The Canary Islands' special fiscal regime — IGIC, lower ITP, ZEC low-tax zone and the Spain-Israel Double Taxation Treaty — explained for Israeli property buyers, retirees and entrepreneurs.
Tenerife has long been popular with European retirees and property investors, and an increasing number of Israeli families and entrepreneurs are choosing the island as their Spanish base. The reasons are multiple: year-round warm climate, lower cost of living compared to mainland Spain or the Balearics, a well-established expatriate community, and crucially, a distinct Spanish fiscal regime that differs substantially from the mainland. The Canary Islands are outside the EU VAT area, meaning the local indirect tax — IGIC — runs at 7% rather than Spain's 21% IVA, reducing the cost of services, construction and day-to-day spending.
For Israeli buyers considering Tenerife, the property purchase tax (ITP) on resale homes sits at 6.5% — comfortably below Catalonia's 10% or the Balearics' tiered scale reaching 11%. Israeli retirees relocating to Tenerife face the full Spanish IRPF on worldwide income, but can potentially structure Israeli pension income efficiently under the 1999 Spain-Israel Double Taxation Treaty. Entrepreneurs should also investigate the Zona Especial Canaria (ZEC), which offers a 4% corporate tax rate for qualifying internationally oriented businesses.
More than 183 days per year in Spain, or having your main economic interests in Spain, triggers full IRPF residency — including on Israeli pensions, investments and business income.
The 1999 bilateral treaty allocates taxing rights on pensions, rental income, capital gains and dividends, and provides mechanisms to prevent the same income being taxed twice.
ITP at 6.5% on resale property. New builds: 0.75% IGIC plus AJD. Annual IBI, plusvalía municipal on sale, and 3% non-resident withholding on property disposals.
IGIC replaces IVA at 7% (vs 21%) for most goods and services. The ZEC low-tax zone provides 4% corporate tax for qualifying international businesses based in the Canaries.
Tenerife attracts a diverse Israeli population: retired couples drawn by the climate and healthcare, younger families running remote Israeli businesses, and investors who see the island's year-round tourism as a reliable rental income source. Each group faces different tax obligations. Retirees must plan carefully how Israeli state and occupational pensions are reported in Spain — the DTT's pension articles are nuanced and specialist advice is essential before making the move. The Spanish IRPF rates can reach 47% at the top, making prior restructuring of Israeli pension drawdown worthwhile.
Holiday rental investors should note that Tenerife's tourist licence system has become stricter in recent years, and only licensed properties can legally advertise on platforms such as Airbnb or Booking.com. Rental income from licensed properties is reported via quarterly Modelo 210 at 19% for non-EU/EEA residents (Israelis) or, if resident, included in the annual IRPF return. Deductible expenses for non-residents are more limited than for residents — another reason why residency planning matters.
Resale properties attract ITP at 6.5% — lower than most mainland regions. New-build properties pay IGIC at 0.75% plus AJD stamp duty. Annual IBI and, on eventual sale, plusvalía municipal also apply. Non-residents selling must allow for the 3% buyer withholding.
Yes. Spanish tax residents are subject to IRPF on worldwide income including Israeli pensions. The Spain-Israel DTT may preserve Israel's taxing rights over certain state pensions, while private pensions are generally taxable in the country of residence — Spain. Specialist advice before relocating is essential.
Non-resident Israelis file quarterly Modelo 210 returns, paying IRNR at 19% on net income. During vacant months, imputed income (1.1% of cadastral value) must also be declared. The Spain-Israel DTT provides a credit mechanism to prevent double taxation.
The ZEC offers 4% corporate tax on qualifying international activities. Israeli entrepreneurs who establish a genuine Spanish company in Tenerife or Gran Canaria, with at least one resident director and minimum employment, can access this rate on eligible income from international operations.
Yes. Any Israeli who becomes a Spanish tax resident must declare foreign assets above €50,000 per category via Modelo 720 — covering Israeli bank accounts, investment portfolios, keren hishtalmut and Israeli property. Non-disclosure penalties are severe.
Tenerife is one of the most popular retirement destinations in Europe among Israelis, and for good reason: the climate is exceptional, the cost of living is lower than Tel Aviv, and the island's established international community makes integration straightforward. But Israeli retirees who move to Tenerife need to understand how Spain will treat their pension savings before they arrive.
Under Article 17 of the 1999 Spain-Israel Double Taxation Treaty, pensions paid to residents of Spain are generally taxable in Spain. Once you establish Spanish tax residency in Tenerife, distributions from a Keren Pensia (קרן פנסיה), Kupat Gemel (קופת גמל), or Bituach Menahalim (ביטוח מנהלים) are included in your Spanish IRPF return as private pension income, taxed at progressive rates up to 47%. The Israeli tax relief or exemption that applies within Israel — including the well-known exemption on Kupat Gemel lump sums for long-serving policyholders — does not carry over into Spanish law. This makes pre-residency planning critical. Timing a large Kupat Gemel drawdown before crossing the 183-day threshold, or restructuring Israeli pension arrangements before formally establishing Spanish residency, can produce very significant tax savings. Jacob Salama advises Israeli clients on this planning on a routine basis.
The Beckham Law (Art. 93 LIRPF), enhanced by the 2023 Startup Law, applies throughout Spain — including Tenerife. Israeli professionals relocating to the island for employment or entrepreneurial purposes can elect this regime if they have not been Spanish tax residents in the five years prior to arrival. The election provides a flat 24% IRPF rate on Spanish-source income up to €600,000 for six consecutive tax years, and generally excludes foreign-source income from Spanish taxation. For Israeli entrepreneurs who relocate to Tenerife and set up operations under the Zona Especial Canaria (ZEC) — which itself offers a 4% corporate tax rate — the combination of the ZEC entity rate and the Beckham personal rate creates a highly competitive overall tax structure. The application (Modelo 149) must be submitted within six months of the start of Spanish activities.
Israel joined the Common Reporting Standard (CRS) framework in 2018. Every major Israeli bank — Bank Hapoalim, Bank Leumi, Mizrahi Tefahot, Discount Bank — is required to identify Spanish tax residents among its account holders and report their balances, income, and asset values to the Israeli Tax Authority, which then transmits this data to Spain's Agencia Tributaria (AEAT) under the automatic exchange of information regime. If you live in Tenerife and hold Israeli financial accounts, AEAT may already hold information about those assets before you file your first Spanish tax return.
Modelo 720, Spain's annual foreign asset declaration, is a separate obligation. Spanish tax residents with overseas assets exceeding €50,000 in any single category must file this return by 31 March each year. For Israelis in Tenerife, the relevant categories typically include: Israeli bank and savings accounts, Keren Pensia and Kupat Gemel balances (treated as securities/pension rights), Israeli share portfolios, and Israeli real estate. Penalties for failure to file are severe, and the combination of CRS reporting and Modelo 720 cross-referencing means AEAT has significant visibility into Israeli asset holdings. Proper compliance from day one of Spanish residency is essential.
Tenerife applies the Canarian ITP rate of 6.5% on resale properties — significantly lower than the Balearics (up to 11%) or Catalonia (10%). New-build purchases pay IGIC at 0.75% plus AJD, rather than the mainland's 10% IVA plus AJD. Annual IBI council tax is payable to the relevant municipality (Santa Cruz, Puerto de la Cruz, Adeje, etc.). Non-resident Israeli owners who leave the property vacant must file quarterly IRNR returns declaring imputed income at 1.1% of the cadastral value, taxed at 19%. Rental income — common given Tenerife's year-round tourism — requires quarterly Modelo 210 filings at 19% (EU/EEA residents on net income) or 24% (non-EU nationals on gross). On sale, the buyer withholds 3% of the purchase price; the seller files a final capital gains return; plusvalía municipal is payable to the local ayuntamiento. Article 13 of the Spain-Israel DTT governs how the gain is treated for Israeli tax purposes, with a credit available for Spanish tax paid.
Scenario: Dror, an Israeli product manager, moves to Tenerife on a work contract at €70,000 per year. He retains Israeli investment accounts at Bank Leumi generating ₪30,000 (approximately €7,500) in interest and capital gains annually.
This example is illustrative only and does not constitute tax advice. Individual circumstances vary — contact Jacob Salama for a personalised analysis.
Jacob Salama advises Israeli nationals on Tenerife property acquisitions, retirement tax planning, the ZEC regime and cross-border obligations under the Spain-Israel DTT.