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Trust · The territory

Why the Canary Islands

The most favourable tax combination in Europe for whoever does innovation, and a mission for the territory.

10 min read

We are not in the Canary Islands for the weather. The archipelago offers the most favourable economic and tax regime in Europe for whoever does innovation: enhanced deductions, corporate income tax at 4% and a framework designed to attract real activity. And we want to give back to the territory, turning those incentives into companies, employment and tax revenue.

75,6%I+D deduction in the Canary Islands
45%technological innovation deduction in the Canary Islands
4%Corporate income tax under the regime ZEC (25% general)

The framework

The Economic and Tax Regime (REF)

The REF is a set of historical measures designed to compensate for the archipelago's remoteness and insularity. Among them, the 80% increase in research and innovation deductions: I+D deductions go from 42% to 75.6% and technological innovation ones from 12% to 45%. It is what makes the Canary Tax Lease far more powerful than the mainland one.

The corporate regime

The Canary Islands Special Zone (ZEC)

The ZEC allows companies established in it, and meeting activity and employment requirements, to apply corporate income tax of 4%, against the ordinary 25%. For a startup reaching the market it means far higher net margins; for the investor, an amplified second return.

The responsibility

A mission for the territory

The tax ecosystem is not only an opportunity: it is also a responsibility. Our mission includes contributing to the development of the Canary Islands by turning the incentives into something concrete (real companies, skilled employment, tax revenue sustained over time) instead of merely exploiting an advantage. It is consistent with our purpose: innovation must give power to people, starting with those of the place where it is born.

The route

For foreign companies

For a profitable foreign company, creating a new Canary entity managed by Volcano can substantially reduce the tax burden and integrate it into an innovation ecosystem. It is the relocation door: we compare the current scenario with the Canary one and, if it pays off, we incorporate and manage the new entity.

The relocation door →

Notice. The content of this page is informational and does not constitute tax, legal or investment advice. Figures and percentages are indicative: the rules change and this page may not reflect the latest legislative provisions. The values applicable to each specific case are reviewed and discussed in the video call, after qualification.

The European context

Where the Canary Islands stand, measured against Europe.

Here it is easy to cheat: you only have to choose the metric that suits you and the country that suits you. We prefer to put the two that matter, with the same yardstick for every column, and to say too where we no win.

Corporate income tax in Europe, and the two Canary Islands

Corporate income tax rate in Europe in 2026, with the two Canary situations A horizontal bar chart with the general corporate income tax rates in 2026. The Canary Islands appear twice, because they are two different situations. At the top, a company authorised in the Canary Special Zone pays four per cent, below Hungary with nine, Bulgaria with ten, Ireland with twelve and a half and Cyprus with fifteen. But a Canary company that is not in the Special Zone pays twenty-five per cent, exactly as in the rest of Spain, and appears mid-table alongside France with twenty-five point eight, Italy with twenty-seven point eight, Germany with thirty point one and Malta with thirty-five. The difference between the two Canary bars is not geographical: it is an authorisation that not every company obtains. Canary Islands · ZEC 4% Hungary 9% Bulgaria 10% Ireland 12,5% Cyprus 15% Canary Islands · ordinary regime 25% Spain 25% France 25,8% Italy 27,8% Germany 30,1% Malta 35%
General corporate income tax rates, 2026. The Canary Islands appear twice on purpose: they are two different situations and the difference between them is not geographical. Source: Tax Foundation, Corporate Income Tax Rates in Europe 2026, on OECD and PwC data.

First, because almost nobody says it: being in the Canary Islands does not lower the tax. A Canary company not authorised in the Special Zone is taxed at 25%, exactly as in Madrid or Barcelona. It is the grey bar, in the middle of the table. The archipelago is not a reduced rate: it is a catalogue of incentives, and each one has its own door.

The 4% is the ZEC, and the ZEC has to be earned. It requires prior authorisation from the Consortium and registration in the ROEZEC, one of the permitted activities, a minimum of employment and a minimum of investment in the first years. Not every company can enter, and those that do apply the 4% only to the part of the base corresponding to the authorised activity. The requirements, in the corporate regime.

That said, when it is met it is the lowest rate in the Union. The next is Hungary's, 9%. With one temporary condition: since the OECD's Pillar Two, groups with more than 750 million in turnover are taxed at a minimum of 15% wherever they are. For a startup and for an SME, which is what we are talking about here, the 4% applies in full.

How much you get back for every €100 of research

Tax credit for every 100 euros spent on a new project, 2026 A horizontal bar chart with the tax credit a new research project receives for every hundred euros of spending, in 2026. Portugal leads with eighty-two point five, followed by the Canary Islands for research and development with seventy-five point six, the Canary Islands for technological innovation with forty-five, Spain for research with forty-two, Ireland with thirty-five, France with thirty, Germany with twenty-five, the United Kingdom with twenty, Spain for technological innovation with twelve and Italy with ten. The Canary Islands are second: Portugal is ahead in this comparison. Portugal 82,5% Canary Islands · R&D 75,6% Canary Islands · technological innovation 45% Spain · R&D 42% Ireland 35% France 30% Germany 25% United Kingdom 20% Spain · technological innovation 12% Italy 10%
Tax credit on the expenditure of a new project, 2026. That case is taken because it is comparable: a newly created vehicle has no historical expenditure in any country, so everywhere the highest available rate applies to it. Sources: PwC Worldwide Tax Summaries and the tax authorities.

For every €100 spent, how many the State returns as a credit against tax. In the Canary Islands, 75.6 for research and 45 for technological innovation: these are the rates applied to a new project, and it is exactly the situation of each Tax Lease AIE, which is incorporated for one project and has no previous history.

And Portugal is ahead. Its SIFIDE II adds 32.5 of base plus 50 on new expenditure and reaches 82.5%, seven points above. We could have left it out and nobody would have noticed, but an incomplete datum is not a datum: whoever is deciding where to do research needs the whole picture.

One nuance that changes the order in the other case. Spain, the Canary Islands and Portugal apply a higher rate to new expenditure and a lower one to expenditure that merely maintains the previous year's level: in the Canary Islands that maintenance rate is 45% for research, and there we are first again, because in Ireland it is 35 and in Portugal 32.5. The other countries in the table have a single rate and do not distinguish.

And what the person pays, not the company

Top personal income tax rate, 2026 A horizontal bar chart with the top marginal personal income tax rate in 2026. Denmark leads with sixty point five per cent, followed by France with fifty-five point four and Austria with fifty-five. Spain, and with it the Canary Islands, is fourth with fifty-four, ahead of Portugal, Germany, Italy and the United Kingdom, and well above the European OECD average of forty-three point four. At the bottom, Hungary with fifteen, Bulgaria and Romania with ten and the United Arab Emirates with zero. On this dimension the Canary Islands offer no advantage at all. Denmark 60,5% France 55,4% Austria 55% Spain · and the Canary Islands 54% Portugal 53% Germany 47,5% Italy 47,2% United Kingdom 45% European OECD average 43,4% United States 42,1% Hungary 15% Bulgaria and Romania 10% United Arab Emirates 0%
Top marginal personal income tax rate, 2026, adding the state and the regional or local band. It does not include social security contributions. Sources: Tax Foundation on European Commission, PwC and Bloomberg data; for the Emirates, the absence of personal income tax.

Here the Canary Islands offer no advantage, and we are the ones saying it. A person resident in the Canary Islands is taxed under the ordinary Spanish regime: 54% in the highest band, fourth in Europe. There is no special regime for residents, nor anything like the Cypriot non-dom or the Bulgarian flat rate. Whoever comes looking to pay less personally has the wrong place: the Canary advantage is corporate and project-based.

The conclusion

Three different doors, and none of them opens on its own.

The usual confusion about the Canary Islands is to treat the archipelago as if it were a reduced rate. It is not. They are separate incentives, with separate requirements and separate recipients, and a company may meet one and not the others. It is best to look at them one at a time.

  1. The R&D and technological innovation deduction · the wide door

    75.6% of research expenditure when the project is new, which is always the case for an AIE; 45% on expenditure that merely maintains the previous year's level. In technological innovation, 45% (13th additional provision, Ley 19/1994). It requires neither ZEC nor prior authorisation: it requires doing real research in the Canary Islands and being able to prove it, with the certification and the reasoned report. It is the incentive most people reach, and it is the one that sustains Volcano's model.

  2. The ZEC's 4% · the narrow door

    Authorisation from the Consortium, registration in the ROEZEC, a permitted activity, a minimum of employment and a minimum of investment. It applies only to the part of the base corresponding to the authorised activity, and the rest is taxed at the ordinary rate. Many companies cannot enter, and for those that do it arrives at the market phase, not the research one.

  3. Personal income tax · here there is no advantage, and it is worth knowing

    The taxation of individuals in the Canary Islands is that of the ordinary Spanish regime: there is no special regime for residents, nor anything like the Cypriot non-dom or the Bulgarian flat rate. Whoever is looking for a personal advantage will find it elsewhere in Europe; the Canary one is corporate.

And a warning about adding incentives up. The Canary regime has a joint cap on aid: the benefits of the ZEC, the RIC, the investment deduction and the enhanced deductions do not accumulate without a ceiling, and the calculation depends on the case. Anyone presenting you with the figures added together, without telling you this, is showing you a theoretical maximum.

What really changes

A tax you were going to pay anyway, turned into an investment.

Of the three doors, the one that matters for what we do is the first, and not because of the size of the percentage but because of what it lets you do with it.

A tax deduction is not worth what it says: it is worth what you can collect from it, and that depends on how much tax you pay. A credit of €756,000 for a million invested in research is used up in about two years if whoever holds it makes profits and is taxed at 25%; and it is never used up if whoever holds it is a startup that does not yet make money. The percentage is the same. What changes is whose it is.

From that comes the whole idea: if you have a high tax bill, that money is no longer yours, it is going to leave your account this year anyway. Directing it to a research project is not a tax saving, which would be a zero-sum game with the tax authority: it is a change of destination. What was an unrecoverable expense turns into a stake in something that can grow. How the mechanism works, step by step, in the Tax Lease; and the number for your case, in the tax simulation.

The data on this page refer to the years indicated in each chart and we review it once a year. Rates change: in 2026 alone Cyprus, Lithuania and France have moved theirs.

The other side

And then there is the climate, which does not decide the company but decides the people.

This page starts by saying we are not here for the weather, and that is true: no company relocates for the weather. But people do, and an innovation company is nothing but the people it manages to gather. So it is worth saying this part too, without pretending it is the main one.

  1. The real argument is talent

    The third question of the triad is whether the team is up to it, and it is the one that sinks the most projects. Persuading a good engineer to move is hard almost anywhere; here you compete with an advantage that appears in no tax table. It makes nobody better, but it makes them say yes.

  2. A stable climate, and that is health too

    Mild temperatures all year, with no winters that shut you in nor summers that paralyse. You live outside, you walk, you work with the window open in January. Over the years an research project lasts, it is not an aesthetic detail.

  3. And being a tourist destination has a practical consequence

    Direct air connections with half of Europe all year round, services sized for visitors and a habit of dealing with people from elsewhere. For a project working with partners, investors and clients in another country, logistics stops being a problem.

And there is something that cannot be measured, and we are not going to pretend otherwise: the volcanic landscape, the sea close by and a way of treating people that surprises whoever comes from outside. It is not a reason to set up a company here. It is a reason to stay, which is not the same, but it ends up mattering just as much.

Frequently asked questions

Frequently asked questions

Why do the Canary Islands pay off for innovation?

Because of the REF, which raises R&D and technological innovation deductions to 75.6% for I+D and 45% for technological innovation, and because of the ZEC, which brings corporate income tax down to 4%.

Do you need to have a base in the Canary Islands already?

No: a new entity can be incorporated, and for foreign companies there is a dedicated relocation route.

Turn the Canary regime into your advantage.

Transform your tax burden Put your asset to work Set up in the Canary Islands: the full service
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