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Investment basics:

Currency – Andorra is not an EU member state, but the Euro (EUR) is its currency.
Foreign exchange control – No Accounting
principles/financial statements – Generally Accepted Accounting Practice, which is in line with international accounting and financial reporting standards (IAS and IFRS).
IAS/IFRS are used in relation to any aspects that are not specifically governed by Andorra GAAP.
Principal business entities – These are the public limited company, limited liability company and branch of a foreign corporation.

Corporate taxation:

Residence – A company is resident in Andorra if it is incorporated in Andorra, has its registered office in Andorra or if its effective management is in Andorra.
Basis – Residents are subject to corporation tax on worldwide profits and capital gains. Nonresident companies are taxed on Andorran-source income and gains, subject to the provisions of an applicable tax treaty. Branches generally are taxed similar to subsidiaries.
Taxable income – Taxable income includes worldwide profits less deductible expenses, and is based on income disclosed in the financial statements.
Taxation of dividends – Dividends received from resident and nonresident entities are exempt from taxation if certain requirements are met.
Capital gains – Capital gains are treated as ordinary business income taxable at a rate of 10%.
Losses – Operating losses may be carried forward for up to 10 years. The carryback of losses is not permitted.
Rate – The rate is 10%, although a taxpayer can request a reduction of 80% of the tax base if it is engaged in any of the following
activities: (1) international operations involving intangible assets or international trading of goods; or (2) intragroup financial management and investment.

Surtax – No
Alternative minimum tax – No

Foreign tax credit – Andorra law grants a tax credit to resident taxpayers for direct taxes incurred that are analogous to Andorra corporate income tax. The credit is limited to the lesser of the tax payable in Andorra had the income been obtained there or the actual foreign tax incurred.
Participation exemption – See under “Holding company regime.”
Holding company regime – The regime applies to Andorran entities whose exclusive purpose is to manage interests in nonresident entities (shares must be nominative). Under the regime, dividends distributed by nonresident entities are exempt from tax, as are capital gains derived from the transfer of the corresponding participation (regardless of the extent of the participation). The profits that correspond to the income distributed by the Andorran entity to its shareholders also are exempt.
Incentives – Deductions are available for new personnel hired and new investments. New investments can be depreciated at higher rates for tax purposes.

Withholding tax:

Dividends – Dividends paid to a nonresident are exempt from tax.
Interest – Interest paid to a nonresident is exempt from tax.
Royalties – The withholding tax rate on royalties paid to a nonresident is 5%.
Technical service fees – The withholding tax rate on technical service fees paid to a nonresident for services related to business activities in Andorra is 10%.
Branch remittance tax – No
Other – The general rate on nonresident income is 10%.

Other taxes on corporations:

Capital duty – No Payroll tax – No
Real property tax – A local real property tax is based on the size of the property.
Social security – The employer must contribute 14.5% of gross salary to social security.
Stamp duty – No Transfer
tax – No

Anti-avoidance rules:

Transfer pricing – Transactions with related parties must be carried out on arm’s length terms.
Thin capitalization – No Controlled foreign companies – No
Other – Financing expenses incurred on transactions with parties in tax havens are not deductible unless it can be proved that the financing is at arm’s length.
Disclosure requirements – No

Administration and compliance:

Tax year – The tax year coincides with the accounting period. The tax period may not exceed 12 months.
Consolidated returns – A group of corporations may be taxed on the basis of a consolidated balance sheet. To qualify as a group, an Andorra company must own at least 75% of its Andorra subsidiaries.
Filing requirements – The corporate income tax return must be filed and taxes paid within six months and 30 days following the close of the fiscal year. Corporations are required to make an advance payment of income tax in September of each year.
Penalties – Where there is no loss to the tax authorities, penalties may vary between EUR
150 and EUR 3,000. Underpayment penalties range from 50% to 150% of the unpaid tax liability.
Rulings – The tax authorities may provide binding advance rulings on the tax consequences of a proposed transaction.

Personal taxation:

The Entrepreneurial Activities Tax is applied in a similar manner to the corporate income tax, but the tax applies only to individuals engaged in business activities. There is no personal income tax for individuals, although tax law currently is being developed.

Other taxes on individuals:
Capital duty – No
Stamp duty – No
Capital acquisitions tax – No
Real property tax – A local real property tax is based on the size of the property.

The transfer of real estate between individuals generally is subject to a transfer tax at a tax rate between 1.5% and 2.5%.
Capital gains derived by individuals as a result of the transfer of real estate are taxed at a progressive rate ranging between 1% and 15%, depending on the length of time the property has been held.

Inheritance/estate tax – No Net wealth/net
worth tax – No
Social security – The social security cost for an employee is 5.5% of the gross salary.

Value added tax:

Taxable transactions – VAT is imposed on the sale of goods and the provision of services.
Rates – The standard rate is 4.5%, with reduced rates of 1 % and 0%.
Registration – Registration is mandatory for all taxpayers that carry out transactions in Spain.
Filing and payment – Filing and payment are due on a monthly, quarterly or bi-annual basis, depending on the turnover.

Source of tax law: General Tax Law and legislation regulating each tax
Tax treaties: Andorra has not yet concluded any tax treaties.
Tax authorities: Ministry of Finance
International organizations: United Nations, OSCE and European Council

 

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Block C/D Le Panorama
57 rue Grimaldi
98000 MC
www.5starseurope.com
info@5starseurope.com
Tel.: +33 1 82 88 38 98
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