Andorra is a country that is in constant evolution and that includes its taxes. There are many people who consider residing in Andorra as one of the best possible options, taking into account its health system, its fair taxation and its wide range of leisure activities. However, there is one tax that is very popular: the corporate tax. If you want to learn more about corporate tax in Andorra, here is everything you need to know.
What tax rates apply in Andorra?
Three main taxes apply in Andorra: personal income tax (IRPF), general indirect tax (IGI) and corporate income tax (IS).
The IRPF affects those who have resided in Andorra for more than 183 days per year and those who obtain justified economic benefits in the country. Taxable income is divided into two categories: the general base, which includes income from work, real estate and economic activities, and the savings base.
IGI, with a general rate of 4.5%, has a super-reduced rate of 0% and a reduced rate of 1%. The super-reduced rate applies to rental housing and gold intended for investment, while the reduced rate applies to foodstuffs, water consumed and used in irrigation.
Corporate income tax in Andorra taxes companies at a rate of 10%, one of the lowest in Europe. It offers advantages such as the application of negative tax bases for 10 years, no limit on the deductibility of financial expenses, exemption from taxation on dividends from subsidiaries, no taxation of dividends to resident shareholders, and no withholding tax on dividends for non-resident shareholders.
How much corporate income tax is payable in Andorra?
The payment of this tax is determined by the net profits obtained by a company. Compared to the European average, which is around 25% on net profits, the corporate income tax in Andorra, with its maximum rate of 10%, can translate into an average profit of 15% in relation to neighboring countries. In Andorra, the general rate of this tax reaches a maximum of 10% on the annual profits of the entity.
However, there are special regimes with an effective rate of 2% for companies that meet specific requirements, such as those dedicated to the exploitation of intangible assets, cooperative societies and those involved in the management and holding of shares in companies resident or non-resident for tax purposes in Andorra.
Additionally, corporate income tax exemptions are granted, establishing a 0% tax rate for collective investment institutions. However, wealth management companies and dividends received by tax residents in Andorra from Andorran companies are excluded.
What is the procedure for paying corporate income tax in Andorra?
The process for paying corporate income tax in Andorra differs from other countries, as it is settled annually. This means that it coincides with the financial year of the entity. Below, we show you in which two phases it takes place:
- In the month of September, 50% of the corporate income tax for the current year must be paid, considering the profits declared in the previous fiscal year.
- Subsequently, at the end of the current tax period, which generally ends during the month of July, the second part of the tax is paid. At this time an adjustment is made, deducting the amount already paid at the beginning of the year.
The Andorran Ministry of Finance will proceed to make a refund to the taxpayer in the event that the profits obtained during the tax period generate a surplus, making the amount to be paid in July negative.
In conclusion, corporate tax in Andorra stands out among other countries as it has a rate of 10%. Its benefits, such as the application of negative bases and tax exemptions, make this country an attractive destination for companies. With a flexible annual payment process and the possibility of refunds, at MCA Assessors we help you to reside in Andorra in a smooth and carefree way to belong to a competitive and up-to-date tax environment.
