WHAT IS THE CANARY ISLANDS SPECIAL ZONE?
The Canary Islands Special Zone ZEC is a low taxation scheme created within the framework of the Canary Islands Economic and Fiscal Regime (REF) for the purpose of encouraging the economic and social development of the Canary Islands and the diversification of their productive structure.
The ZEC was authorized by the European Commission in January 2000. Following the terms and conditions of this authorization, the Spanish government adapted the aspects related to the ZEC contained in the regulations governing the Canary Islands Economic and Fiscal Regime .
Initially, the ZEC will be in force until 31 December 2008. This period can be extended subject to the authorization of the European Commission. The registration of companies in the Official ZEC Register (ROEZEC) will end in 31 December 2006, unless otherwise decided by the European Commission.
WHO MAY SET UP AS A ZEC ENTITY?
In general, those entities wishing to carry out industrial, trading or service activities as listed in the index of permitted activities described in the annex of Royal Decree-Law 2/2000.
WHERE MAY A ZEC ENTITY BE ESTABLISHED?
The ZEC extends over the whole Canarian territory with the following specifications:
Those companies whose corporate purpose consists of service activities may be established anywhere within the Canarian territory.
Those companies whose corporate purpose is the production, processing, handling or commercialization of goods may be established only within certain areas specified for that purpose .
These specific areas in Gran Canaria, covering a total surface area of 1,500,000 square meters, are located in the proximity of ports and the airport and are distributed in the following industrial zones:
1.The Port of Las Palmas and the Sebadal.
2. El Goro.
3 . Las majoreras.
4. Arinaga.
5. Galdar.
WHAT ARE THE REQUIREMENTS TO BECOME A ZEC ENTITY?
It must be a newly constituted entity with domicile and effective office within the ZEC territory.
One of the managers must be resident in the Canary Islands. It must make an investment of at least 100.000 € in fixed assets related to the activity within the first two years subsequent to authorization.
It must create at least 5 jobs within six months from the date it receives the authorization to establish itself as a ZEC Entity, and maintain an average of 5 jobs during the time it is registered as a ZEC Entity.
I ts corporate purpose within the ZEC territory must consist of any of any of the following activities:
INDEX OF ACTIVITIES
1. Manufacturing, processing, handling and distribution of wholesale goods:
• Fishing (NACE B),
• Food products, beverages and tobacco (NACE DA).
• Wearing apparel; dressing and dyeing of fur (NACE 17.4,17.5,17.6 and 18).
• Leather and leather products (NACE DC).
• Pulp, paper and paper products, publishing and printing (NACE DE).
• Chemicals and chemical products (NACE 24).
• Activities and prefabricated items related to the building industry (NACE 45.25,45.3,45.4,20.2,20.3,25.2,26.1,26.2, 26.3,26.4,26.7,28.1,28.2,28.12,28.63,28.7 and 36.1).
• Machinery and equipment (NACE 29).
• Electrical and optical equipment (NACE DL).
• Furniture; manufacturing (NACE 36).
• Recycling (NACE 37).
• Wholesale trade and commission trade (NACE 50 and 51).
• Containers (NACE 21).
2. Services:
• Transport and supporting and auxiliary transport activities (NACE I).
• Computer and related activities (NACE 72).
• Telecommunications (NACE 64).
• Natural resources and waste disposal (NACE n.e.c.).
• Research and development (NACE 73).
• Education (NACE 80.3 and 80.4).
• Consultancy (NACE 74).
• dvisory services (NACE 74).
-Advertising (NACE 74).
Other business activities (NACE 74).
THE TAX BENEFITS OF THE ZEC CORPORATE INCOME TAX
ZEC Entities are subject to the Corporate Income Tax in force in Spain at reduced rates ranging from 1% to 5% depending on:
• Net job creation.
• Date of registration in the Official ZEC Register.
• Whether their activity is new or pre-existing.
• Whether their activity is widely implemented in the Canary Islands.
The general tax rate of the Corporate Income Tax in Spain is 35%, or 30% in the case of Small and Medium-sized Enterprises (SME).
TAX RATE SCALE
In order to determine the tax rate applicable to a ZEC Entity, the period from the registration of the ZEC Entity to the end of the validity of the ZEC shall be divided into three stages. The length of these stages will vary depending on the year in which the ZEC Entity is registered.
The applicable tax rates shall be levied on the taxable amount arising from transactions materially and effectively carried out within the ZEC territory.
Considering the above-mentioned stages and the net job creation of a ZEC Entity, the tax rates will be as follows:
GENERAL TAXATION SCHEME NET JOB CREATION 1st 2st 3st
STAGE STAGE STAGE Between 5 y 8 workers 1.0% 2.5% 5.0% Over 8 and up to 12 1.0% 2.25% 4.5% Over 12 and up to 20 1.0% 2.0% 4.0% Over 20 1.0% 1.75% 3.5%
ENTITIES WITH A PRE-EXISTING ACTIVITY
If the activity has been carried out previosly under another company name and
is now to continue as a new ZEC Entity using the existing workforce, taxes will '.
be calculated according to the percentage increase in the workforce.
MAXIMUM AMOUNTS OF THE TAX BASE AT WHICH ZEC
ENTITIES WILL BENEFIT FROM THE SPECIAL TAX RATES
The special tax rates (between 1 % and 5%) shall be applied to a maximum amount of the tax base which will vary according to the number of jobs created by the ZEC Entity and its type of activity.
DOUBLE TAXATION AGREEMENTS,
THE EU PARENT SUBSIDIARY DIRECTIVE AND
NON-RESIDENT INCOME TAX
The Canary Islands are an integral part of Spanish territory and the European Union and therefore:
• ZEC Entities may take advantage of the Double Taxation Agreements signed by Spain with other countries.
• ZEC Entities may take advantage of the EU Parent Subsidiary Directive, according to which the profits that a subsidiary distributes to its parent company with domicile in another Member State are exempt from withholding tax.
-According to the ZEC regulations, the exemptions described below shall also be applied to the returns obtained by non-EU Member residents from a ZEC Entity and arising from operations materially and effectively carried out within the ZEC territory.
- Individuals: profits and returns obtained from the transfer of personal capital, to third parties as well as earnings from tangible properties without the individuals taking permanent establishment.
- Corporate entities: profits distributed to parent companies by subsidiaries domiciled on Spanish territory.
These exemptions will not be applied if the profits have been obtained through a territory considered as a tax haven, nor if the tax domicile of the parent company is on such territories.
TRANSFER TAX AND STAMP DUMES
ZEC Entities are exempt from this tax as regards the following operations:
• Purchase of goods and rights destined for the development of the ZEC Entity's activity within the ZEC territory.
• Corporate transactions and operations carried out by ZEC Entities except dissolved.
• Stamp duty on documents relating to the operations carried out by the ZEC Entities within the ZEC territory.
GENERAL INDIRECT TAX IN
THE CANARY ISLANDS (IGIC)
The IGIC is the Canarian Indirect Tax which is levied on the end product, substituting Value Added Tax applied in the EU. Its nature is similar to that of VAT, although with important differences such as lower tax rates. The general IGIC rate is 5%.
As a general rule, ZEC Entities are exempt from IGIC when selling goods and delivering services to other ZEC Entities, as well as when importing goods.
PROCEEDURE FOR THE AUTHORIZATION OF A ZEC . ENTITY
PROCEEDURE FOR THE AUTHORIZATION OF A ZEC ENTITY
Investors who wish to set up within the ZEC must obtain prior authorization from the Board of Directors of the ZEC Consortium.
The ZEC Consortium is a joint body created by the Spanish Government and the Canary Islands Regional Government, belonging to the Ministry for Economic Affairs and Finance, which supervises and advises ZEC Entities. The ZEC Consortium is also committed to promoting and providing the necessary services for an adequate running of the ZEC Entities and the ZEC itself. The Official ZEC Register (ROEZEC) is also its responsibility.
The procedure for obtaining such authorization commences when the interested party presents the following documents at the offices of the ZEC Consortium,
1. Application for prior authorization to set up a ZEC Entity.
2. Report describing the activity to be carried out.
3. Bank guarantee or documentary proof of payment of the Official ZEC Register (ROEZEC) registration fees which cost 600 € (annual fees for the ROEZEC: 900 €)
The Board of directors of the ZEC Consortium will handle the processing of the application forZEC Entities. The authorization must be communicated to the investors within a maximum time limit of two months from the date of presentation.
SETTING UP A ZEC ENTITY
Once the Board of directors gives authorization for a company to be set up within the ZEC, the investors have one year from the date of the authorization to carry out the following:
1.Set up a business using one of the existing legal categories (S.A., S.L., etc.). The following procedures must be carried out:
• Drawing up of the Articles of Assciation, which must be set down in a document authenticated by a Notary Public.
• Obtaining a provisional Fiscal Identification Number card from the Spanish Internal Revenue Service and registration with the different tax collecting bodies.
• Registration of the public deed of constitution in the Registro Mercantil (Chamber of Trade and Industry).
2.Apply for registration as an entity in the ROEZEC, by means of presentation of the following documents:
• Application for registration in the ROEZEC.
• Fiscal Identification Number (CIF).
• Document certifying the legal constitution of the entity plus a Copia Simple (legal parallel document).
• Document certifying the registration of the entity in the Registro Mercantil.
THE ZEC AND THE GRAN CANARIA FREE TRADE ZONE (ZFGC)
The ZEC offers incentives which are related to the Gran Canaria free trade zone where goods are stored , processed and distributed without being subject to customs duty or indirect taxation.
The free Trade Zone of Gran Canaria covers an area of 300.000 square meters ,strategically distributed in two separate enclosed areas:
.The port of Las Palmas Port 50.000m
.The Arinaga Industrial Area 250.000m
In the free Trade Zone of Gran Canaria ( ZFGC) ,inward processing is not subject to the economic conditions normally applicable bin other free trade zones within the European Union .This makes the ZFGC extremely competitive.
These transactions do not have an adverse effect on the interests of other EU producers and therefore enjoy the extraordinary advantages of the international supply market.
Other advantages include:
_ Exemption from import tax while the goods remain within the Zone.
_ Exemption from special tax for goods brought into the Zone.
_ Exemption from the Canary island indirect Tax ( IGIC) on goods stored in the Free Trade Zone and related service.
_ Prior payment of the export refund for goods from countries belonging to the European community to which this benefit applies.
_ Non application of commercial policy measures including quotas and limits of any type.
_ The possibility to import any type of good regardless of their nature ,quantity ,origin ,or destination.There is no limit on the time the goods may be stored within the zone.
_Inward processing of goods from third countries which have to be processed and then re-exported ,without the requirement of guarantees ,references or other costs.
_ The processing og goods from third countries ,under customs control,before being sent to community countries.
Three-cornered trade.
-TRAFICO, MULTAS Y VEHICULOS.
-HERENCIAS Y DONACIONES.
-PENSIONES, INCAPACIDADES LABORALES.
-TRABAJADORES, EMPRESAS, CONTRATOS LABORALES, SALARIOS, ETC.
-PROPIEDADES, FINCAS, VIVIENDAS, COMUNIDAD DE PROPIETARIOS.
-SEPARACIONES, DIVORCIOS, MENORES, PENSION ALIMENTOS, ETC
- FISCALIDAD, HACIENDA, SERVICIOS BANCARIOS.
-PENALES.
-EXTRANJERIA.
-VARIOS TEMAS.
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