Narbona, José; Carlos G: The Canary Islands Special Zone (ZEC)

The Canary Islands Special Zone (ZEC) by José Carlos G Narbona
In the Canarian Archipelago, a group of islands located in the Atlantic Ocean of the northwest coast of Africa, and at a distance of more than 1,000 kilometres from mainland Europe, Spain offers one of the best low tax jurisdictions of the world: The Canary Islands Special Zone (?Zona Especial Canaria ? ZEC?). This is a low taxation regime plan created within the framework of the Canary Islands Economic and Fiscal Regime (REF) with the intention of encouraging the economic and social development of the Canary Islands and the diversification of their productive structure. The Canary Islands are integral part of the Spanish territory, and therefore of the European Union. Due to their ultra-peripherical location and in recognition of the special needs arising from this fact, a number of highly favourable exemptions and exceptions in the application of European Community Law have been set up. This has been enforced through the special Economic and Fiscal Regime which has the aim of encouraging the economic and social development of the Islands. Based on this framework, The Canary Islands Special Zone was created in 2000, and its low taxation regime was authorised by the European Commission in January 2000. Following the terms and conditions of such authorization, the Spanish government adapted the aspects related to the ZEC contained in the regulations governing the Canary Islands Economic and Fiscal Regime. This regime was in force until 2008.By late December 2006, the ZEC Authorities have obtained from the EU Authorities a prorrogation of the ZEC regime until 2019 in order to optimize this regime, whose main target is to continue attracting capital for investments via the incorporation of new companies in the Canary Islands.The following issues have been achieved from negotiations:i. A prorrogation as exposed at the beginning of this article. ii. The creation of coordination protocols between the ZEC and the Canary Free Trade Zone. iii. The elimination of the current limits to the activities that benefit from this regime. iv. That companies already incorporated out of the ZEC may have the option to incorporate a permanent establishment within the limits of the ZEC. v. The simplification of the Corporate Tax rate. vi. The determination of a fixed tax base, 4%.The ZEC will be in force until 31 December 2019. This period can be even extended subject to the authorization of the European Commission. The registration of companies in the Official ZEC Register (ROEZEC) will end in December 2013, unless otherwise decided by the European Commission.This advantageous regime can be interesting for those entities wishing to carry out a wide list of activities, listed in the index included in the Royal Decree-Law 2/2000 which develops the regime. At present, many national and foreign companies ? 401 currently authorised ? are developing their business in ZEC territory. However, many entrepreneurs still do not know enough about the benefits foreseen by the ZEC regime: low taxation, excellent facilities, large infrastructures, etc?. Besides, we could not forget that the Canary Islands offer mild year round temperatures and an incomparable atmosphere to set-up a company. On a personal note, sandy beaches, delicious food and friendly people among other things, make the Canary Islands a particularly attractive option. Going into the more technical aspects, it must be pointed out that some requirements must be fulfilled in order to qualify for the application of the ZEC tax regime. The most important of these requirements are the following: