Spain, Canary Islands, Malta & Mauritius: R&D and Corporate Tax Planning

Overview

The Canary Islands offer some of the most attractive R&D tax incentives in Europe, combining high R&D tax credits with a special tax regime. This document outlines the main benefits, practical considerations, and how these can be integrated with structures involving Spain, Malta, and Mauritius for optimal tax efficiency.

R&D Tax Credits in the Canary Islands

• Credits are annual, not limited to specific calls or sectors.
• Projects need not be commercially successful, only genuine R&D/innovation.
• Deductions cannot exceed 100% of R&D costs; subject to corporate tax bill limits.

Monetisation & Refunds

• Reduce corporate tax base (up to ~90% in R&D-heavy cases).
• Request cash refund for unused credits (up to ~80% of amount, with annual caps: ~€1M for tech innovation, ~€3M for R&D+innovation).
• To monetise, reinvest in R&D/innovation within 24 months and maintain related employment.

General Corporate Tax Advantages

• ZEC (Special Zone): Qualifying companies pay ~4% corporate tax (vs 25% standard), subject to activity, investment, substance, and job creation.
• RIC (Investment Reserve): Set aside profits tax-free (within limits) if reinvested in eligible assets/projects; can be combined with R&D deductions.
• Patent Box: For IP licensing, if relevant.

• Reduced corporate tax rate (ZEC)
• High R&D/innovation deductions
• RIC and Patent Box (if applicable)

Grants & Non-Tax Support

• CDTI: National grants/soft loans for R&D/innovation (Canary Islands projects eligible)
• Regional Programs: Canary Islands government/island councils, often co-funded by EU, for R&D, innovation, tech transfer (covering salaries, equipment, collaborations)
• EU Funds: Participation in Horizon Europe and other EU R&D programs

Proposed Corporate Structure

• Spain: Residence, team, and R&D operations
• Malta: EU-based holding/service company for low effective corporate tax on consulting/IP income [drwerner]
• Mauritius: Holding for non-EU investments or to hold IP/shares in a tax-efficient treaty jurisdiction

• Control Spanish personal tax if resident
• Keep operating profits at a low effective rate (Malta/Mauritius) while staying treaty compliant
• Use EU directives for low/zero withholding on dividends/interest/royalties [benavidesasociados]

Detailed Country Blocks

Spain

• Personal: Tax resident: taxed on worldwide income; “Beckham law” regime: flat 24% on employment income up to €600k, foreign income exemption for ~6 years (strict conditions)
• Corporate: Standard corporate tax: ~25% (lower for new companies); R&D and Canary Islands benefits as above; Transfer pricing/anti-avoidance rules for payments to Malta/Mauritius; real substance and market pricing required

Malta

• Consulting/service company invoicing EU clients
• Holding company for EU dividends, interest, royalties [mt.andersen]
• Headline corporate tax: 35%
• Effective tax on trading profits: ~5% (via refund system) [csbgroup]
• Participation exemption: qualifying shareholdings (dividends/capital gains) may be fully exempt [benavidesasociados]
• Often zero Maltese withholding tax on outbound payments [fbsmalta]
• Real management, local directors, office, and activity in Malta required; shells are risky [mt.andersen]
• Caution: Spanish CFC and anti-abuse rules can pull profits back into Spain if structure is artificial

Mauritius

• Holding company for Africa/Asia investments (treaty network)
• IP holding/licensing, low corporate tax, flexible for foreign shareholders
• Low/reduced tax on foreign dividends/capital gains
• Low/zero withholding from some African/Asian countries (treaties)
• Caution: EU tax authorities scrutinize “exotic” jurisdictions; If managed from Spain, Spain may treat as Spanish tax resident or apply CFC rules; Only useful if genuine business/management outside Spain (e.g., African ops run from Mauritius)

Combined Structure: Flow & Considerations

  Mauritius Holding
    └─ Owns Maltese holding/service company
        ├─ May own non-EU subsidiaries (Africa, Asia)
        └─ Maltese company holds EU shares, receives EU dividends/royalties, or runs consulting for EU clients
            └─ Effective 5% tax on trading profits via refund system
                └─ Spanish OpCo does real work in Spain/Canary Islands
                    ├─ Pays arm’s length fees/royalties to Malta for IP, management, or group services
                    └─ Dividends flow up to Malta, then Mauritius, then to you/investors (depending on residence)
      

• Use EU directives to reduce withholding Spain→Malta (dividends/royalties) [benavidesasociados]
• Malta’s participation exemption/refund system for low group tax on non-Spanish profits [mt.andersen]
• Mauritius treaties for genuine non-EU operations

Key Checkpoints & Questions

1. Decide residence and work location first. If resident in Spain, plan for worldwide taxation.
2. Use Spain/Canary incentives as base case for R&D. Only add Malta if it brings real value (EU consulting/IP/future investors).
3. Mauritius only if genuine non-EU operations/investors. Ensure real management, banking, and board presence.
4. Consult an integrated international tax firm (Spanish, Maltese, Mauritian, or global advisory like Andersen Malta, Henley, CSB Group, etc. [henleyglobal])
   • Ask about: CFC exposure, Spain-Malta DTT, Spain’s treatment of Mauritius companies.
5. Do not copy classic “Spain-Malta solution” from blogs/Reddit. Many are outdated and do not reflect current anti-abuse rules [globaltax].

• Push vs Pull Reporting for Mauritius to UK/others?
• 1 vs 2 tier structure in Mauritius?
• Money repatriation options?
• Canary Islands vs Malta: VAT reporting, minimum economic substance requirements?
• Overall COGS and tax of entire structure?
• Money flow modelling, invoicing out of Mauritius?
• Technical reports (secondary for now)