Corporate taxation in Andorra is based on a single tax regime. This small country of just 468 square kilometres is divided into seven parishes. However, these parishes do not apply corporate taxes and are limited to charging municipal and administrational fees.
Corporate entities are subject to a 10% corporate tax, applicable on profits.
Collective investment undertakings (funds and sociétés d'investissement à capital variable) are subject to a 0% corporate tax.
Negligible municipal taxes/fees are charged based on the location and size of commercial offices.
Corporate taxation is based on profits generated by a company’s worldwide activities.
Worldwide income is subject to the same tax rate, regardless of its nature. However, some kinds of income may be exempt under legal dispositions (eg, capital gains, dividends).
Andorra’s tax regime is a worldwide regime.
Losses may be utilised and carried forward into the subsequent 10 exercises. In the case of foreign losses, Andorran companies may compensate them domestically under certain circumstances.
Andorra’s legal system does not distinguish between the beneficial owner and legal owner in terms of taxation.
The corporate tax rate is 10%, irrespective of the balance-sheet size of the taxpayer.
Trusts and partnerships do not exist in the Andorran legal system, given that the legal owner is not distinguished from the beneficial owner.
A special regime, which resembles a patent box regime, applies to the development and exploitation of intellectual property with an 80% reduction of the taxable base, resulting in an effective tax rate of 2%. Special requirements apply, including with regard to the type of intellectual property (limited to specific types) and the human and material resources used in the country.
A special holding regime also applies to companies that exclusively hold shares of subsidiaries. This regime reduces the requirements for the application of exemptions to capital gains and dividends.
The reorganisation regime (neutral regime) applies in case of corporate reorganisations if there are valid economic reasons. Potential capital gains will be deferred, in line with the special reorganisation regime applicable in the European Union.
No, there is no option to change the method of determining the taxable base.
The euro is the official currency of Andorra and is the reporting currency in terms of accounting and tax matters. Any currency conversion is calculated at the end of the year. The potential capital gain or capital loss arising from the currency conversion is treated as a taxable income or deductible loss.
Other than the special tax regime for royalties and income generated from the exploitation of specific types of intellectual property, incom222e arising from intangible assets has no special treatment.
There are no deductions relating to such contributions in the Andorran corporate tax regime.
No. The corporate tax regime in Andorra applies across all sectors.
There are no other surtaxes for corporate entities.
No.
Investments in capital assets are treated according to the international accounting rules. Depreciation is deductible in terms of corporate taxation.
A special deduction is available consisting of a tax credit of 5% of the total investment in fixed assets in Andorra.
There are no special tax or valuation rules.
There are no special tax or valuation rules.
Non-resident corporate entities are potentially subject to non-resident income tax, depending on the nature of the income generated.
The general rate is 10%. However, special types of income, such as royalties, are subject to a tax rate of 5%; while other types of income, such as dividends and interest, are fully exempt from non-resident income tax.
Yes, double tax treaties may override domestic norms.
Yes, double tax relief and tax credits are available for foreign-source income taxed abroad.
A step-up clause is not included in the corporate income tax law. However, double tax relief will apply in case of double taxation.
Yes. In case of a change in residence, the company will pay exit tax, based on the fair market value of its assets and the tax value of those assets.
There are both case law and statutory rules relating to anti-avoidance rules. Essentially, the Andorran anti-avoidance rules are based on the base erosion and profit shifting (BEPS) principles.
The main purpose of the anti-avoidance rules is to prevent tax fraud and the erosion of the taxable base, in line with the BEPS principles.
Andorra has not yet enacted controlled foreign company rules, but fully applies transfer pricing dispositions. There are also anti-hybrid rules and limitations on losses, but there is no limitation on interest deductions.
Yes. All of the double tax treaties in force include a special process relating to cross-border tax treatment.
Yes. The transfer pricing regime is based on Organisation for Economic Co-operation and Development principles.
Yes. The statutory limitation period for tax matters in Andorra is three years.
The deadline for filing company tax returns and payments is July. However, a fractioned payment is required in September, consisting of 50% of the tax burden of the previous tax year.
The penalties regime consists of a proportional fine of between 50% and 150% of the total amount of the fraudulent tax payment. Additionally, default interest may be applied for late payments.
According to the base erosion and profit shifting dispositions, the corporate tax regime provides for the international reporting of information. Such communications are regulated by the Conveni multilateral d’assistència administrativa mútua en matèria fiscal.
Yes. Tax consolidation is permitted in Andorra under certain circumstances. Only Andorran companies can be part of a consolidated group. Within a tax group, tax liability and payment basis are permitted.
Corporate entities may be subject to value added tax, insurance service tax and special taxes relating to the import of certain goods (eg, tobacco, alcohol, fuel).
No. Transfers of shares are not subject to indirect taxation. However, if more than 50% of the assets of a company constitute real estate assets located in Andorra and these assets are unrelated to the company’s economic activity, transfer tax at a rate of 4% will apply.
Andorra has seen many significant changes over the past decade and has positioned itself as a reliable jurisdiction in terms of legal security by adhering to international treaties such as double tax treaties and the Base Erosion and Profit Shifting Protocol. The corporate tax regime is one of the most competitive in Europe and harmonisation with international protocols continues, with further treaties due to enter into force over the coming year. In future, legislative reforms may favour foreign investment focused on specific technologies to incentivise the digitalisation of the current economic model.
In addition to a competitive corporate tax regime, a key attraction of Andorra is the favourable tax treatment of dividends and capital gains where certain requirements are met. Double tax treaties with Spain and Portugal may allow for attractive international tax planning strategies based on Latin American and European corporate structures.
Andorra’s patent box regime, which provides an effective corporate tax rate of 2%, remains interesting to watch as the country strives to become a potential technological hub, with human resources increasing in this sector.
Finally, Andorra’s landscape and high quality of living may attract beneficial owners and corporate managers who can benefit from personal taxation advantages beyond what corporate entities enjoy.
Co-Authored by Patrick Mueller, Partner.
