THE ZEC

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.

In general terms, any entity or branch which intends to carry out an industrial, commercial or service activity included in the list of authorized activities.

Impuesto sobre Sociedades

Las entidades ZEC estarán sujetas al Impuesto sobre Sociedades vigente en España a un tipo impositivo reducido del 4%.

Income Tax Nonresident (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 exempt from withholding.
• The exemption described below shall also apply to incomes from the residents of any state where such incomes are paid by a ZEC company and come from operations materially and eff ectively carried out within the geographical area of the ZEC.
• These exemptions do not apply when the income is obtained through countries or territories with which there is not an eff ective exchange of tax information, or when the parent company has its tax residence in one of these countries or territoriestenga su residencia fiscal en uno de esos países o territorios.

Property Transfer Tax and Stamp Duty (ITP-AJD) ZEC entities are exempt from these taxes in the following cases:

• Acquisition of goods and rights for the activity development of the ZEC Entity in the geographical area of the ZEC.
• Corporate operations done by the ZEC entities, except their dissolution.
• Documented legal acts related to transactions of these entities in the geographical area of the ZEC.

Canary Islands General Indirect Tax (IGIC) In the ZEC the supply of goods and services done within ZEC entities, as well as imports of goods made by them, shall be exempt from taxation by the IGIC. It is similar in nature to VAT, although there are major diff erences such as the lower tax rates.

Compatibility with other REF tax incentives According to the limit of the Community Law on accumulation of fi nancial support and under certain conditions, ZEC tax advantages are compatible with other REF tax incentives like the Reserve for Investment, the regime of deductions for investments and the tax-free areas.

Investors wishing to set up in the ZEC must obtain prior authorization from the Consortium Board of the ZEC to become a ZEC Entity. The procedure is simple and it is initiated with a Request of Authorization prior to the registration in the Offi – cial ZEC Register (ROEZEC), a Report describing the economic activities to be carried out and the paperwork related. Once the authorization has been granted (within two months) the entity will be entitled to register in the ROEZEC on presentation of the Tax Identifi cation Number (CIF), the legal copy of the document certifying its constitution presented in the Companies Registry and the application to register in the ROEZEC.

• It must be a newly-created entity or branch with its registered address and effective place of management within the geographical area of the ZEC.
• At least one member of the administration must reside in the Canary Islands.
• It must make a minimum investment of 100,000 euros (in Gran Canaria or Tenerife) or 50,000 euros (in the case of La Gomera, El Hierro, La Palma, Fuerteventura or Lanzarote) in fixed assets related to the activity within the first two years following its registration.
• It is necessary to create, at least, fi ve jobs (in Gran Canaria or Tenerife) or three (in the other islands) during the first six months following its registration and this average must be maintained during the time that the benefits are enjoyed.
• It is necessary to conduct activities that are permitted in the ZEC.