Published on and written by Cyril Jarnias
Establishing a presence in Andorra is increasingly attracting entrepreneurs, international groups, and individual investors. The country combines moderate taxation, a legal framework aligned with OECD standards, and a particularly favorable tax system for dividends. But behind the “10% country” label lies a comprehensive system with its rates, special regimes, IGI mechanisms, and profit distribution rules.
Corporate income tax, IGI (the equivalent of VAT), and the treatment of dividends are the three pillars of Andorran taxation. The rules differ for resident and non‑resident partners.
Corporate Income Tax: A General Rate of 10%, but an Effective Minimum of 3%
The foundation of Andorran corporate taxation is Corporate Income Tax (CIT), with a general nominal rate of 10%. This rate applies to the taxable base, i.e., the accounting result adjusted for tax adjustments provided for by law.
In the European environment, this 10% rate remains significantly lower than that of neighboring countries, where France has a rate of around 32% and Spain 25%. Compared to other jurisdictions, Andorra remains competitive against Luxembourg (around 24.9%) or Ireland (12.5%).
An effective minimum tax of 3% was introduced for all profitable companies through the reform of Law 5/2023.
Rate Structure and Regimes: General, Reduced, and Minimum Floor
Andorran corporate taxation can be summarized around three rate blocks:
| Regime / Mechanism | Effective Nominal Rate | Summary Comment |
|---|---|---|
| General CIT regime | 10% | Default rate, applicable to the majority of resident companies |
| Special regimes (patents, international trade, ETVE holding) | 2% | Reduced rate under strict substance and authorization conditions |
| Effective minimum tax on profits | 3% | Taxation floor for any profitable company, after deductions |
The 10% rate therefore remains the reference for Impost de Societats, set by Law 95/2010 and its subsequent reforms. However, in practice, a company that accumulates deductions, tax credits, and a special regime can no longer reduce its overall tax bill below 3% of its positive profits.
Companies Concerned and Scope of Application
Subject to corporate income tax in Andorra:
– Companies under Andorran law (SL, SA, SLU, SAU, etc.);
– Branches or permanent establishments of foreign companies operating in the territory;
– Other entities with legal personality that receive taxable income in Andorra.
Resident companies are taxed on their worldwide income, while non‑residents are only taxed in Andorra on the portion of income originating from Andorra, according to the territorial principle of the IRNR.
How Is a Company’s Tax Residence Determined?
Law 95/2010 defines several criteria, of which meeting just one is sufficient to consider a company an Andorran tax resident:
– Incorporated under Andorran law;
– Registered office located in Andorra;
– Place of effective management in Andorra, i.e., where management and control decisions for the activity are actually made;
– Transfer of tax domicile to Andorra, if formally carried out under commercial law.
In practice, the Andorran tax administration emphasizes the need for a genuine economic link with the country: assets located in Andorra, activity managed from the territory, presence of premises and personnel, etc. “Shell” structures with no economic substance are clearly in the spotlight.
Calculating the Tax: From Accounting Result to Amount Payable or Refundable
The calculation of corporate income tax in Andorra follows a logic similar to other European systems: starting from the accounting result, a series of extra‑accounting adjustments and deductions are applied to obtain the taxable base, before determining the tax due.
The settlement scheme can be summarized as follows:
The calculation starts from the accounting result for the period (profit or loss). Extra‑accounting adjustments are added (non‑deductible expenses, non‑compliant depreciation, non‑allowable provisions, penalties, expenses without supporting documents). Tax losses carried forward from previous years (up to 10 years) are offset. The nominal rate of 10% is applied to the adjusted base to obtain the gross tax liability. Tax credits (employment, R&D, sponsorship, etc.) are deducted, subject to the floor of 3% effective minimum. Finally, withholding taxes and the September installment payment are imputed to determine the final balance: payable, offsettable, or refundable.
The reform of Law 5/2023 has made deductions more controlled, with stricter conditions and the obligation to respect the 3% floor: even a company benefiting from multiple credits can no longer eliminate its CIT entirely if it is profitable.
Special Regimes at 2%: Patents, International Trade, and ETVE Holdings
One of Andorra’s major assets lies in its special regimes, which can bring the effective CIT rate down to 2%, subject to authorization from the Ministry of Finance and compliance with substantive conditions. These regimes are not automatic and require careful structuring.
Patent Box: Exploitation of Intangible Assets at 2%
The Andorran patent box regime allows an 80% reduction on the taxable base related to intellectual property income (patents, certain qualifying intangible rights). Specifically, with a nominal rate of 10%, the reduction results in an effective rate of approximately 2% on this income.
Law 6/2018 adjusted this regime to align it with OECD / BEPS standards, which notably involves:
– A strengthened link between R&D activity carried out in Andorra and the income benefiting from the reduction;
– Detailed documentation on costs, location of functions, and value chain.
This adaptation allowed Andorra to move out of the category of harmful regimes while retaining real tax attractiveness for innovative companies.
International Trading Companies: Reduced Taxation on Activity Outside Andorra
Another regime targets companies whose main business is conducted abroad. To access the reduced rate:
– At least 85% of the activity must be carried out outside Andorran territory;
– The company must have a real office in Andorra, with premises (lease, invoices, equipment) and at least one resident employee or director;
– Prior authorization must be obtained from the Ministry of Finance.
Annual profit range from which an Andorran holding or commercial structure becomes financially justified, enabling significant tax savings.
ETVE Holding Regime: Participation Exemption on Dividends and Capital Gains
Entitats de Tinença de Valors Estrangers (ETVE) form a holding company regime intended for holding foreign shareholdings. Under this regime, dividends and capital gains on disposal from subsidiaries can benefit from a total exemption (100%) from CIT, subject to meeting several cumulative criteria:
| Key Condition for Participation Exemption | Minimum Requirement |
|---|---|
| Percentage of ownership | At least 5% of the subsidiary’s capital, or acquisition cost > €20M |
| Nature of tax in the subsidiary’s country | Tax equivalent to Andorran CIT (excluding non‑cooperative jurisdictions) |
| Holding period | Participation held continuously for at least 1 year |
| Substance in Andorra | Holding provided with real means: office, personnel, decision‑making in Andorra |
If any of these conditions are not met, the dividends or capital gains become taxable again at the general rate of 10%. The Andorran administration may, moreover, refuse the benefits of the regime if the company does not demonstrate sufficient economic substance (physical presence, real functions, minutes of meetings held in Andorra, traceable bank flows, etc.).
An ETVE benefiting from this participation exemption can therefore receive foreign dividends almost tax‑free in Andorra, then redistribute them to its shareholders (resident or non‑resident) without withholding, as we will see later.
IGI: The Andorran System of Indirect Taxation, Similar to VAT but at 4.5%
In Andorra, there is no European VAT. The country applies its own indirect tax: IGI (Impost General Indirecte), functioning like a local VAT but outside the EU system. IGI is the main indirect tax of the country and is characterized by a general rate of 4.5%, one of the lowest in Europe (below Switzerland’s 7.7% and far from France’s 20% or Spain’s 21%).
Destination Principle: Imports Taxed, Exports Exempt
The operation of IGI is based on the destination principle:
– Imports are subject to IGI;
– Exports are exempt, but retain the right to deduct IGI incurred upstream.
In other words, deliveries of goods and services performed in Andorra by entrepreneurs or professionals are generally taxed, while operations directed abroad (export of goods, certain international services) fall outside the scope while allowing recovery of IGI on purchases.
The Different IGI Rates: 0%, 1%, 2.5%, 4.5%, and 9.5%
Andorran IGI has several rates, depending on the nature of the good or service:
| IGI Rate | Type of Rate | Examples of Covered Transactions |
|---|---|---|
| 0% | Zero / super‑reduced rate | Exports, international transport, certain health and education services, exempt housing, investment gold, stamps |
| 1% | Reduced rate | Food products (excluding alcohol), drinking and irrigation water, books, newspapers, non‑purely‑advertising magazines |
| 2.5% | Special / intermediate rate | Passenger transport (excluding cable car), private libraries, museums, galleries, shows, cultural and natural sites, socio‑cultural activities |
| 4.5% | General rate | Majority of goods and services not covered by another rate |
| 9.5% | Increased rate | Banking and financial services, certain financial sector and construction services |
Medical, educational, social, residential rental, insurance, or funeral activities may be exempt from IGI. Note: These exemptions do not grant the right to deduct IGI incurred upstream, unlike the zero rate, which is a true 0% tax rate with a right to deduction.
Non‑Subject Operations, Exemptions, and Right to Deduct
There are operations not subject to IGI, i.e., they fall completely outside the scope and do not allow recovery of IGI upstream. Among them:
VAT is not applicable in the following cases: transfer of an autonomous economic unit (sale of a business or company as an operational whole), certain insurance and mediation transactions, free samples with no intrinsic commercial value and demonstration services for promotional purposes, as well as certain advertising items with no commercial value of their own.
These operations do not generate IGI collected, but also do not give the right to deduct IGI on the corresponding costs.
Who Pays IGI? Thresholds, Self‑Assessment, and Reverse Charge Mechanism
In principle, any entrepreneur or professional making deliveries of goods or providing services in Andorra is liable for IGI. However, there is an activity threshold: a professional with annual turnover of less than €40,000 may not be considered a taxable person for IGI, unless they opt in. For agriculture, the threshold rises to €150,000.
For internal transactions (B2B or B2C within Andorra), it is the supplier who invoices IGI to the customer and remits it to the administration, except in special cases of the reverse charge mechanism. This mechanism applies notably when:
– The supplier is not established in Andorra;
– The customer is an Andorran taxable person, established in the country.
In these situations, the Andorran customer self‑invoices the IGI on behalf of the foreign provider: they record both the IGI collected and deductible in their return, similar to intra‑Community VAT mechanisms, even though Andorra is not part of the EU.
Place of Supply and Cross‑Border Services
For cross‑border B2B services, the IGI territoriality rules determine the place of taxation:
When an Andorran provider invoices a foreign professional client, the invoice is outside IGI (mention of non‑applicability) and taxation falls under the client’s country. Conversely, if a foreign provider supplies services to an Andorran company, the Andorran client must self‑assess IGI via the reverse charge mechanism.
Andorran IGI law (LIGI) provides that only actual taxpayers can deduct IGI incurred, and only to the extent it is related to the development of their taxable economic activity.
Periodic Returns, Normal and Simplified Regimes
Andorran companies must file periodic IGI self‑assessments, including:
– IGI collected on sales (based on applicable rates);
– Deductible IGI on purchases related to operations that grant a right to deduction;
– A final result, which can be payable, carried forward, or refundable.
The filing frequency depends on the volume of turnover:
| Annual Turnover | IGI Filing Frequency |
|---|---|
| < €250,000 | Semi‑annual declaration (every 6 months) |
| €250,000 to €3,600,000 | Quarterly declaration |
| > €3,600,000 | Monthly declaration |
A simplified regime exists for small businesses: instead of deducting IGI invoice by invoice, flat‑rate percentages of presumed IGI on expenses are applied:
– 3% for commercial activities;
– 1.5% for other activities.
The IGI due then corresponds to the difference between IGI collected on sales and this “estimated” amount of deductible IGI. This simplified regime is in principle open for a limited turnover and must be maintained for a minimum period (three years in practice to avoid frequent switching).
IGI Refunds: Local Companies, Exporters, and Non‑Residents
When, during a period, deductible IGI exceeds IGI collected, the return shows an IGI credit. The company can:
– Carry it forward to subsequent periods;
– Or apply for a refund.
A refund request can be submitted, notably by:
– Any company established in Andorra that has incurred more IGI than it has collected in a period;
– Export‑oriented companies, which regularly generate IGI credits;
– Certain non‑established parties that have incurred IGI in Andorra.
The request can cover a quarter or a full year, and must be filed within six months after the end of the relevant year. The administration has three months to decide; in the absence of a decision, default interest automatically begins to accrue.
For non‑resident, non‑established parties, recovery of IGI is governed by Article 73 of the LIGI and Article 22 of the IGI regulation (RIGI). Conditions notably include:
– Not having made any deliveries of goods or services in Andorra;
– Carrying out an activity in a country that applies a comparable indirect tax to IGI (reciprocity);
– Appointing a tax representative residing in Andorra, who will serve as the interlocutor with the administration;
– Submitting a request for a minimum amount exceeding €220;
– Covering the annual or quarterly period immediately preceding the request;
– Attaching the documentation required by the RIGI (invoices, supporting documents, proof of payment…).
If documents are missing or formal requirements are not met, the request may be rejected or delayed.
Andorra, IGI, and Trade with the European Union: A System Outside VAT but Interconnected
Andorra is not a member of the European Union and does not belong to the EU VAT area. It is considered a third country for VAT purposes. A customs union agreement with the EU exists for certain goods since 1990, but not for VAT.
In practice, this means:
Goods shipped from Andorra to the EU are considered imports; VAT is due in the destination Member State. The OSS does not apply to Andorran companies, which must register for VAT in each Member State where B2C sales thresholds are exceeded.
For sales of low‑value goods (≤ €150) to EU consumers, Andorran sellers can, however, use the IOSS (Import One‑Stop Shop) scheme, provided they appoint an intermediary established in the EU to register and file monthly returns.
Under IOSS, VAT is charged at the time of online payment, according to the rate of the customer’s country, then declared via a single window. Parcels are then cleared more easily, as VAT has already been paid.
Tax Free, Cross‑Border Shopping, and IGI at the Border
The Andorran Tax Free system only concerns tangible goods purchased by individuals for personal use and physically exportable. Professional purchases, for resale or business use, are excluded from this mechanism.
Not eligible for Tax Free:
– Catering;
– Accommodation;
– Leisure activities and immediate services (SPA, events, professional services, etc.).
In Spain, the Tax Free procedure is dematerialized (DIVA/DER forms, electronic validation). At the Andorra–France border, the absence of PABLO terminals requires manual validation by customs stamping or at a later authorized point.
For Andorran residents, the scheme is reversed when making purchases in the EU: they can request a refund of foreign VAT but must pay IGI upon entry into Andorra, calculated on the value of the imported goods.
Dividends: Exceptionally Favorable Treatment in Andorra
The third pillar of Andorran taxation concerns dividends, both from the perspective of the companies receiving them (holding, ETVE) and the individuals or legal entities receiving them, whether resident or non‑resident.
Dividends Received by an Andorran Company: The Participation Exemption
For holding companies, dividends received from foreign subsidiaries can, as we have seen, be totally exempt from CIT through the participation exemption mechanism:
– 100% exemption on dividends;
– 100% exemption on capital gains from the disposal of these holdings.
The conditions regarding the holding percentage (≥ 5% or €20M investment), holding period (≥ 1 year), nature of the tax incurred in the subsidiary’s country (tax similar to Andorran CIT, excluding non‑cooperative tax havens), and economic substance of the holding must be strictly met. Otherwise, this income is taxed at 10%.
Dividends Paid by an Andorran Company to Resident Partners
For individuals who are tax residents in Andorra, the rule is very favorable: dividends paid by an Andorran company subject to CIT are totally exempt from IRPF. They are not even included in the savings income base.
Exemption is based on the principle that the profit has already been subject to corporate income tax (CIT) at a rate of 10% generally, or 2% for special regimes, and should not be taxed a second time when distributed to partners.
For resident companies receiving dividends from other Andorran companies, these can also be exempt under the participation regime, avoiding a cascade of chain taxation.
Dividends Paid to Non‑Residents: No Withholding Tax
Another key element of Andorra’s attractiveness: no withholding tax is levied on dividends paid to non‑residents, whether individuals or legal entities. The withholding tax rate on dividends paid by an Andorran company to a non‑resident shareholder is therefore 0%.
For the international investor, dividends are paid gross from Andorra, without local withholding, and are only taxable in their country of residence according to national legislation and applicable tax treaties.
Dividends from Abroad Received by an Andorran Resident
When the beneficiary is an Andorran tax resident and receives dividends from foreign companies, the situation is different:
– These dividends are taxed within the savings base of the IRPF;
– The first €3,000 per year of savings income (interest, foreign dividends, financial capital gains) is exempt;
– Beyond that, foreign dividends are taxed at a flat rate of 10%.
When a source‑state withholding tax (15 to 35%) is levied, Andorra grants a tax credit limited to the Andorran tax due. The existence of a double tax treaty (DTT) influences the overall level of taxation.
Double Tax Treaty Network
Andorra has signed double tax treaties with several countries, notably:
– France;
– Spain;
– Portugal;
– Luxembourg;
– Liechtenstein;
– Malta;
– Cyprus;
– United Arab Emirates;
– San Marino;
– Hungary;
– Monaco;
– Croatia;
– Czech Republic;
– Iceland;
– Netherlands;
– South Korea;
– Lithuania.
Negotiations are also underway with other states (e.g., Belgium or Montenegro), and new treaties, such as the one with the United Kingdom, often provide for reduced or even zero withholding rates on dividends, interest, and royalties.
In countries without a DTT with Andorra (Germany, Italy, United Kingdom before the treaty enters into force, United States, China, India, Japan, Russia, etc.), dividends are subject to local withholding tax, often between 15% and 35%, before arriving in Andorra. The Andorran investor must then contend with this potential double layer of taxation, even though the Andorran IRPF remains capped at 10% on this income.
Other Structural Elements: No Wealth Tax, Property Taxation, and OECD Environment
Beyond CIT, IGI, and dividends, other characteristics complete the picture of Andorran taxation:
The flat tax rate applicable to savings income, after an annual allowance of 3,000 euros.
Andorra appears on the white lists of the OECD and FATF, is no longer considered a tax haven, and has aligned its system with BEPS standards: economic substance, transfer pricing documentation, automatic exchange of information, and preferential regimes (such as the patent box) adapted to international criteria.
Practical Issues for the Entrepreneur: Substance, Compliance, and Strategy
The combination of a CIT at 10% (with the possibility of going down to 2% in certain regimes), an IGI at 4.5%, and largely exempt dividends explains Andorra’s appeal to entrepreneurs, e‑commerce players, and wealth investors. But capturing these advantages requires respecting three main principles:
1. Real economic substance Having an identified office, qualified personnel registered with the Andorran social security, management decisions taken and documented in Andorra, operational bank accounts, and effective activity to justify income.
2. Reporting compliance Filing CIT and IGI returns on time, any withholding taxes, keeping proper accounting records, and meeting accounting and commercial register filing obligations.
This structuring must incorporate double tax treaties, transfer pricing rules, the limits of special regimes (ETVE, patent box, international trade), and the mechanisms of source countries (VAT, withholding on dividends, local obligations).
By respecting these parameters, the taxation of a company in Andorra can become a powerful lever of competitiveness: moderate and predictable corporate income tax, a simple and low‑cost IGI system, and a particularly favorable treatment of dividends, both for holdings and for resident and non‑resident partners. For a structured entrepreneurial project, this combination places Andorra among the most attractive jurisdictions in Europe from a tax perspective, while remaining fully integrated into international standards of transparency and anti‑tax evasion measures.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
