Dividend taxation in Andorra: how it works, exemptions and key rules to know

Dividend taxation in Andorra is often presented in very simple terms: low taxation, no withholding tax, and a favorable regime for companies. The reality, however, requires some nuance. The tax treatment depends particularly on the recipient’s tax residence, the source of the dividend, and, where a company receives the income, the nature and duration of its shareholding.

For an entrepreneur who owns an Andorran company, an investor based in the Principality, or a shareholder living abroad, the right question is therefore not simply “what is the tax rate?” The first step is to determine who receives the dividend, which company pays it, and which tax rules apply to that specific situation.

Understanding dividend distributions in Andorra

A dividend represents part of a company’s profits that the company decides to distribute to its partners or shareholders. It is therefore important not to confuse the profit generated by the company with the dividend actually paid. A company may generate a profit and decide to retain it to finance its activities, strengthen its cash position, or build up reserves. A dividend only actually exists once a distribution has been approved in accordance with the rules applicable to the company.

In practice, the distribution must be properly documented. The company’s accounts, the decision on the allocation of profits, the corresponding minutes, and proof of payment must all be consistent. For both a bank and the tax authorities, traceability of the source of funds is particularly important when significant amounts or international transactions are involved.

This distinction is essential from a tax perspective. The company is first taxed on its own profits under the corporate income tax rules. The treatment of the dividend subsequently paid depends on the circumstances of the recipient. The general corporate income tax rate in Andorra is currently 10%, although certain specific regimes may provide for different treatment.

Does an Andorran resident pay tax on dividends?

This is where one of the most important features of the Andorran system becomes apparent. For an individual who is a tax resident in Andorra, dividends paid by a company that is itself an Andorran tax resident are exempt from IRPF when the conditions provided by law are met.

Article 5.j of the Andorran IRPF law notably covers dividends and other income arising from an interest in equity when they are paid by an entity that is tax resident in Andorra and subject to Andorran corporate income tax. A tax ruling published as recently as July 2026 explicitly reiterates this rule.

What about dividends from abroad?

The situation changes when an Andorran tax resident receives a dividend from a foreign company. Andorran IRPF is based on the principle of taxing the worldwide income of resident individuals. In other words, the fact that the income payer is located in France, Spain, Luxembourg, or another country is not, by itself, sufficient to exclude that income from the scope of Andorran IRPF.

Dividends are classified as investment income. When they do not qualify for a specific exemption, they must therefore be assessed under the rules applicable to the savings tax base and any deduction designed to eliminate international double taxation.

The general Andorran IRPF rate is 10%. The regulations also provide for a tax-free allowance applicable to savings income, with a reference amount of €3,000 under the conditions provided by law.

If tax has already been withheld abroad, the mechanism for relief from double taxation must then be examined. The Andorran tax authorities specify, in particular, that for relevant foreign income, the international double taxation deduction is calculated according to Article 48 of the IRPF law (Law 5/2014).

It is therefore much safer to distinguish between a dividend paid by an Andorran company and a dividend received from a foreign company, rather than stating a single tax rate applicable to all dividends.

Are dividends paid to a non-resident taxed in Andorra?

The regime is also favorable when an Andorran company pays dividends to a person who is not an Andorran tax resident. The official Govern d’Andorra portal currently classifies dividends among the types of income that are not subject to the tax on income earned by non-tax residents, or IRNR.

This means that a shareholder who is tax resident in another country can receive a dividend from an Andorran company without normally being subject to Andorran IRNR withholding on that dividend. This rule should not, however, be interpreted as a worldwide tax exemption.

If a person is tax resident in France, Spain, or another country, their country of residence may tax the dividend under its own domestic legislation. The fact that no tax is withheld in Andorra does not mean that the income will also be exempt in the country where the shareholder resides. This is precisely why the recipient’s tax residence must always be identified before calculating the amount actually available after tax.

What role do double taxation treaties play?

Andorra has entered into treaties designed to prevent double taxation with various countries, notably France, Spain, Portugal, and Luxembourg, as well as several other jurisdictions. The treaty network continues to evolve.

A tax treaty does not, however, automatically make a dividend tax-exempt. Its main purpose is to allocate taxing rights between the countries concerned and establish mechanisms to prevent the same income from being subject to unrelieved double taxation.

For an Andorran resident who owns shares in a foreign company, the applicable treaty may notably limit the tax withheld in the source country or affect the calculation of the mechanism used to eliminate double taxation.

Each treaty contains its own provisions. It is therefore risky to rely simply on the absence of double taxation in Andorra. The applicable treaty, the recipient’s tax residence, their status as beneficial owner, and, in some cases, the percentage of the shareholding must be verified.

How are dividends received by an Andorran company taxed?

The rules applicable to companies must be distinguished from those applicable to individuals. Article 20 of the Andorran Corporate Income Tax Law (Llei 95/2010 de l'impost sobre societats) provides for an exemption designed to prevent economic double taxation of certain dividends and income arising from shareholdings. This exemption can be particularly attractive for an Andorran company holding interests in other businesses, but it is not automatic.

One of the key conditions is notably a direct or indirect shareholding of at least 5% in the relevant entity. This shareholding must generally have been held continuously for the year preceding the date on which the distributed profit becomes due, or subsequently maintained for the period required to complete that holding period.

When the subsidiary is located abroad, additional conditions relating to its taxation and tax residence apply. The existence of a double taxation treaty with Andorra may also affect the assessment of certain of these conditions.

The Andorran company must also be able to properly document its shareholding and the source of the dividend. The percentage held, acquisition date, identification of the subsidiary, and certain information demonstrating that the tax conditions are met may be required.

In other words, establishing an Andorran holding company does not automatically turn all international dividends into tax-exempt income. The structure must meet the criteria set out in the legislation.

Andorran Holding Company: Why Do Substance and Structure Matter?

Andorra also has a special regime for certain companies whose purpose is to hold investments. The tax authorities specify that limited companies or public limited companies seeking to benefit from this regime must have the exclusive purpose of managing and holding interests in resident or non-resident companies. The regime must be applied for, and specific reporting requirements apply, notably in the annual accounts.

A holding company is not simply a company created to receive dividends at a reduced tax rate. Its activities, corporate purpose, nature of its income, shareholdings, and accounting documentation must be compatible with the regime it intends to apply.

A coherent structure should first be based on an economic and legal rationale. Any potential tax benefit comes afterward. This approach is particularly important for international groups, as modern tax rules increasingly focus on the economic substance of transactions and mechanisms designed to prevent tax avoidance or the abusive use of treaties.

Cash dividend or distribution in kind: what is the difference?

The most common situation remains a cash dividend paid into the shareholder’s bank account. However, a distribution may also take another form depending on the transaction and the rules applicable to the company. When a benefit or asset is transferred instead of cash, its legal classification and valuation must be correctly determined before assessing its tax treatment.

A distribution in kind should not be treated simply as the administrative equivalent of a bank transfer. The value assigned to the asset, its nature, and the legal transaction underlying the transfer may have accounting and tax consequences that go beyond the dividend itself. In such situations, the analysis should be carried out before the distribution rather than after the asset has been transferred.