Interview with Matilde Asián, president of the ZEC Consortium: "The ZEC should not be confused with a tax haven"

Is the Canary Islands Special Zone a tax haven, a Free Trade Zone, or what is it?

The Canary Islands Special Zone is a form of state aid expressly granted by the European Union to contribute to the economic and social development of the Canary Islands archipelago. This aid takes the form of reductions and/or exemptions from the payment of certain taxes.

The ZEC is therefore structured as a mechanism that seeks to attract investment to the Islands and thus promote, above all, job creation and the establishment of businesses in our territory.

The Canary Islands Special Zone (ZEC) should not be confused with a tax haven. For a company to operate under the ZEC's tax protections, it must first and foremost meet certain "substantial requirements" (job creation, investment in assets related to the development of business activity, residency of at least one of the company's directors in the Canary Islands, and the performance of activities specifically regulated and permitted within the ZEC's geographical area). These substantive requirements distinguish the ZEC from the concept of a tax haven, which essentially involves creating a "screen or mirage" solely for the purpose of tax evasion. On the contrary, the ZEC requires real investment and the creation of real jobs. Therefore, it avoids any illusion or activity "without substance." So much so that activities the European Commission considered easily relocated or lacking sufficient substance were removed from the list of permitted activities in the Canary Islands Special Zone.

Regarding the Free Trade Zone, it should be noted that it is a different tax incentive, but fully compatible with the ZEC.

The ZEC implies a reduction in the applicable tax rate for Corporation Tax, its scope of action also extends to the IGIC (Canary Islands General Indirect Tax - the VAT applied in the Canary Islands), the ITPyAJD (Property Transfer Tax and Documented Legal Acts) and the IRNR (Income Tax of non-residents).

"The ZEC offers significant tax advantages and primarily affects Corporation Tax."

A Free Trade Zone, within a spatial area entirely separate from the rest of the territory, refers to a customs-exempt area. Free Trade Zones are enclaves located within the customs territory, clearly delimited by physical barriers and, preferably, with direct access to the outside world due to having their own or adjacent ports or airports. Examples of Free Trade Zones can be found in Barcelona, Vigo, Cádiz, and Gran Canaria. However, the Canary Islands Special Economic Zone (ZEC) exists only in the Canary Islands. These are two mechanisms that offer significant tax advantages for the Canary Islands within the national context, but they apply to different areas: the Free Trade Zone affects customs duties, and the ZEC primarily affects Corporate Income Tax, although, as I mentioned earlier, it does not only affect this tax.

– It says it was approved in 2000 and its validity is until 2008, doesn't that seem like too short a period?

As I have already pointed out, the ZEC is legally structured as state aid granted by the European Union. State aid represents a breach of the principle of free business competition and is granted on a case-by-case basis, taking into account exceptional circumstances. By its very nature, state aid—and the ZEC is state aid—cannot be granted indefinitely, but rather for a limited period. However, Royal Decree-Law 2/2000 of June 23, which definitively regulates the ZEC, establishes 2008 as the end date for the ZEC but adds a highly relevant clause stipulating that this will remain the case unless expressly extended by the European Commission. Finally, it should be noted that traditionally all the incentives included in the Economic and Fiscal Regime of the Canary Islands - among which the ZEC is included - have been subject to successive extensions, which gives us hope for the survival of the ZEC beyond the time horizon of 2008.

"The ZEC Consortium offers comprehensive advice to entrepreneurs"

To further support this idea, Europe has also stated that operating aid (such as the ZEC) does not have to be decreasing and time-limited if certain requirements are met. Specifically, with regard to the outermost regions, aid may be authorized without the aforementioned limitations insofar as such aid contributes to offsetting the additional costs of carrying out economic activity inherent in the factors defined in Article 299.2 of the Treaty on European Union, the persistence and combination of which seriously hinder the development of these regions (remoteness, insularity, small size, economic dependence on a limited number of products, etc.). Therefore, the implementation of Article 299.2 of the Treaty seeks to mitigate the temporary nature of European aid in the outermost territories of the Union and reinforces the long-term viability of this tax incentive.

– The Canary Islands are known as a tourist destination; as an investment destination, what sectors of economic activity do they intend to attract?

The ZEC (Canary Islands Special Zone) is designed to diversify the economy of the Canary Islands. Not just any type of activity can be carried out within its boundaries. Brussels approved a specific list of authorized activities, among which those related to IT services and new technologies have been particularly popular to date. These sectors do not require large tracts of land, are not polluting – let's not forget that the Islands have a large number of protected areas – and can be located anywhere with a well-developed telecommunications infrastructure. Therefore, it is irrelevant whether the Canary Islands are an archipelagic and fragmented territory, far from the mainland.

– Apart from the tax advantages, what other facilities do the Canary Islands, and you in particular, offer to entrepreneurs who want to invest there?

The Canary Islands have always enjoyed a distinct economic and fiscal regime compared to the rest of Spain. For example, there was no monopoly for Canarians, nor were there any import restrictions. Therefore, the Canary Islands Special Zone (ZEC) is just one more incentive within the extensive catalog of tax incentives offered by the Canary Islands (Canary Islands Investment Reserve, bonuses for the production of tangible goods, investment deductions, Special Ship Registry, Free Trade Zone, IGIC [Canary Islands General Indirect Tax], etc.). Consequently, when discussing tax advantages, the catalog is much broader than the ZEC itself.

Aside from these unique historical features, we must not forget that the Canary Islands have two public universities with approximately 50.000 students, particularly in technical fields such as Engineering and Computer Science. In the area of telecommunications, we possess the most advanced information transmission technologies.

The archipelago has modern infrastructure and communications, with 8 airports, 10 commercial ports and 12 sports ports, and an extensive road network.

The archipelago's geographical location, enviable climate, landscapes and services have made the Canary Islands a preferred tourist destination, with more than 12 million visitors each year.

These circumstances make the Canary Islands a pleasant place to live, work and do business.

Within this framework, the ZEC Consortium is structured as a public body with a service-oriented approach, striving to offer comprehensive support to investors. Thus, the Consortium's staff provides legal advice aimed at the correct completion of the Business Report and understanding of the Spanish legal and business framework. We offer multilingual documentation services and, through our Employment Office, assist investors in selecting the human resources necessary for the development of their intended business activities in our islands.