Last Updated on 7th October 2026
The Canary Islands apply lower indirect tax rates than mainland Spain, but this does not necessarily mean that every household will face a lower overall tax burden or cost of living.
While the region’s reduced Impuesto General Indirecto Canario (IGIC) rate can reduce the indirect-tax component of the price of some goods and services by applying sales tax at a general rate of just 7% compared with the standard 21% elsewhere, this isn’t the only consideration. Retail prices are affected by supply, transport, competition and import costs as well as IGIC.
Making decisions based solely on lower sales tax can potentially lead to unrealistic expectations about overall living costs, which is why understanding what the IGIC does is essential to creating stable financial plans.
How Does the IGIC in the Canary Islands Affect Expat Finances?
The IGIC is the equivalent of VAT and is paid on most goods and services. Although the Canaries are, of course, part of Spain, the islands operate under a separate fiscal regime owing to their special economic status within the EU.
The localised tax authority manages the tax and operates outside of the Spanish mainland VAT system, charging lower sales tax rates on a wide range of products.
Alongside the general 7% IGIC rate, compared with the standard 21% VAT rate applied in mainland Spain and the Balearic Islands, IGIC applies at different rates to various categories of products and services. For example, some publications and essential goods, including books, newspapers, dairy products, fruit and vegetables, may be subject to a 0% or reduced IGIC rate, while other everyday services and supplies may fall into different IGIC bands.
The lower IGIC rate may contribute to lower prices in some categories, although the final cost to consumers will depend on several other factors. The real-world benefit of lower sales taxes will also vary depending on expats’ spending habits, the imported products they buy, and their lifestyles.
Lower taxes may be especially relevant for expats with fixed overseas incomes, such as those retiring to the Canary Islands, digital nomads, and remote workers, who may find that lower indirect taxes support their disposable income. Some expats may find that their monthly budgets stretch further, or that they can enjoy a higher standard of living, while recognising that this depends on their circumstances and income sources.
The caveat is that relying too heavily on IGIC savings when budgeting for a relocation could lead to gaps in expats’ financial planning, particularly if other taxes and costs haven’t been properly accounted for.
Why Favourable Tax Rates Attract Businesses to the Canary Islands
The eCanarias 2024 report, published by the Canary Islands Telecommunications and Information Society Observatory (OCTSI), recorded 3,074 businesses in the TIC sector in 2024, representing a 6% increase on the previous year.
In addition to reduced IGIC, which can make some consumer-facing goods and services more price-competitive, companies may also be able to access business incentive schemes within the Canaries’ special economic framework, including the Canary Islands Special Zone (ZEC) regime and the Canary Islands Investment Reserve (RIC), although both are subject to detailed eligibility, substance and investment requirements.
These incentives are attractive, but they’re also subject to eligibility criteria and regulations, so they aren’t universally applicable to all expats or foreign-owned businesses.
According to the Spanish National Statistics Institute’s December 2025 Regional Accounts release, the Canary Islands’ economy grew by 4.4% in real terms in 2024, compared with 3.5% nationally.
One in four jobs in the Canaries is within, or linked to, the tourism sector, and in 2025 the islands recorded around 18.4 million tourists in total, including international and domestic arrivals over 12 months, according to the Canary Islands Tourism Observatory. Lower IGIC may be one favourable background factor, but tourism performance is also shaped by demand, air capacity, accommodation prices, visitor mix and wider economic conditions.
Are the Canary Islands Considered a Tax Haven?
It’s important to clarify the status of the islands because, in some jurisdictions, assets or cross-border capital held in regions officially designated as tax havens may be subject to additional scrutiny and taxation.
This is a common and potentially risky misconception. Low-tax jurisdictions are often perceived as tax havens, but the Canaries remain part of Spain and the EU, even though they are outside the EU VAT area, for VAT purposes. They should not be treated as a tax haven simply because IGIC is lower than mainland Spanish VAT.
Residents are still subject to the Spanish and regional rules around income tax, capital gains tax, inheritance and succession planning, property-related taxes and other reporting obligations.
What Factors Aside From Tax Should Expats Moving to the Canaries Consider?
We’ve looked at the advantages of the Canary Islands as a destination for consumers and business owners, but living on an island does come with its own set of logistical challenges.
Likewise, concentrating only on specific taxes can overshadow other practical aspects of a move that may directly impact affordability.
The islands are an Atlantic archipelago located off the northwest coast of Africa and form an autonomous community of Spain. This can mean that some products that can’t be bought locally need to be shipped. That comes with potential import charges depending on the item being ordered and where it is being sent from.
Some retailers in mainland Spain offer shipping to the Canaries but levy extra delivery costs, and delays in online orders being received are far from rare. These practicalities aside, many expats feel that minor compromises are worthwhile.
The IGIC is also just one aspect of the tax landscape in the Canaries, and other taxes are equally relevant. Residents might, for instance, consider the Canary Islands because of regional inheritance and succession tax reliefs, the wider Spanish and regional approach to wealth and property-related taxation, and the 4% corporation tax rate available to qualifying ZEC entities, subject to eligibility criteria and applying only to qualifying activity carried out within the ZEC framework.
Foreign nationals considering a move to the Canary Islands do, though, need to look past headline tax rates to ensure they understand how IGIC and the wider Spanish tax system will affect their financial positions.
Contact the Chase Buchanan Canary Islands team to speak with an adviser about the wider financial-planning considerations of relocating, and to understand where specialist tax advice may be needed.
Tax treatment depends on individual circumstances and may change. Where tax advice is required, expats should seek guidance from a suitably qualified tax professional in the relevant jurisdiction.
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*Information correct as at October 2026
