Draft:Canary Islands Special Zone

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Canary Islands Special Zone (Zona Especial Canaria)

Trade name	ZEC Canarias
Company type	Independent surveillance Agency
Founded	1996
Headquarters	Calle León y Castillo, 431, Las Palmas de Gran Canaria , Canarias
Key people	Pablo Hernández González-Barreda (Executive Chairman and CEO) [1]
Website	www.canariaszec.com

The Canary Islands Special Zone (ZEC) is a low tax regime included within the Canary Islands Special Tax and Economic Regime (REF). It was authorised by the European Commission in 2000 in accordance to the status of the region as an Outermost Region. It provides for a low Corporate Income Tax of 4%, dividend, interest and capital gain exemption, no VAT, and exemptions from transfer taxes and stamp duties. The incentives are linked to strong substance requirements and conservative transfer pricing policy, fully complying with Code of Conduct and Harmful Tax Competition Reports. It is applicable to a broad range of sectors including technology, media, renewable energies, R&D, maritime and several others, and it is not applicable to mobile activities such as finance, insurance or holding companies. It covers the whole land of the region of the Canary Islands. The Zone has succeed to some extent, notably in the area of film and tech, making the Islands a raising hub in tech and media in the European Union.^{[2] [3]} It currently hosts more than 700 companies, with more than 9000 employees and a turnover of more than 3 billion. ^[4] It accounts for around 1.5% of the GDP of the Canary Islands.

The Canary Islands Special Zone is aimed at promoting the economic and social development of the Canary Islands, and diversify its economic structure. The Canary Islands Special Zone is based on the special economic characteristics of the region that has higher unemployment rates, lower GDP per capita, higher business costs and dependence on tourism. This conditions derive from the region being made up of islands and being an outermost región. The legal basis of the Canary Islands Special Zone are the Spanish Constitution and article 349 of the Treaty of Functioning of the European Union, recognizing the islands and outermost conditions and providing the right to establish special tax and economic incentives.

The Zone is managed by the Agency of the Canary Islands Special Zone, a public agency of the Ministry of Finance and Public Service, and is ruled by the President and a Board of Directors made up of experts appointed by the Government of Spain and the Government of the Canary Islands. The functions of the Agency of the Canary Islands Special Zone include to promote the Canary Islands Special Zone and attract investment, supervise and control the activities of the entities registered in the Zone; issue rulings on their functions; issue instructions on their functions; make proposals to the Government of Spain, the Ministry of Finance and the Government of the Canary Islands on matters related to its functions. ^[5]

The Canary Islands enjoyed since 1497 a beneficial tax regime to promote its settlement, its economic development and compensate extra costs of its outermost location. This lead the Canary Islands to grew significantly as a commercial hub, especially with the United Kingdom, during the 18th and 19th Centuries. At the time Spain joined the European Economic Community, the Canary Islands decided to join the Community with some exclusions to preserve tax exemptions. Namely, it did not join the internal market. After some years, the Governments of Spain and the Canary Islands recognized staying outside the Internal Market produced more difficulties than advantages. This led the Canary Islands to join the internal market under an agreement of reviewing the Canary Islands status within the European Union. The agreement included to provide with some tax incentives and subsidies to compensate being far from continental Europe and at the same time to recognize State Aid limits as well as joining the Internal Market. Within that agreement, the Canary Islands Special Zone was authorised as a mechanism to compensate corporations established in the Canary Islands for the extra costs of operating far from the main market they were participating in. The Canary Islands Special Zone was enacted by the Spanish Parliament in 1994, though subject to authorisation by the European Community institutions. The first versión of the Canary Islands Special Zone was aimed exclusively at Non-Residents in Spain, isolated from the Spanish Market, and was designed to attract financial, insurance and services entities. In parallel to the Authorization request of Spanish authorities, the European Union and the OECD were working on establishing mechanisms to close Tax Havens and Harmful Tax Regimes, that led to the approval of the Code of Conduct of the European Union and the OECD Harmful Tax Competition Report. The Canary Islands Special Zone on its versión passed by the Spanish Parliament in 1994 was clearly incompatible with such Reports and the principles laid within them. The European Commission and the Government of Spain, jointly with the authorities of the Canary Islands, redirect the proposal to a tax incentive based on such reports, fully based on substance and conservative transfer pricing, with exclusio of financial, insurance, holding and other mobile activities, and not isolated from the Spanish Market. This made it one of the first Non-Harmful Tax incentives in the world.

The Canary Islands Special Zone was finally authorized by the European Commission in January 2000, and passed into Spanish legislation by Royal Decree-Law 2/2000, of 23rd June 2000.^[6] Since then, it passes examination of the European Commission every six years, being renovated in 2006, 2014, 2020 and 2021. Its enforcement follows the General Block Exemption Regulation, State Aid Maps of Guidelines on regional State aid, and is renewed automatically through communication to the European Commission following such regulations.

To access the Canary Islands Special Zone the following requirements have to be met: - Incorporate a new corporation or branch. Previous developed activities are admited, but the entity or branch itself has to be newly incorporated before any new activity is performed, new employees are hired and new investment is made.
- Have the place of effective management, or the seat of the branch, in the Canary Islands.
- At least of the directors, or representatives of the Branch, has to be a resident of the Canary Islands.
- Create at least new 5 jobs if the activity is carried in a capital island (Tenerife o Gran Canaria), or 3 jobs if the activity is in a non-capital island (Fuerteventura, Lanzarote, La Palma, La Gomera, El Hierro, La Graciosa). Jobs have to be new so if a previous activity was carried, previous jobs do not count. Tax base subject to reduced corporate tax rate depends on the number of Jobs created
- To invest at least 100.000 euros if the activity is in capital islands, or 50.000 if the activity is in non-capital islands
Innovative and research and development companies, media, audiovisual, software, videogame and similar companies, as well as human resources-intensive companies, are exempted from the investment requirement ^[7]
- To carry an activity included in the Annex of the Act 19/1994 (the list includes a broad range of activities mainly excluding hotels, restaurantes, finance, insurance, holding companies, construction).
- To fill a report on the activities to develop, solvency, and contribution to economic and social development of the Canary Islands
Prior registration is needed to apply the special tax regime provided by the Canary Islands Special Zone. No activities can be carried in the new Company or branch without previous authorisation and registration.

Entities registered in the Canary Islands Special Zone enjoy:

- Reduced 4% rate of Corporate Income Tax instead of 25% applicable in the general regime of the Spanish Corporate Income Tax. This tax rate is compatible with other credits and reductions such as the Reserve for Investment in the Canary Islands, credits for research and development or audiovisual productions.
- Exemption of withholding taxes and final taxes on dividends, interests and capital gains paid to any jurisdiction in the world, irrespective of tax conventions, except tax havens.
- Transaction not subject to Value Added Tax
- Exemption from importson the Impuesto General Indirecto Canario
- Exemption from the Impuesto General Indirecto Canario on transactions on goods and services between entities registered in the Canary Islands Special Zone
- Exemption from Transfer Taxes and Stamp Duties on transactions related to assets or documents of the activities carried in the Canary Islands Special Zone.

Number of Companies Registered in the Canary Islands Special Zone

Number of Companies Active in the Canary Islands Special Zone

Jobs registered in companies established in the Canary Islands Special Zone

Turnover of active companies registered in the Canary Islands Special Zone

Assets of companies actives in the Canary Islands Special Zone

• Legislation of the Canary Islands Special Tax and Finance Regime
• Agency of the Canary Islands Special Zone

Category:Economy of Spain Category:Taxation in Spain Category:Business in Spain Category:Industrial development agencies Category:Communications and media organizations Category:Economy of the Canary Islands Category:Canary Islands