Tax Haven of the Canary Islands: How can this Benefit Your Business

The Canary Islands are a group of seven Spanish islands off Africa's northwest coast. The Canary Islands, as an autonomous community of Spain, have a distinctive status that permits them to offer a variety of tax benefits to enterprises. The archipelago is a famous tourist destination due to its magnificent beaches, pleasant climate, and diverse environment. However, due to their favorable tax policies and business-friendly environment, the Canary Islands have grown in popularity as a tax haven for businesses in recent years.

In this blog post, we will look at the Canary Islands' tax benefits and how they might help your business. By the end of this post, you will understand why the Canary Islands are an appealing destination for businesses looking for a favorable tax environment. You will also be able to establish a company in the Canary Islands with the assistance of firmEu. 

What is a Tax Haven

A tax haven is a country or jurisdiction that offers individuals and businesses favorable tax policies and financial privacy. Many wealthy individuals and multinational corporations choose to establish their companies or assets in tax havens to reduce their tax liability and protect their wealth. Tax havens are typically characterized by low or zero tax rates, minimal regulation, and a high degree of financial secrecy.

Tax Incentives of the Canary Islands

It is good knowledge that enterprises based in the Canary Islands pay cheaper corporate tax rates than those based on the Spanish mainland. In this section, we shall investigate the Canary Islands' tax haven status. For firms wishing to establish themselves in this tax haven, the Canary Islands offer various tax advantages. Here are some of the Canary Islands' main tax advantages:

Special Tax Regime for ZEC Companies in the Canary Islands

Permit us to go into great detail on this. One of the most attractive tax incentives is the special tax regime for ZEC companies. ZEC (Zona Especial Canaria) is a special economic zone in the Canary Islands that offer significant tax benefits for businesses that meet certain requirements.

The ZEC regime was created to promote economic development and job creation in the Canary Islands. Under this regime, businesses can benefit from significant tax incentives, including:

• Exemption From Corporate Tax: ZEC companies are exempt from corporate tax on up to 50% of their profits. The remaining profits are taxed at a lower rate of 4%. This is much lower than the Canary Islands' ordinary corporate tax rate, which is now around 22.5%.

• Exemption From Capital Gains Tax: ZEC companies are also free from capital gains tax on the sale of fixed assets such as real estate or equipment. This might be a substantial advantage for companies looking to invest in fixed assets in the Canary Islands.

• Reduced Employer Social Security Contributions: Employer social security contributions are reduced by half for ZEC enterprises during the first two years of operation. This can dramatically lower labor costs for small enterprises just getting started.

• Reduced Personal Income Tax Rates for Employees: ZEC companies are also permitted to pay their employees a 4% personal income tax rate. This can be a substantial benefit for ZEC employees because it reduces their tax burden and increases their take-home pay.

In addition to these tax incentives, ZEC companies also benefit from other advantages, such as simplified administrative procedures, access to international markets, and a skilled and educated workforce.

Qualifications to Enjoy ZEC Regime

To qualify for the ZEC regime, businesses must meet certain requirements. These include:

• The business must be located within the ZEC area of the Canary Islands.

• The company has to specialize in a certain industry, such as tourism, renewable energy, technology, or research and development.

• Within six months of its establishment in the Canary Islands, the company must create at least five jobs.

• Certain administrative and legal requirements must be met, such as obtaining the necessary permits and licenses to operate in the Canary Islands.

By taking advantage of these tax benefits, you can drastically decrease your tax burden, improve your earnings, and remain competitive in your respective markets.

The Low corporate tax rate

One of the primary tax advantages of the Canary Islands that makes it an appealing destination for businesses trying to decrease their tax liability is the low corporate tax rate. The Canary Islands' standard company tax rate is 22.5%, which is much lower than corporate tax rates in many other European countries. In Spain, for example, the basic corporate tax rate is now fixed at 25%.

Businesses operating in specific industries or engaging in specific activities, on the other hand, may be eligible for even lower tax rates. Businesses engaged in renewable energy, R&D, or overseas trade, for example, may benefit from even lower tax rates. This is due to the Canary Islands government's creation of a number of tax breaks to encourage firms to invest in specific sectors and activities.

VAT Advantages

Apart from the low corporate tax rates, another tax advantage that businesses can benefit from in the Canary Islands is the reduced VAT rate. Businesses that operate in the Canary Islands can benefit from a reduced VAT rate of 7%, which is lower than the standard VAT rate in mainland Spain, which is currently set at around 21%.

The reduced VAT rate can significantly reduce the cost of goods and services for businesses operating in the Canary Islands. This is particularly beneficial for businesses that rely heavily on imports, as it can reduce the cost of importing goods into the Canary Islands. Additionally, businesses that operate in the tourism industry can also benefit from the reduced VAT rate, as it can reduce the cost of providing services to tourists visiting the Canary Islands.

Moreover, the Canary Islands have implemented several VAT incentives to attract businesses engaged in specific sectors or activities. For example, businesses that operate in the free trade zone of the Canary Islands, known as the Zona Especial Canaria (ZEC), may benefit from a reduced VAT rate of 0%. This can be a significant advantage for businesses engaged in activities such as international trade or manufacturing, as it can significantly reduce the cost of goods sold and increase their profitability.

Business Opportunities in the Canary Islands

In addition to the tax advantages discussed earlier, there are several other reasons why you should consider establishing your business in the Canary Islands. Below are some of the business opportunities in the region:

Strategic Location 

If you're a business looking to expand your international trade, you should consider the strategic location of the Canary Islands. Located off the coast of West Africa, the Canary Islands provide a gateway to markets in Europe, Africa, and the Americas. Being closer to North and South America than mainland Europe makes it an ideal location for businesses engaged in international trade.

Furthermore, the Canary Islands are well connected to major international airports and seaports, providing businesses with easy access to global markets. The region has several international airports, such as Tenerife South Airport and Gran Canaria Airport, which offer direct connections to major cities in Europe, Africa, and the Americas. Additionally, the Canary Islands have several seaports, including the port of Las Palmas and the port of Santa Cruz de Tenerife, which are well connected to major international ports.

By establishing your business in the Canary Islands, you can take advantage of the region's strategic location to reduce transportation costs and lead times. With the well-connected transportation infrastructure, businesses can easily transport goods and materials to and from the region. This can lead to increased competitiveness and cost savings for businesses engaged in international trade.

Growing Tourism Industry 

If you're in the hospitality, tourism, or leisure sectors, the Canary Islands offer an exciting opportunity for growth due to its thriving tourism industry. With over 16 million tourists visiting the region each year, the Canary Islands are one of the most popular tourist destinations in Europe. This has led to the growth of the tourism industry in the region, which provides businesses with several opportunities to expand their customer base and revenue streams.

Moreover, The Canary Islands have a mild climate all year round, making it an ideal destination for tourists seeking a warm and sunny vacation. The region is home to several beautiful beaches, national parks, and cultural attractions that make it an attractive destination for tourists. This has led to the development of a diverse range of tourist activities, including water sports, hiking, cycling, and cultural tours.

Moreover, the growth of the tourism industry has led to the development of a range of hospitality and leisure services. Businesses in these sectors have an opportunity to cater to the needs of tourists visiting the region. This includes the development of hotels, resorts, restaurants, and bars, as well as other leisure services such as golf courses, spa resorts, and theme parks.

Business-Friendly Environment 

If you're looking for a region with a business-friendly environment, the Canary Islands offer several measures to support entrepreneurship and innovation. The region has implemented a fast-track process for registering businesses, allowing entrepreneurs to complete the registration process in just a few days. This streamlined process ensures that businesses can get started quickly, without being bogged down by excessive bureaucratic procedures.

The Canary Islands have also implemented several measures to support startups and innovative businesses. The region offers funding programs and tax incentives for innovative businesses that are aimed at promoting research and development and encouraging entrepreneurship. 

Additionally, the Canary Islands have invested in a range of infrastructure projects to create a supportive business environment. The region has modern and well-equipped business centers, coworking spaces, and research facilities that provide businesses with access to advanced technology and resources. The region's universities and research institutions also offer collaboration opportunities for businesses in the research and development sectors.

Set Up a Business in the Canary Islands

If you're planning to set up a business in the Canary Islands, it can be a complex process if you don’t understand the region. This is where corporate service providers like FirmEU come in. We have the expertise and experience to help guide you through the process and ensure that your business is set up correctly from the start. Below are the steps to set up a company in Canary:

Requirements for Establishing a Business

To establish a business in the Canary Islands, you'll need to ensure that you meet all the necessary requirements. These requirements may include obtaining a residency permit, securing a local address, and registering for tax purposes. It's important to work with a corporate service provider like FirmEU to ensure that you understand all the requirements and are able to comply with them.

FirmEU can help you navigate the residency permit process and ensure that you have all the necessary documentation to establish your business. We can also help you secure a local address and assist with registering for tax purposes.

Choosing the Right Legal Structure

Choosing the right legal structure for your business is an important decision that can impact how your business is taxed and managed. FirmEU can help you understand the advantages and disadvantages of each legal structure and choose the one that best fits your needs and goals.

If you decide to establish a limited liability company (LLC), for example, FirmEU can help you draft the necessary documents, such as the articles of association and bylaws. We can also help you with the incorporation process and ensure that your LLC is registered correctly.

Registration and Licensing Process

The registration and licensing process in the Canary Islands can be complex and time-consuming if it’s your first time. Working with a corporate service provider like FirmEU can help you navigate this process and ensure that you obtain all the necessary licenses and permits.

FirmEU can help you obtain a tax identification number, register with the local chamber of commerce, and obtain any necessary licenses or permits. We can also assist you with registering your business with the social security system and setting up a bank account(We will look at this later).

In addition to these services, FirmEU can also provide ongoing support to ensure that your business remains compliant with local regulations and laws. They can assist with tax auditing, bookkeeping, and other important tasks to ensure that your business runs smoothly.

Setting up a Bank Account

Bank accounts are a vital aspect of any business or individual's financial management, and the Canary Islands are no exception. A bank account enables you to accept money, pay bills, and successfully manage your finances.

A Canary Islands bank account can be very useful for firms and individuals wishing to establish a presence in the territory. It enables people to manage their accounts and perform commercial transactions in the local currency with ease.

However, the process of opening a bank account in the Canary Islands can be complicated, especially for those who are not familiar with the Spanish banking system. This is where FirmEU comes in to help simplify the process and provide guidance and support to individuals and businesses.

FirmEU can assist with opening bank accounts for both personal and business use in the Canary Islands. Their team of professionals has extensive experience working with traditional Spanish banks in the region, and they can provide guidance and assistance throughout the entire process.

Securing an Office Space

Getting an office space is an important step for businesses that want to establish a physical presence in the Canary Islands. An office provides a professional and permanent base for conducting business activities, meeting with clients, and carrying out day-to-day operations.

Having a physical office space can also enhance a business's reputation and credibility, and make it easier to build relationships with local partners and customers. Additionally, some business activities, such as those in the hospitality or tourism industry, may require a physical location to operate.

However, finding and securing office space in the Canary Islands can be a complex and time-consuming process, especially for businesses that are not familiar with the local market. This is where FirmEU can help.

At firmEU, we can assist you in finding and securing an office space that meets your needs and budget. Our team has extensive knowledge of the local real estate market and can help businesses navigate the legal and regulatory requirements for renting or purchasing a property in the Canary Islands.

FirmEU can also provide guidance on negotiating lease agreements and can help you find suitable office spaces that meet your specific requirements, such as location, size, and amenities.

Final Thought

The Canary Islands provide various benefits to firms looking for a tax-efficient and business-friendly environment. With low corporate tax rates, decreased VAT rates, and many tax breaks, the region offers significant cost advantages to businesses. Furthermore, the region's strategic location, growing tourism industry, and business-friendly environment make it an appealing destination for businesses looking to expand internationally. 

With the assistance of corporate service providers such as firmEU, establishing a business in the Canary Islands can be a simple procedure that includes everything from legal compliance to obtaining office space and opening an account with a bank. Overall, the Canary Islands provide a unique and appealing alternative to firms seeking a tax-efficient and business-friendly environment.