Andorran company structures: understanding the legal forms before setting up your company

Setting up a company in Andorra can be attractive for an entrepreneur who wants to develop a business from the Principality. But before looking at taxation, the priority is to choose a legal structure suited to the project, understand the incorporation requirements and anticipate the obligations that will continue to apply once the company has been established.

The decision should be based on more than a tax rate considered advantageous. An SL, an SLU and an SA do not meet the same needs in terms of capital, shareholders, governance or future development. The personal circumstances of directors and shareholders, their country of tax residence, the place from which the business is actually carried out and the nature of their clients can also have significant legal and tax implications.

Choosing to set up a company in Andorra

Andorra attracts entrepreneurs for several reasons: its location between France and Spain, the relatively small size of its administration, its level of security, its economic environment and, of course, its tax system.

The Principality is now home to a wide range of activities, particularly in retail, tourism, services, consulting, import-export and digital businesses. For a company whose activities can genuinely be developed from Andorra, establishing a presence there can offer strategic advantages.

However, the decision to choose Andorra should not be reduced to setting up a company benefiting from a lower tax rate than neighboring countries. The legal existence of an Andorran company is not, in itself, sufficient to determine the country in which its profits or those of its directors will be taxed.

The tax residence of the shareholders, the place of effective management of the company, the company’s actual presence in Andorra, the nature of the transactions carried out and the applicable tax treaties must all be considered together. An entrepreneur who lives and works primarily in France or Spain is not necessarily in the same situation as a director who has permanently settled in Andorra and actually carries out their business activity there.

This is precisely why a serious establishment project should begin with the company’s economic reality: where will it be managed? Where will the director work? What premises and resources will it have? Where are its clients located? How will important decisions be made? These questions are at least as important as choosing between an SL, an SLU or an SA.

Taxation of Andorran companies: what you need to understand

Taxation is one of the main factors considered by entrepreneurs looking to establish a business in Andorra. The general corporate income tax rate is presented as 10%, while the standard IGI rate, Andorra’s general indirect tax, which operates similarly to VAT, is 4.5%.

These rates are indeed lower than the general rates commonly applied in France or Spain. However, this comparison alone does not determine a company’s actual tax burden. Some situations may benefit from specific regimes or treatments, while other transactions may result in additional obligations. The taxation of dividends depends as much on the structure of the transaction and the beneficiary as it does on their tax residence and, where applicable, the international treaties in force.

As an indication, the general comparison often made between the three countries is as follows: Andorra, Spain and France. In the Principality, the corporate tax rate is capped at 10%, compared with 25% in Spain and the standard rate of 25% in France. IGI or VAT is 4.5% in Andorra, compared with 21% in Spain and 20% in France. As for dividends, their treatment in Andorra must be determined according to the specific circumstances. Their taxation depends on the beneficiary and the applicable regime in the case of France and Spain.

This presentation is deliberately more cautious. However, in tax matters, it is essential to remember that the headline rate never tells the whole story. For example, a French entrepreneur who becomes a shareholder of an Andorran company should not assume that their income will automatically be taxed solely under Andorran rules. Their personal tax residence and the provisions applicable between the countries concerned must be taken into account.

The same applies to the company itself. When a company is incorporated in Andorra but its management, activities and resources remain primarily located in another country, the situation must be examined particularly carefully. The objective is not simply to obtain a company legally incorporated in Andorra, but to build an organization that is consistent with the actual business activity, governance and intended tax treatment.

The main legal forms of companies in Andorra

The choice of legal structure depends primarily on the size of the project, the number of shareholders, financing needs and how the entrepreneur wants to organize the company’s governance.

Among the most common structures are the limited liability company, or SL, its single-member version, the SLU, and the public limited company, or SA. Other forms may exist or be suitable for certain specific activities, but these three structures cover a large proportion of the needs of entrepreneurs wishing to set up a commercial company.

The limited liability company, or SL

The SL is generally suitable for small and medium-sized businesses established by several shareholders. Its main advantage is that it creates a legal entity separate from its shareholders and, in principle, limits their liability to the amount of their contributions, subject naturally to situations in which a director’s personal liability may be incurred.

The minimum share capital commonly associated with an Andorran SL is €3,000. This structure is particularly suitable for many service, consulting, retail and digital businesses. For an entrepreneur who wants to work with one or more partners without requiring the more complex structure of a public limited company, the SL is often the first legal form to consider.

The single-member limited liability company, or SLU

The SLU follows the general structure of an SL with one fundamental difference: it is established with a single shareholder. It may be suitable for a consultant, digital entrepreneur or director who wishes to operate alone through a company rather than in their own name.

Its main advantage lies in the separation between the company’s legal personality and that of the shareholder. However, this separation should not be interpreted as absolute protection of personal assets: personal guarantees, management misconduct or other specific circumstances may have different consequences.

The SLU is particularly relevant when an entrepreneur wants to retain sole control of the capital while having a structure that can potentially evolve later.

The public limited company, or SA

The SA is more suited to projects with larger amounts of capital or intended to bring together several investors. The minimum capital generally stated for an Andorran SA is €60,000. Its organization is better suited to projects that anticipate opening up their capital, implementing a more structured governance system or carrying out larger-scale financial operations.

In return, it generally involves more formalities than an SL. For a small consulting business owned by a single person, setting up an SA directly may create disproportionate complexity. For a project requiring several investors and a capital structure expected to evolve, this structure may, on the other hand, be more appropriate.

The right legal structure is therefore not necessarily the one that appears the most prestigious or flexible on paper. It is the one that matches the company’s actual needs over the coming years.

How to choose between an SL, SLU and SA in Andorra?

The number of shareholders already provides some guidance. Someone starting a business alone will naturally consider an SLU, while a project involving several shareholders may opt for an SL or, where greater capital and investment needs are involved, an SA.

But this criterion alone is not enough. It is also necessary to consider how new investors might enter the capital, the powers granted to directors, the conditions for transferring shares, the financing envisaged and the company’s future development.

A very simple structure may be perfectly suitable at the start and then become restrictive if a significant fundraising round is planned a few months later. Conversely, adopting a particularly complex structure from the outset for a business operated by a single person may unnecessarily increase costs and administrative requirements.

The sector also matters. Certain regulated activities, particularly in the financial or insurance sectors, may be subject to authorizations, capital requirements or specific rules that are independent of the usual choice between an SL and an SA. Before drafting the articles of association, it is preferable to think in terms of several years rather than only the first few weeks of the company’s existence.

What are the requirements for setting up a company in Andorra?

Setting up an Andorran company requires preparing a file that enables the authorities, the notary and the financial institutions concerned to clearly identify the project, the shareholders, the beneficial owners and the source of the funds. The articles of association are naturally the central document. They define the company’s purpose, the distribution of capital and the rules governing how the company operates.

A business plan can also play an important role, particularly when a bank or the administration needs to understand the economic rationale behind the project. It should be concrete: the actual business activity, target customers, projected revenue, required resources, source of financing and operational organization.

Shareholders and directors must also provide documents enabling their identification. As part of know-your-customer and anti-money laundering procedures, additional supporting documents regarding the source of funds may be requested.

For foreign investors, the applicable procedure must be verified in light of the regulations in force at the time of the transaction. Depending on nationality, residence, the proposed shareholding and the activity concerned, specific formalities relating to foreign investment may apply.

Since Catalan is the official language of Andorra, dealings with the authorities and legal documents are conducted within this linguistic framework. For a French- or Spanish-speaking entrepreneur, working with a professional familiar with local procedures can therefore significantly facilitate the preparation of the application.

Company name and corporate purpose: two choices that should not be treated as mere formalities

Before incorporation, the proposed company name must be available and accepted. Choosing a name that is too similar to that of an already registered company may result in a refusal and delay the process. The corporate purpose deserves just as much attention. It must correspond to the activities the company actually intends to carry out. An overly restrictive corporate purpose can become problematic if the company quickly diversifies its activities, while an imprecise or unsuitable wording may create difficulties when the application is reviewed.

Take the example of a company that initially plans to sell a SaaS solution and later wishes to offer consulting or additional services. Reasonably anticipating this development when drafting the corporate purpose can help avoid an early amendment to the articles of association. However, this does not mean adding every conceivable activity. A corporate purpose that is consistent with the business plan and the company’s economic reality is generally more credible than an artificially broad formulation.

How much capital is needed to set up an Andorran company?

The amount of capital depends on the legal form chosen. For the structures presented in this guide, the traditionally stated amounts are €3,000 for an SL or SLU and €60,000 for an SA.

The share capital should not be confused with the actual budget required to launch the business. A company may meet its legal minimum capital requirement while still needing significantly greater resources to finance its premises, employees, equipment, marketing or several months of operations. This distinction is essential when preparing the business plan.

The capital must generally be subject to the banking formalities required for incorporation. When contributions other than cash are contemplated, their treatment depends on their nature and the applicable legal requirements. This point should be addressed with the notary or advisor handling the incorporation rather than improvised at the time of signing.

How does setting up a company in Andorra work?

In practice, setting up a company is not simply a matter of completing a single form. Several procedures follow one another, and some can progress in parallel.

The project generally begins by clearly defining the shareholders, business activity, legal structure and distribution of capital. The availability of the company name must be checked and, when the project falls under the foreign investment regime, the corresponding procedure must be incorporated into the timetable.

The next step is to prepare the articles of association and the necessary supporting documents. Establishing the banking relationship is often one of the most important stages, as the bank must understand the business activity, identify the beneficial owners and examine the source of the funds.

Once the incorporation requirements have been met, the company deed can be formalized in accordance with local requirements and the company registered. Tax, commercial, social security and, where applicable, municipal or sector-specific procedures then complete the process before the business can effectively begin operations.

The timeframes announced for setting up a company should be treated with caution. Two seemingly similar applications can progress at very different speeds depending on the proposed activity, ownership structure, source of capital and quality of the documents submitted. A complete and consistent application is generally far more important than a promise to set up the company within a specific number of days.

How long does it take to set up a company in Andorra?

It may be tempting to give a standard timeframe, but this can be misleading.

The review of a foreign investment, banking checks, notarial preparation, any requests for additional documents and authorizations related to the business activity can all affect the timeline.

Opening a bank account is a step that should not be underestimated. When the source of funds is fully documented and the business activity is straightforward to understand, the process can be relatively smooth. Conversely, a complex ownership structure, income originating from several jurisdictions or an activity involving specific compliance considerations may require additional checks.

To prepare a realistic timeline, it is better to identify from the outset the factors that could slow down the application rather than relying on a theoretical timeframe that would supposedly apply to all companies.

Opening a business bank account in Andorra

Opening a bank account is a key step in the project. It should not be considered a simple formality that automatically follows the choice of legal structure. Andorran banks apply compliance procedures designed to identify the individuals controlling the company, understand the intended business activity and verify the source of funds. An entrepreneur must be able to explain coherently what their company will sell, to which clients, in which countries, how it will be financed and where the capital being used comes from.

This is where the business plan becomes particularly important. A generic document prepared solely to “get through the bank” may lead to more questions. Conversely, a file built around the actual project and supported by consistent documentation makes it easier to understand the business activity.

The Principality’s main banks offer services to businesses, but their commercial policies and internal criteria may differ. The fact that a company can legally be incorporated does not mean that a bank is required to accept the business relationship.

When choosing a bank, it is relevant to look beyond the cost of the account. The quality of online banking tools, payment methods, international transfers, access to representatives who understand the business, currency services and financing options may be more important in the long term than a few euros’ difference in monthly fees.

Setting up a company and becoming a tax resident of Andorra

Being the owner or director of a company incorporated in Andorra and being personally tax resident in Andorra are two different matters.

An individual’s tax residence depends on criteria specific to their situation and on the rules applicable between the jurisdictions concerned. Owning an Andorran SL or SA does not automatically result in the shareholder’s personal tax residence being transferred. Likewise, obtaining a residence status does not replace an analysis of actual tax residence.

This distinction is particularly important for someone who is currently resident in France, Spain or another country and is considering moving both their business and their place of residence to the Principality. The project must be considered as a whole: personal residence, professional activity, accommodation, physical presence, company management and international treaties.

What obligations continue after setting up the company?

Registration is only the beginning of the company’s legal existence.

An Andorran company must maintain accounting records in accordance with the rules applicable to it, file its tax returns and comply with its administrative obligations. Depending on its activity, size and circumstances, additional reporting, financial statement filing or audit requirements may also apply.

The company must also maintain consistency between what it declared when it was incorporated and how it actually operates. A change in business activity, capital, shareholders or governance may require additional formalities and, in some cases, an amendment to the articles of association.

When it hires employees, it becomes an employer and must comply with Andorran social security rules. This specifically concerns registration and contributions to CASS, as well as obligations arising from employment law.

The thresholds triggering certain accounting or audit requirements may change. It is therefore preferable to review the company’s situation each year rather than automatically continuing to apply the rules that were in force when it was incorporated.

This ongoing management is often overlooked when a project is presented solely from a tax perspective. Yet the quality of accounting and legal oversight directly affects the company’s security.

Do you need an accountant, lawyer or Gestoria in Andorra?

It is technically possible to understand a large part of the procedures before even contacting a professional. This is actually advisable: an entrepreneur who understands the basic principles can ask better questions and make more informed decisions. This does not mean, however, that every application should be handled alone.

A local professional adds the most value when the situation involves cross-border issues, several shareholders, a regulated activity, a specific financing structure or a plan to become resident in Andorra.

An accountant primarily handles accounting, ongoing taxation and tax returns. A lawyer provides legal analysis when the structure of the transaction, relationships between shareholders or international taxation require it. A notary handles the deeds for which their involvement is required. A Gestoria or local administrative service provider can, for its part, facilitate many routine formalities. The important thing is to understand precisely what is included in the support being offered.

The most common mistakes before setting up a company in Andorra

A first mistake is choosing Andorra solely after comparing three tax rates. An establishment must have a genuine economic rationale and be compatible with the director’s personal circumstances.