Last Updated on 9th April 2026
The Canaries aren’t just an appealing destination within Spain that offers a comfortable lifestyle and warm climate, the islands also have a tax system that is considerably more favourable than that on the mainland, with special rules and rates that govern how income, investments and businesses are taxed.
For expats, knowing how double tax treaties function, especially between Spain and the UK, and the contrasts between taxation in the Canaries and elsewhere are essential aspects of effective financial planning.
We’ve curated a series of often-asked FAQs to illustrate some of the primary functions of the double tax treaties in place, how they impact expat wealth management, and how they work in practice.
Does the Spain-UK Tax Treaty Apply to Foreign Nationals in the Canary Islands?
Yes, the Canary Islands are very much a part of Spain and are covered by its legislation and tax treaties. The caveat is that the Canaries are one of 17 autonomous communities, which have the right to set their own tax thresholds, exemptions and allowances.
This provides a triple benefit. Expats who become legal residents can travel freely around the EU while living closer to the African coastline for warmer weather and paying the beneficial tax rates that apply in the Canary Islands.
However, the UK-Spain tax treaty still takes effect, preventing residents of either country from paying taxes on the same income or event in both locations.
How Do Tax Rules in the Canaries Differ From Those in Mainland Spain?
While the Spain-UK tax treaty applies equally in the Canary Islands as anywhere else, there are several contrasts in taxation:
- Sales taxes are charged at a standard rate of 7%, as opposed to 21% on the mainland.
- The Canary Islands Special Zone, or ZEC, provides a reduced 4% corporate tax rate, compared to a 25% general rate elsewhere.
- Individual taxes, including property transfer and registration taxes, income taxes and deductions, are all more generous than those in many mainland municipalities.
As we’ve mentioned, double tax treaties remain relevant, so expats need to consider both regional and national tax rules and frameworks in their financial planning.
Which Countries Hold Double Tax Treaties With the Canary Islands?
Spain has numerous treaties with 90+ countries, and, in addition to the EU-wide rules, expats living in the Canaries may need to apply the treaty provisions in place between Spain and the UK, Australia, Canada, and the USA, depending on their country of origin or domicile.
How Does the Spain-UK Double Tax Treaty Determine Whether Expats in the Canaries Are Tax Residents?
Tax residency in the Canary Islands follows the same rules as in Spain, and most expats will be classified as tax residents if:
- They live there for 183+ days a year
- Their main business, income or employment is in the Canaries
- Immediate family members also live in Spain
Double tax treaties set out specific rules and tiebreakers that apply when it isn’t clear where an individual is tax-resident.
Does the Tax Treaty Between the UK and Spain Mean I Don’t Need to File Tax Returns?
No, it doesn’t, and this is a common mistake to watch out for. Tax treaties determine where you are taxed, or which jurisdiction has the right to raise a tax charge, but they don’t exempt tax residents of one country from filing returns in the other.
Expats living in the Canaries may still need to submit tax returns to HMRC if they have any form of UK assets or income. They might also have to claim foreign tax credits if they are liable to pay tax on the same income in both places, this is particularly common for foreign nationals with UK real estate assets.
Is Modelo 720 Included in the Spain-UK Tax Treaty?
It’s not because Modelo 720 is a separate, independent, and compulsory declaration rule that requires tax residents in Spain to report, collectively, any assets they hold abroad worth €50,000 or more.
This means foreign nationals not only need to know where they are tax-resident and possibly continue filing returns in the UK, but are also obligated to submit declarations of foreign assets such as property, bank accounts, and investments.
However, the double tax treaty then plays a role in determining how reportable foreign assets are taxed, and where.
How Does the Double Tax Treaty Between Spain and the UK Influence Where Incomes Are Taxed?
The treaty covers numerous types and sources of income, and the typical rules are as follows:
- Employment income is taxed in the country of work. However, foreign nationals can apply to HMRC if they work in the UK to avoid at-source taxation or claim foreign tax credits to offset duplicate liabilities.
- Rental income is taxed in the country where the real estate is held, again, foreign tax residents may rely on treaty provisions to ensure this tax isn’t charged twice.
- Investment income can be taxable both in the country where investments are based and in the place where the holder is a tax resident. Tax reliefs are essential to preventing over-taxation.
- Private pensions are taxed in the country of tax residency, and at the prevailing rates.
- Government pensions are taxed at source but may still need to be declared.
Other types of income, such as interest and dividends, may be subject to tax in the country of origin, but the double tax treaty applies limitations on withholding tax rates and enables expats to claim credits in Spain against taxes already paid in the UK.
Access Further Information About Tax Treaty Rules Between the UK and the Canary Islands
There are several benefits to living in the Canary Islands in terms of tax efficiency and living costs, but it remains important to understand how Spanish tax and UK tax laws interact and to be aware of regulations like Modelo 720 that aren’t covered by double tax treaties.
Current or prospective Canary Islands residents who would like to learn more or require advice about their tax position are welcome to contact the Chase Buchanan regional teams and can organise a convenient time to discuss their requirements with our wealth management specialists.
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Chase Buchanan Insurance Services, Agents & Advisors is authorised and regulated by the Cyprus Insurance Companies Control Service with License No 6883 and offers services in the EU on a cross-border basis as per the provisions of the Insurance Distribution Directive (IDD).
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*Information correct as at April 2026
