Corporate Tax

Company Tax Comparative Information – Tax

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1 Basic framework

1.1 Is there a single tax regime or is the regime multi-level
(eg, federal, state, city)?

Corporate taxation in Andorra is based on a single tax regime.
This small country of just 468 square kilometres is divided into
seven parishes. However, these parishes do not apply corporate
taxes and are limited to charging municipal and administrational
fees.

1.2 What taxes (and rates) apply to corporate entities which
are tax resident in your jurisdiction?

Corporate entities are subject to a 10% corporate tax,
applicable on profits.

Collective investment undertakings (funds and
sociétés d’investissement à capital
variable) are subject to a 0% corporate tax.

Negligible municipal taxes/fees are charged based on the
location and size of commercial offices.

1.3 Is taxation based on revenue, profits, specific trade
income, deemed profits or some other tax base?

Corporate taxation is based on profits generated by a
company’s worldwide activities.

1.4 Is there a different treatment based on the nature of the
taxable income (eg, gains on assets as opposed to trading income or
dividend income)?

Worldwide income is subject to the same tax rate, regardless of
its nature. However, some kinds of income may be exempt under legal
dispositions (eg, capital gains, dividends).

1.5 Is the regime a worldwide or territorial regime, or a
mixture?

Andorra’s tax regime is a worldwide regime.

1.6 Can losses be utilised and/or carried forward for tax
purposes, and must these all be intra-jurisdiction (ie, foreign
losses cannot be utilised domestically and vice versa)?

Losses may be utilised and carried forward into the subsequent
10 exercises. In the case of foreign losses, Andorran companies may
compensate them domestically under certain circumstances.

1.7 Is there a concept of beneficial ownership of taxable
income or is it only the named or legal owner of the income that is
taxed?

Andorra’s legal system does not distinguish between the
beneficial owner and legal owner in terms of taxation.

1.8 Do the rates change depending on the income or
balance-sheet size of the taxpayer?

The corporate tax rate is 10%, irrespective of the balance-sheet
size of the taxpayer.

1.9 Are entities other than companies subject to corporate
taxes (eg, partnerships or trusts)?

Trusts and partnerships do not exist in the Andorran legal
system, given that the legal owner is not distinguished from the
beneficial owner.

2 Special regimes

2.1 What special regimes exist (eg, for fund entities,
enterprise zones, free trade zones, investment in particular
sectors such as oil and gas or other natural resources, shipping,
insurance, securitisation, real estate or intellectual
property)?

A special regime, which resembles a patent box regime, applies
to the development and exploitation of intellectual property with
an 80% reduction of the taxable base, resulting in an effective tax
rate of 2%. Special requirements apply, including with regard to
the type of intellectual property (limited to specific types) and
the human and material resources used in the country.

A special holding regime also applies to companies that
exclusively hold shares of subsidiaries. This regime reduces the
requirements for the application of exemptions to capital gains and
dividends.

2.2 Is relief available for corporate reorganisations or
intra-group transfers of companies and other assets? Please include
details of any participation regime.

The reorganisation regime (neutral regime) applies in case of
corporate reorganisations if there are valid economic reasons.
Potential capital gains will be deferred, in line with the special
reorganisation regime applicable in the European Union.

2.3 Can a taxpayer elect for alternative taxation regimes (eg,
different ways to calculate the taxable base, such as revenue-based
versus profits based or cash basis versus accounts basis)?

No, there is no option to change the method of determining the
taxable base.

2.4 What are the rules for taxing corporates with different
functional or reporting currency from that of the jurisdiction in
which they are resident?

The euro is the official currency of Andorra and is the
reporting currency in terms of accounting and tax matters. Any
currency conversion is calculated at the end of the year. The
potential capital gain or capital loss arising from the currency
conversion is treated as a taxable income or deductible loss.

2.5 How are intangibles taxed?

Other than the special tax regime for royalties and income
generated from the exploitation of specific types of intellectual
property, incom222e arising from intangible assets has no special
treatment.

2.6 Are corporate-level deductions available for contributions
to pensions?

There are no deductions relating to such contributions in the
Andorran corporate tax regime.

2.7 Are taxpayers from different sectors (eg, banking) subject
to different or additional taxes or surtaxes?

No. The corporate tax regime in Andorra applies across all
sectors.

2.8 Are there other surtaxes (eg, solidarity surtax, education
tax, corporate net wealth tax, remittance tax)?

There are no other surtaxes for corporate entities.

2.9 Are there any deemed deductions against corporate tax for
equity?

No.

3 Investment in capital assets

3.1 How is investment in capital assets treated – does
tax treatment follow the accounts (eg, depreciation) or are there
specific rules about the write-off for tax purposes of investment
in capital assets?

Investments in capital assets are treated according to the
international accounting rules. Depreciation is deductible in terms
of corporate taxation.

3.2 Are there research and development credits or other tax
incentives for investment?

A special deduction is available consisting of a tax credit of
5% of the total investment in fixed assets in Andorra.

3.3 Are inventories subject to special tax or valuation
rules?

There are no special tax or valuation rules.

3.4 Are derivatives subject to any specific tax rules?

There are no special tax or valuation rules.

4 Cross-border treatment

4.1 On what basis are non-resident corporate entities subject
to tax in your jurisdiction?

Non-resident corporate entities are potentially subject to
non-resident income tax, depending on the nature of the income
generated.

4.2 What withholding or excise taxes apply to payments by
corporate taxpayers to non-residents?

The general rate is 10%. However, special types of income, such
as royalties, are subject to a tax rate of 5%; while other types of
income, such as dividends and interest, are fully exempt from
non-resident income tax.

4.3 Do double or multilateral tax treaties override domestic
tax treatments?

Yes, double tax treaties may override domestic norms.

4.4 In the absence of treaties, is there unilateral relief or
credits for foreign taxes?

Yes, double tax relief and tax credits are available for
foreign-source income taxed abroad.

4.5 Do inbound corporate entities obtain a step-up in asset
basis for tax purposes?

A step-up clause is not included in the corporate income tax
law. However, double tax relief will apply in case of double
taxation.

4.6 Are there exit taxes (for disposed-of assets or companies
changing residence)?

Yes. In case of a change in residence, the company will pay exit
tax, based on the fair market value of its assets and the tax value
of those assets.

5 Anti-avoidance

5.1 Are there anti-avoidance rules applicable to corporate
taxpayers – if so, are these case law (jurisprudence) or
statutory, or both?

There are both case law and statutory rules relating to
anti-avoidance rules. Essentially, the Andorran anti-avoidance
rules are based on the base erosion and profit shifting (BEPS)
principles.

5.2 What are the main ‘general purpose’ anti-avoidance
rules or regimes, based on either statute or cases?

The main purpose of the anti-avoidance rules is to prevent tax
fraud and the erosion of the taxable base, in line with the BEPS
principles.

5.3 What are the major anti-avoidance tax rules (eg, controlled
foreign companies, transfer pricing (including thin
capitalisation), anti-hybrid rules, limitations on losses or
interest deductions)?

Andorra has not yet enacted controlled foreign company rules,
but fully applies transfer pricing dispositions. There are also
anti-hybrid rules and limitations on losses, but there is no
limitation on interest deductions.

5.4 Is a ruling process available for specific corporate tax
issues or desired domestic or cross-border tax treatments?

Yes. All of the double tax treaties in force include a special
process relating to cross-border tax treatment.

5.5 Is there a transfer pricing regime?

Yes. The transfer pricing regime is based on Organisation for
Economic Co-operation and Development principles.

5.6 Are there statutory limitation periods?

Yes. The statutory limitation period for tax matters in Andorra
is three years.

6 Compliance

6.1 What are the deadlines for filing company tax returns and
paying the relevant tax?

The deadline for filing company tax returns and payments is
July. However, a fractioned payment is required in September,
consisting of 50% of the tax burden of the previous tax year.

6.2 What penalties exist for non-compliance, at corporate and
executive level?

The penalties regime consists of a proportional fine of between
50% and 150% of the total amount of the fraudulent tax payment.
Additionally, default interest may be applied for late
payments.

6.3 Is there a regime for reporting information at an
international or other supranational level (eg, country-by-country
reporting)?

According to the base erosion and profit shifting dispositions,
the corporate tax regime provides for the international reporting
of information. Such communications are regulated by the
Conveni multilateral d’assistència administrativa
mútua en matèria fiscal.

7 Consolidation

7.1 Is tax consolidation permitted, on either a tax liability
or payment basis, or both?

Yes. Tax consolidation is permitted in Andorra under certain
circumstances. Only Andorran companies can be part of a
consolidated group. Within a tax group, tax liability and payment
basis are permitted.

8 Indirect taxes

8.1 What indirect taxes (eg, goods or service tax, consumption
tax, broadcasting tax, value added tax, excise tax) could a
corporate taxpayer be exposed to?

Corporate entities may be subject to value added tax, insurance
service tax and special taxes relating to the import of certain
goods (eg, tobacco, alcohol, fuel).

8.2 Are transfer or other taxes due in relation to the transfer
of interests in corporate entities?

No. Transfers of shares are not subject to indirect taxation.
However, if more than 50% of the assets of a company constitute
real estate assets located in Andorra and these assets are
unrelated to the company’s economic activity, transfer tax at a
rate of 4% will apply.

9 Trends and predictions

9.1 How would you describe the current tax landscape and
prevailing trends in your jurisdiction? Are any new developments
anticipated in the next 12 months, including any proposed
legislative reforms?

Andorra has seen many significant changes over the past decade
and has positioned itself as a reliable jurisdiction in terms of
legal security by adhering to international treaties such as double
tax treaties and the Base Erosion and Profit Shifting Protocol. The
corporate tax regime is one of the most competitive in Europe and
harmonisation with international protocols continues, with further
treaties due to enter into force over the coming year. In future,
legislative reforms may favour foreign investment focused on
specific technologies to incentivise the digitalisation of the
current economic model.

10 Tips and traps

10.1 What are your top tips for navigating the tax regime and
what potential sticking points would you highlight?

In addition to a competitive corporate tax regime, a key
attraction of Andorra is the favourable tax treatment of dividends
and capital gains where certain requirements are met. Double tax
treaties with Spain and Portugal may allow for attractive
international tax planning strategies based on Latin American and
European corporate structures.

Andorra’s patent box regime, which provides an effective
corporate tax rate of 2%, remains interesting to watch as the
country strives to become a potential technological hub, with human
resources increasing in this sector.

Finally, Andorra’s landscape and high quality of living may
attract beneficial owners and corporate managers who can benefit
from personal taxation advantages beyond what corporate entities
enjoy.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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