Taxation – Dividends
While the Principality of Andorra is known to many as an excellent destination for skiing, mountain hiking and a 0% crime rate, investors appreciate it for its tax advantages. Andorran banks are among the most solvent in the world. Not to mention its steady economy, conducive to investment. Andorra offers one of the most interesting tax systems in Europe.
In Andorra, the distribution of dividends varies according to the status of the resident. What influences it? To optimize their own remuneration, company directors need to think about an effective strategy. How do dividends work in this landlocked country between Spain and France? In this guide you will find all you need to know about Andorran holding dividends, VAT applied to the purchase of products, corporate taxes and the advantages of the tax services offered in the Principality.
Dividends from an Andorran company
Before going into the details concerning the dividends of an Andorran company, it would be fair to recall its concept. It does not change from one country to another. The dividend concerns the income that a company will pay to its shareholders. Its amount is fixed by the Board of Directors. In the case of Andorra, it is not taxable.
How to make the difference between dividends and profits? In simplest terms, dividends are themselves derived from the profits made by the company. The dividends correspond to the amount that will be paid to the managers because of their participation in the capital of the company. They will be granted to the partners according to the results obtained.
Taxes among the lowest in Europe
For residents, whether legal entities or individuals, Andorra offers some of the lowest taxes in Europe. The Andorran government is working to provide a favorable framework for investment. The signing of various agreements demonstrates this.
Holding company in Andorra
Another way to ensure the optimization of this taxation is to create a holding company. These companies benefit from a different tax rate than other companies. However, specific criteria must be met in order to do so. Among other things, holding companies must hold shares in third-party companies. They must have economic substance so that they comply with the applicable law in order to benefit from certain clauses of various treaties, such as double taxation.
No tax on dividends
While the corporate tax rate in Andorra is 10%, dividends are not taxable, compared to 30% in France.
Concerning the taxation of individuals, the tax rate is 0% on income not exceeding 2,000 euros per month, which gives about 24,000 euros per year. Above this amount, the tax rate can range from 5% to 10%.
Types of dividend distributions
Depending on whether a person is an Andorran resident or not, the distribution of dividends may vary. It can therefore be different from one status to another.
Dividends for residents
There are some conditions to benefit from this type of dividend distribution. These are stipulated in the Andorran tax regulations. For the tax exemption on the transfer of participants to be effective, the company directors must, for example, hold at least 20% of the capital.
Dividends for non-residents
In the case of non-residents, the tax does not apply in certain situations, including dividends and interest. The latter are considered as capital income. In addition to being exempt from income tax in Andorra (but not in your country of residence), they also escape double taxation.
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Taxation of dividends in Andorra
As far as taxation on dividends in Andorra is concerned, company profits are not taxed. If company directors decide to distribute dividends, they will not be subject to any tax either. This is in contrast to what happens in France. In France, companies have to declare income taxes of 25%. But still, they will be taxed at 30% if they decide to distribute the dividends.
In any case, the Principality’s tax situation offers many advantages for companies and anyone with an Andorran residence. Despite the fact that it is a small country, it offers many opportunities for a holding company and all project holders.
If you need an Andorran tax advisor, our Gestoria team is ready to put you in touch with a qualified tax expert. He is the only expert able to ensure a tax optimization of the companies and to give you all the required tax information. We are also available to accompany you in the creation of your company in the Principality. Count on our services from your application for Andorran residency to the follow-up of your company set-up file, including contact with the relevant professionals.