Andorra is a country in constant transformation, and its tax system reflects this dynamic. More and more people are considering residing in Andorra thanks to its efficient health system, fair taxation, and varied leisure offerings. Here’s why the corporate income tax in Andorra is so attractive.
Types of taxation in Andorra
There are three main types of taxes in Andorra: personal income tax (IRPF), general indirect tax (IGI), and corporate income tax (IS).
- Personal Income Tax (IRPF). This tax applies to individuals who reside in Andorra for more than 183 days a year and to those who generate income in the country. The IRPF taxable base is classified into two segments: the general base, which includes income from work, real estate, and economic activities, and the savings base. It is paid by income level with the following tax rates:
- 0%: income up to €24,000.
- 5%: income between €24,001 and €40,000.
- 10%: income over €40,000.
- General Indirect Tax (IGI). IGI has a general rate of 4.5%, a super-reduced rate of 0%, and a reduced rate of 1%. The super-reduced rate applies to housing rentals and investment gold, while the reduced rate applies to foodstuffs and water for consumption and irrigation.
- Corporate Income Tax (IS). This tax is levied on corporate profits at a rate of 10%, one of the lowest in Europe. Among its advantages are the possibility of offsetting tax losses for 10 years, the unlimited deductibility of financial expenses, the exemption from tax on dividends from subsidiaries, and the absence of withholding tax on dividends paid to non-resident shareholders.
What are the advantages of corporate tax in Andorra?
Corporate tax in Andorra has many advantages that make it attractive for companies.
Negative taxable income
One of the most outstanding advantages is the possibility of applying negative tax bases for a period of up to 10 years after the relevant adjustments. This means that losses in one year can be offset against profits in subsequent years, allowing companies to manage their tax burden more efficiently over time.
Deductibility of financial
Expenses Andorra imposes no limits on the deductibility of financial expenses. This is particularly beneficial for companies with high financing costs, as they can deduct all of their interest and other financial expenses from their taxable income, thus reducing their total tax burden.
Participation Exemption
One of the advantages of corporate taxation in Andorra is the participation exemption regime, which allows dividends or capital gains from subsidiaries to be exempt from taxation as long as they are subject to a corporate tax equivalent to the Andorran corporate tax.
This is a significant incentive for companies with subsidiaries in other countries, as they can repatriate profits without incurring additional taxes, facilitating reinvestment and growth of the parent company.
Exemption of dividends to resident shareholders
Dividends distributed to Andorran resident shareholders are exempt from taxation. This exemption encourages investors and partners to keep their investments within the country, supporting the stability and growth of the local business environment.
No withholding tax on dividends to Non-Resident partners
Dividends distributed to non-resident partners are not subject to withholding tax. This advantage facilitates the attraction of foreign investors, as they can receive their profits without additional tax deductions in Andorra, increasing the profitability of their investments.
Determination of Corporate Tax Payment in Andorra
The amount of corporate income tax in Andorra is determined on the basis of the company’s net profits. Compared to the European average, which is around 25%, the maximum tax rate of 10% in Andorra offers a considerable competitive advantage, resulting in an average saving of 15% compared to neighboring countries.
- Special Regimes. Andorra has special regimes that allow an effective rate of 2% for companies that meet certain requirements, such as those dedicated to the exploitation of intangible assets.
- Exemptions. Exemptions from corporate income tax are granted, establishing a 0% rate for collective investment institutions. However, wealth management companies and dividends received by tax residents from Andorran companies are excluded.
Procedure for the payment of Corporate Income Tax in Andorra
The process of payment of corporate income tax in Andorra is carried out annually, coinciding with the financial year of the entity. This process is divided into two phases:
- Prepayment. In September, 50% of the corporate income tax corresponding to the current year must be paid, based on the profits declared in the previous fiscal year.
- Final Payment and Adjustment. At the end of the tax period (usually in July), the second part of the tax is paid. At this stage, the amount is adjusted considering the payment made in September. If the profits obtained generate a surplus, the Andorran Ministry of Finance will reimburse the taxpayer for the amount overpaid.
In conclusion, MCA Assessors is your ideal partner to manage your corporate tax in Andorra. We maximize your tax benefits by taking advantage of the negative bases and exemptions available, guaranteeing efficient and worry-free management.
