Forming a company in the Canary Islands gives you a significant advantage: no VAT tax charged to your clients. There is a local "IGIC" tax of 7%, but this only applies when billing clients who are also resident in the Canary Islands. When billing clients outside the Canary Islands, there is no VAT tax nor IGIC tax.
Company formation in the Canary Islands makes the most sense for online businesses selling services. For businesses that ship goods, you will pay VAT tax to the customs authorities on arrival to mainland Spain or other countries in the EU.
There are other advantages to forming a company in the Canary Islands, all fully backed by the European Union. These advantages derive from the Canary Islands' special Fiscal and Economic Regime (REF), aimed at encouraging investment in the Canaries by offering a lower tax burden.
Do I need to live in the Canary Islands in order to form a company in the Canary Islands? No. As with anywhere else, the administrator is not required to live in the Canary Islands, nor have an office in the Canary Islands. The company does need to have a registered address in the Canary Islands for communications with the tax office. If you do not have an address, our address may be used as the registered address if you hire our accounting service. Are the Canary Islands considered as an offshore tax haven by the European Union? Exactly the contrary. The tax advantages in the Canary Islands are fully supported by the EU, and Canary Islands bank accounts are fully transparent; reporting to the Bank of Spain is the same as in the rest of Spain. See the list of countries considered as offshore tax havens.