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The Canary Islands has become the Spanish and European ‘tax haven’. Its condition of insular and ultraperipheral territory has allowed the European Union to approve the conversion of the archipelago into the European region with the lowest corporate tax in Europe. Companies covered by the Canary Islands Special Zone (ZEC) take advantage of tax benefits such as adjustments to the tax base, fee reductions or deductions. In total, the fiscal savings budgeted for 2017 amounted to 358 million euros. An important effort for the public coffers that has its justification in boosting the economy and employment in the islands.

Companies under the ZEC are obliged to create employment on the islands. Otherwise, they have to be taxed by the corporation tax for the rest of Spain. According to the report of the ZEC of 2017, the number of companies registered rose to 572 at the end of the year. These companies maintained an average of 5,757 jobs throughout the year, 900 more jobs than in the previous year.

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The archipelago has the lowest Corporate Tax in Europe and also offers other tax incentives that are benefiting large multinationals

If you take into account that the tax savings achieved by the companies stood at 360 million euros, the result is that each job cost the public purse 63,000 euros. The report of the ZEC does not detail the average remuneration of workers, but it is expected that it will not reach 63,000 gross euros per year. This means that the tax savings of ZEC companies is enough to cover salary costs.

Companies that enroll in the ZEC have the obligation to create five jobs if they are installed in Gran Canaria or Tenerife and three jobs if they are installed in the rest of the islands. A good percentage of the host companies comply with the minimum and do not hire one more worker. In particular, 94 new companies registered in 2017, of which one third declared that they will not hire more than five workers during the next five years. 64% will reach a staff of between 6 and 49 workers and only 3% will exceed 50 employees.

One-third of the companies registered to the ZEC in 2017 will be limited to hiring the minimum number of employees that the regulation marks

The minimum initial investment required for these companies is 100,000 euros. 19% of the companies installed ensures that will not exceed this threshold. On the contrary, only 7% admit that they will invest more than 1 million euros.

The companies that benefit most from this reduced taxation of the Canary Islands are foreign companies. 78% of the capital of the Canary Islands Special Zone is in foreign hands, while only 22% in Spanish. Of this 22%, 10% is from the Canary Islands and the remaining 12% comes from the rest of Spain.

Rajoy convinced the Canaries

In this last term, former President of the Government Mariano Rajoy gave an important boost to the taxation and financing of the Canary Islands. In this way, it was able to win the support of the Canary Islands Coalition and New Canaries in the processing of the General State Budgets of 2017 and also those of 2018. In the accounts of 2018 prepared by the former Minister of Finance Cristobal Montoro (and which will be approved this Thursday in Congress ) the Canary Islands tax benefit rises to 460 million euros.

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