General Information
Country Name: Andorra
Currency: Euro (€) (EUR)
Primary Tax Authority: Andorran Tax Agency (AT)
Key Legislation:
- Law 95/2010 on Corporate Tax
- Law 5/2014 on Personal Income Tax
- Law 11/2012 on General Indirect Tax
Fiscal Authority Allocation
Centralized Fiscal System:
Andorra has a centralized fiscal system where the government collects taxes at the national level. There are no regional or municipal taxes; all taxes are managed by the Andorran Tax Agency.
Corporate Income Tax (CIT)
Standard Rate: 10%
Andorra imposes a flat corporate income tax rate of 10% on the profits of companies operating in the country. There are certain tax incentives for small businesses and certain industries, such as innovation or environmental sustainability.
Tax Incentives:
- Reduced CIT for Small and Medium Enterprises (SMEs): SMEs may qualify for a reduced rate of 2% for the first three years of operation.
- Exemptions for Innovation and R&D: Companies engaged in innovation or research and development (R&D) can benefit from reduced rates or tax deductions.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
General Indirect Tax (IGI): 4.5%
Andorra operates a VAT-like system known as the General Indirect Tax (IGI), which applies to most goods and services at a standard rate of 4.5%. This is one of the lowest VAT rates in Europe. Certain goods and services, such as healthcare and education, are exempt or subject to reduced rates.
Personal Income Tax (PIT)
Standard Rate: 10%
Andorra imposes a flat personal income tax rate of 10% on residents. The first €24,000 of income is exempt from taxation, and income between €24,000 and €40,000 is taxed at 5%, with income above €40,000 taxed at the full rate of 10%.
Residence Criteria:
An individual is considered a tax resident in Andorra if they spend more than 183 days in the country in a calendar year.
Additional Mandatory Contributions
Social Security Contributions:
Andorra operates a mandatory social security system covering healthcare, pensions, unemployment, and work-related accidents. The contributions are split between employers and employees.
- Employer Contribution: 15.5%
- Employee Contribution: 6.5%
Withholding Taxes
- Dividends: 0%
- Interest: 0%
- Royalties: 5%
No withholding taxes on dividends and interest, making Andorra an attractive location for holding companies. However, a 5% withholding tax is applied to royalties.
Transfer Pricing Rules
Arm’s Length Principle:
Andorra follows the arm’s length principle for transactions between related parties. Companies must document their transfer pricing policies to ensure compliance.
Special Tax Regimes
- Holding Companies: Andorra offers a favorable tax regime for holding companies, which benefit from a 0% tax rate on dividends and capital gains.
- Free Zones: Certain areas designated as free zones provide tax advantages to companies engaged in international trade or logistics.
Other Taxes
- Property Transfer Tax: 4%
Imposed on the transfer of real estate, with half going to the local municipality and half to the Andorran government. - Excise Duties: Applied to certain goods such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
Comprehensive Network of DTAs:
Andorra has signed double taxation agreements with countries including Spain, France, Portugal, Luxembourg, and the United Arab Emirates, providing relief from double taxation and ensuring smoother cross-border trade.
Local Taxes
No Local Taxes:
Andorra’s tax system does not impose any local or municipal taxes, with all revenue collected at the national level.
Compliance and Reporting
Annual Filing:
Companies and individuals must file their tax returns annually. For companies, the fiscal year is generally the calendar year, with returns due by June 30th of the following year.
Penalties for Late Filing:
Late or non-compliance in tax filing can result in penalties and fines, which vary depending on the severity of the offense.
Recent Developments
OECD Compliance:
Andorra has committed to implementing OECD standards on transparency and the exchange of tax information. The country is also a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Banking Secrecy Reform:
In recent years, Andorra has moved away from strict banking secrecy laws and has adopted automatic exchange of information (AEOI) protocols, aligning itself with international efforts to combat tax evasion.
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