The Canary Islands are not just a paradise for sun-seekers—they are also one of the most tax-friendly regions in Europe for property investors. Thanks to their unique status as an outermost region of the European Union, the islands benefit from a special economic and fiscal regime that offers significant advantages for luxury property buyers and investors.
The Canary Islands’ Special Tax Regime
The Canary Islands have a distinct fiscal framework that differentiates them from mainland Spain. This regime was designed to compensate for the islands’ geographic remoteness and to attract investment.
IGIC: A Lower Indirect Tax
Instead of Spain’s standard VAT (IVA) of 21%, the Canary Islands apply the IGIC (Impuesto General Indirecto Canario) at a general rate of just 7%. For new property purchases, this means:
- New-build properties are subject to 7% IGIC instead of 10% IVA on the mainland
- This represents a direct saving of 3% on the purchase price
- On a €2 million property, that is a €60,000 saving
ZEC: Zona Especial Canaria
The ZEC (Zona Especial Canaria) is a special economic zone that offers extraordinary tax benefits for companies established in the Canary Islands:
- Corporate tax rate of just 4% (compared to 25% in mainland Spain)
- Available for companies that create at least 5 jobs (3 in smaller islands)
- Minimum investment of €100,000 (€50,000 in smaller islands)
- Applicable to a wide range of business activities
RIC: Reserva para Inversiones en Canarias
The RIC allows companies and individuals who carry out economic activities in the Canary Islands to reduce their tax base by up to 90% when profits are reinvested in the islands. Qualifying investments include:
- Purchase of real estate for business use
- Investment in new fixed assets
- Subscription of shares in Canary Islands companies
- Investment in public debt of Canary Islands entities
Property Transfer Tax (ITP)
When buying resale properties in the Canary Islands:
- The ITP rate is 6.5%, which is competitive compared to many mainland regions
- Some regions of mainland Spain charge up to 10%
- On a €3 million property, the difference can be over €100,000
Inheritance and Gift Tax
The Canary Islands offer generous bonuses on inheritance and gift tax:
- 99.9% reduction for transfers between direct family members (parents, children, spouses)
- This effectively means near-zero inheritance tax for passing property to the next generation
- A significant advantage compared to many other Spanish regions
Wealth Tax
While Spain applies a wealth tax, the Canary Islands follow the national framework with a minimum exempt amount of €700,000. Strategic structuring of property ownership can help optimize wealth tax obligations.
Income Tax for Non-Residents
Non-resident property owners in the Canary Islands are subject to:
- EU/EEA residents: 19% tax on rental income (with deductible expenses)
- Non-EU residents: 24% tax on gross rental income
- Imputed income tax: If the property is not rented, a small imputed income tax applies based on the cadastral value
Capital Gains Tax
When selling property in Spain, capital gains tax applies at progressive rates:
- 19% on the first €6,000
- 21% on gains between €6,000 and €50,000
- 23% on gains between €50,000 and €200,000
- 26% on gains above €200,000
Conclusion
The Canary Islands’ special tax regime makes them one of the most attractive locations in Europe for luxury property investment. From lower indirect taxes and competitive property transfer rates to extraordinary corporate tax benefits and generous inheritance tax reductions, the fiscal framework is designed to reward investment.
At GS Luxury Spain, we work with experienced tax advisors who can help you structure your property investment to maximize these benefits. Contact us to learn more about how we can help you invest wisely in the Canary Islands.
