The latitude of the Canaries is in the
subtropical zone, being the same as that of Orlando,
Florida. The climate of the Canaries, however, is tempered
by the surrounding ocean.
The Canary Islands are
an integral part of Spain; this has been so for more
than 500 years, and a huge majority of Canarians have
confirmed their status repeatedly over time. The language
of the Canaries is Spanish (Castilian), but the accent
is more like the Spanish spoken in the Caribbean.
The Canaries form an "Autonomous
Community" within the Kingdom of Spain. The islands
have their own Government, Parliament and Administration,
established by the Statute of Autonomy of the Canary
Islands. The Canarian fiscal and economic system is
different from the general Spanish one, which is in
force in the major part of the Mainland.
As a part of Spain, the
Canaries are also part of the European Union. However,
the islands enjoy some exceptions in the fiscal and
economic area.
The currency in the Canary
Islands is the euro, as in Spain.
The Parliament of the
Canaries is in Santa Cruz de Tenerife; the delegation
of the Spanish Government in the Canaries is in Las
Palmas de Gran Canaria, with a sub-delegation in Santa
Cruz de Tenerife; the Supreme Court of Justice of the
Canarie is in Las Palmas de Gran Canaria.
The Supreme Court of
Justice exercises the judicial power. Appeals against
its resolutions are to the Supreme Court and the Constitutional
Court of Spain.
The
Special Tax Regime (REF)
Although
mainland tax regulations apply in the Canaries, companies
operating there are also eligible for special tax incentives
(the Special Tax Regime or REF). Key features of the
REF are as follows:
-
VAT is not applied in the Canary Islands; instead
there is a specific Sales Tax (IGIC) which has a general
rate of 5%. In addition to increased and reduced rates
of IGIC, there is a zero tax rate for certain basic
need products and services (eg telecommunications).
- Exemptions
from duty on capital increases.
- The
use of undistributed profits to reduce the taxable
base provided that the amounts concerned are invested
within three years in certain qualifying fixed assets
or public stock.
- Enhanced
tax credits for various types of investment.
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The
Special Economic Zone (ZEC)
The Canary Islands Special
Zone has been created within the fiscal and economic
regime of the Canary Islands for the purpose of encouraging
the economic and social development of the islands and
the diversification of their manufacturing and service
sectors.
The ZEC was initially
The Canary Islands Special Zone authorised by the European
Commission in January 2000.
In
early 2006, the Department of Economic Affairs and Finance
of the Canary Islands Government suggested the introduction
of improvements to the Canary Islands Economic and Fiscal
Regime, including the extension of the time frame of
the low tax zone beyond 2008 of 25 years for companies
in the service sector and 50 years for companies operating
in the industrial sector.
In addition, a suggestion has been made for solving
the problems related to double taxation on profits.
This modification aims to make the ZEC a real stimulus
for attracting companies with newly-created economic
activity. At present, companies with their head office
in mainland Spain are subject to double taxation on
profits, which makes it difficult for them to set up
in the low tax zone.
Following
the announcement of an extension in December 2006, the
benefits provided by the ZEC will initially be available
until December 31, 2019, although this may be further
extended if the European Commission authorises it.
Any company intending
to carry out manufacturing, commercial or service activities
within the territory of the Canary Islands may register
in the ZEC; financial services are excluded.
Permitted manufacturing,
processing, handling and goods distribution activities
include:
- Fishing;
- Food, beverages and
tobacco;
- Clothing;
- Leather goods and
footwear;
- Furniture and related
products;
- Paper, publishing,
graphic arts and reproduction of recorded material;
- Building materials;
- Machinery and mechanical
equipment;
- Electrical, electronic
and optical materials and equipment;
- Chemicals;
- Recycling;
- Wholesale and distributive
activities;
- Packaging, bottling
and canning
Permitted service activities
include:
- Transport and related
activities;
- IT;
- Natural resources
and waste disposal;
- Telecommunications;
- Advertising;
- R + D;
- Education and Training;
- Consultancy;
- Legal and fiscal services;
- Other services
Service companies registered
under the ZEC may be set up in any part of the Canary
Islands.
Production, processing,
handling and distributive activities must be located
in certain Designated Areas at:
- On the island of Grand
Canary
- The Port of La
Luz and Las Palmas
- Gando Airport
- The Arinaga Industrial
Estate
- On the island of Tenerife:
- The Port of Santa
Cruz de Tenerife
- Los Rodeos and
Reina Sofía Airports
- The Granadilla
Industrial Estate
There are Designated Areas
on each of the other Canary Islands.
Any Company wishing to
set up in the ZEC must satisfy a number of requirements,
of which the most important are:
- A ZEC Company must
be newly incorporated;
- At least one of the
persons authorised to manage and act on behalf of
the Company must be resident in the Canary Islands;
- A ZEC Company must
make an investment of at least EUR100,000 (EUR50,000
in some locations) in fixed assets related to the
activity within the first two years subsequent to
authorisation;
- A ZEC Company must
employ at least five persons (reduced to three in
some locations) in the ZEC area within the first six
months subsequent to authorisation and must retain
this number of employees, on average, throughout its
lifetime;
- A ZEC Company must
present a description of its activities, with particular
mention of its economic viability, international focus,
contribution to the economic and social development
of the Canary Islands and solvency.
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Taxation
of ZEC Companies
ZEC companies enjoy the
following tax benefits:
- Corporation tax (levied
in Spain at 30%) is charged at 4% on profits derived
from ZEC activities. The rates depends on:
- Net creation of
employment;
- The period of
inclusion in the Register of ZEC Companies;
- Whether the activity
is new or pre-existing;
- The type of activity
- ZEC companies are exempt
from Capital Transfer Tax and Stamp Duty in the following
circumstances:
- Purchase of goods
and rights for the conduct of the business activity
of the ZEC company within the geographical area
of the ZEC;
- Company operations
except liquidation;
- Stamp duty on
documents connected with the company’s operations
in the geographical area of the ZEC
- ZEC companies are
exempt from Canarian Indirect General Tax (Canarian
Sales Tax) on delivery of goods and provision of services
from one ZEC Company to another, and on imports.
- International Double
Taxation Treaties and the EU Parent-Subsidiary Directive:
the Canary Islands are an integral part of the territory
of Spain and the European Union. Therefore ZEC companies
may take advantage of Double Taxation treaties signed
by Spain and the EU’s Parent-Subsidiary Directive.
ZEC Companies are not obliged to deduct tax from payments
for tangible assets made by them.
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Registration
of a ZEC Company
Application, authorisation
and registration are the three steps required of companies
wishing to set up within the ZEC.
The application must
be presented together with the description of the intended
activities.
The Consortium Board
will then decide on the application and will inform
the applicant of its decision within the space of two
months from the date of presentation.
The new company must
be incorporated by a Notary Public and must be registered
on the proper Registers (this may be done prior to authorisation
being received).
Once authorisation has
been received, the company must be registered on the
Official ZEC Register, which is managed by the Consortium
Board.
ZEC Companies are subject
to the following fees:
- Registration fee
- Annual fee to remain
on the Official ZEC Register
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