Guide Corporate Tax Andorra
Very basic summary on the main aspects of the current Corporate Tax system in Andorra
Andorra applies a system of taxation of corporate profits, under which gains are fully taxed at the corporate level but not when the shareholder (individual) receives them (dividends are fully exempt). If the shareholder is a company, the dividend would be subject to tax. However, a total exemption is available if the participation exemption is applicable.
Taxpayers of Corporate Tax would be:
- legal persons;
- collective investment institutions;
- public-law entities and similar bodies
Partnerships are transparent for corporate income tax purposes.
Andorra is a civil law country based on Roman Law which does not recognize effects to trusts. However, the trusts produce specific effects in Andorra from the tax point of view. The settlor is treated when contributing to a donor, and the potential capital gain could be subject to tax. The beneficiary is treated as a donee and not subject to tax since Andorra does not have inheritance or gift tax.
Investment funds, SICAVs (pooled investment vehicles with legal personality) and pension funds are taxable persons and subject to corporate income tax at 0%.
Which entities are deemed to be tax residents of Andorra?
- legal entities incorporated under Andorran law;
- legal entities with their registered office in Andorra;
- legal entities with their place of effective management in Andorra; and
- legal entities who have transferred their Residence to Andorra.
Andorran tax resident companies are subject to tax on their worldwide income. Taxable Income consists of Income received during the tax period, which could be determined in two ways: (i) the direct determination method; or (ii) the objective determination method.
Under the direct determination method, taxable income is based on the accounting profit. As a critical difference from other countries, no tax adjustments to the accounting result apply in Andorra.
Under the objective method, a lump-sum deduction of 10% of revenue is applied.
Capital gains constitute taxable Income that is subject to corporate income tax.
If, however, the capital gain arises from the sale of a subsidiary, it is exempt, provided that the subsidiary fulfil all the requirements for applying a participation exemption.
Corporate Tax Rate
The general corporate income tax rate is 10%, which means that Andorra is one of the countries in the world with a lower tax rate for corporations.
Moreover, a 0% rate applies to collective investment vehicles formed under Andorran law.
As I mentioned initially, there is no withholding tax on dividends.
There is a possibility to ask for a binding consultation before the Tax Authority in cases where the tax treatment under the law is not precise. Such a binding consultation is public and published on the website of the Tax Authority. The Tax Authority must answer the compulsory consultation within two months.
Finally, Andorra has not yet implemented CFC rules in its tax system as a very particular matter.