1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
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.
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
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.
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
Corporate taxation is based on profits generated by a company's worldwide activities.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
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).
1.5 Is the regime a worldwide or territorial regime, or a mixture?
Andorra's tax regime is a worldwide regime.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
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.
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
Andorra's legal system does not distinguish between the beneficial owner and legal owner in terms of taxation.
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
The corporate tax rate is 10%, irrespective of the balance-sheet size of the taxpayer.
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
Trusts and partnerships do not exist in the Andorran legal system, given that the legal owner is not distinguished from the beneficial owner.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
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.
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
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.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
No, there is no option to change the method of determining the taxable base.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
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.
2.5 How are intangibles taxed?
Other than the special tax regime for royalties and income generated from the exploitation of specific types of intellectual property, income arising from intangible assets has no special treatment.
2.6 Are corporate-level deductions available for contributions to pensions?
There are no deductions relating to such contributions in the Andorran corporate tax regime.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
No. The corporate tax regime in Andorra applies across all sectors.
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
There are no other surtaxes for corporate entities.
2.9 Are there any deemed deductions against corporate tax for equity?
No.
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
Investments in capital assets are treated according to the international accounting rules. Depreciation is deductible in terms of corporate taxation.
3.2 Are there research and development credits or other tax incentives for investment?
A special deduction is available consisting of a tax credit of 5% of the total investment in fixed assets in Andorra.
3.3 Are inventories subject to special tax or valuation rules?
There are no special tax or valuation rules.
3.4 Are derivatives subject to any specific tax rules?
There are no special tax or valuation rules.
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Non-resident corporate entities are potentially subject to non-resident income tax, depending on the nature of the income generated.
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
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.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
Yes, double tax treaties may override domestic norms.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
Yes, double tax relief and tax credits are available for foreign-source income taxed abroad.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
A step-up clause is not included in the corporate income tax law. However, double tax relief will apply in case of double taxation.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
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.
5 Anti-avoidance
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
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.
5.2 What are the main 'general purpose' anti-avoidance rules or regimes, based on either statute or cases?
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.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
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.
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Yes. All of the double tax treaties in force include a special process relating to cross-border tax treatment.
5.5 Is there a transfer pricing regime?
Yes. The transfer pricing regime is based on Organisation for Economic Co-operation and Development principles.
5.6 Are there statutory limitation periods?
Yes. The statutory limitation period for tax matters in Andorra is three years.
6 Compliance
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
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.
6.2 What penalties exist for non-compliance, at corporate and executive level?
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.
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
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.
7 Consolidation
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
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.
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
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).
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
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.
9 Trends and predictions
9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
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.
10 Tips and traps
10.1 What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
