The Canary Islands are not a low-tax region. They are a low-VAT one.
The islands have a reputation as Spain's tax haven, and on personal income tax it is simply wrong: the combined top rate is 50.5 per cent, higher than Catalonia. What is genuinely different is that VAT does not apply there at all, and that a company meeting real conditions can pay four per cent corporation tax. Neither of those is income tax, and confusing them is the expensive part.
This series has spent seven articles establishing that regional income tax differences are smaller than they look. The Canary Islands are the exception that proves the rule from the other direction: the region everyone believes is cheap has one of the higher income tax scales in the country, and its genuine advantages sit entirely outside personal income tax.
A Canarian salary is taxed above a Catalan one at the top.
The autonomic scale runs from 9 to 26 per cent across seven brackets. Added to the state scale, the top combined rate is 50.5 per cent — above Catalonia at 50, above the Basque Country at 49, and well above Madrid at 45. Only Navarre and the Valencian Community are higher. If you are moving to the islands for your salary, you are moving for the weather.
The Canary Islands sit outside the EU VAT territory. IGIC is the local equivalent and its general rate is 7 per cent where mainland VAT is 21. Enter an amount and pick what it is to see what the two regimes do to it.
Who the IGIC difference actually helps.
This is where most summaries go wrong. Indirect tax is passed along a chain and recovered by businesses, so a lower rate does not simply make everything cheaper for everyone.
Selling to consumers
A business selling to the public competes on the price including tax. Fourteen points of difference between 7 and 21 per cent is a structural advantage that shows up in every sale, and it is the reason retail and hospitality economics in the islands differ from the mainland.
Selling business to business
A VAT-registered business recovers the input tax either way, so the rate is a cash-flow question rather than a cost. If your customers are all companies, the headline gap between 7 and 21 per cent is close to irrelevant to your margins.
Being outside the VAT territory cuts both ways.
Because the islands are outside the EU VAT area, goods moving between the mainland and the Canaries are imports and exports rather than domestic or intra-community supplies. That means customs formalities, the AIEM levy on certain locally produced goods, and freight. For a business shipping physical product, those costs frequently exceed the indirect tax saving.
The ZEC, and what it actually asks of you.
The Zona Especial Canaria taxes qualifying companies at 4 per cent corporation tax against the ordinary 25. It is the largest incentive in the Spanish system and it is not a registration formality.
| Requirement | Tenerife or Gran Canaria | The other islands |
|---|---|---|
| Minimum investment | 100,000 euro | 50,000 euro |
| When | Within the first two years of activity | |
| Jobs created | 5 | 3 |
| Maintained | The minimum headcount on an annual average, for as long as the benefit is claimed | |
| Substance | Registered office and real activity in the Canary Islands | |
| Accounting | Separate accounts for the ZEC operations | |
Five real jobs is the price of the four per cent.
For a small software company that is a substantial commitment: five salaries, maintained on an annual average, in a labour market that is not Madrid's. The regime also carries exemptions from transfer tax and stamp duty and from IGIC on certain operations, which are worth having but are not what people come for. The arithmetic only works above a certain size, and working out where that line sits for a specific business is the whole of the advice.
The income tax scale, for completeness.
Seven brackets from 9 to 26 per cent, deflated by 2.1 per cent by Ley 9/2025 of 23 December, which amended the scale with effect for the 2025 tax period on the basis established by Ley 5/2024. The scale is deliberately gentler at the lower and middle levels than the state scale alone would suggest, which is a policy response to lower average incomes and island logistics costs, and then climbs to one of the higher tops in Spain.
This page originally carried no calculator. It does now.
When this article was written we could confirm the seven brackets and the 9 and 26 per cent endpoints but not the individual thresholds after the 2.1 per cent deflation, so we said so and left the calculator out rather than infer them. The Agencia Tributaria has since published the deflated scale in the gravamen autonómico chapter of its practical manual, reproducing article 18 bis of Decreto legislativo 1/2009 as amended. The thresholds below are those figures, checked against the published cumulative quota column.
| Base from | Up to | Canarian marginal rate | Cumulative Canarian tax at this point |
|---|---|---|---|
| 0 | 13,748 | 9.00% | 0.00 |
| 13,748 | 19,422 | 11.50% | 1,237.32 |
| 19,422 | 35,924 | 14.00% | 1,889.83 |
| 35,924 | 57,566 | 18.50% | 4,200.11 |
| 57,566 | 93,268 | 23.50% | 8,203.88 |
| 93,268 | 123,745 | 25.00% | 16,593.85 |
| 123,745 | — | 26.00% | 24,213.10 |
The state scale is added on top of this one, but its brackets do not line up with the Canarian ones, so there is no single combined rate for most of these bands. The combined top marginal rate is 50.5 per cent, reached above 300,000 euro. The calculator below applies both scales properly.
General taxable base, not gross salary. The personal minimum is applied and no family circumstances are modelled.
So who should actually move there.
Are the Canary Islands in the EU?
Can I just register a company there and pay four per cent?
Does IGIC apply to services sold to the mainland?
Is personal income tax really higher than in Catalonia?
What is the AIEM?
Seven per cent instead of twenty-one. And fifty and a half on your salary.
Work out which one applies to you ↗Alexander Baranov
Seventeen years designing and delivering cross-border corporate structures — incorporation, tax, holding, banking and market entry — for founders and companies expanding into Spain and the EU. Author of professional books on entering the Spanish market.
More about Voixa and the team ↗