Taxation – Taxes – IS
Among all the countries located in Europe, the Principality of Andorra is known for its very low taxation. Any Andorran company benefits from a particularly advantageous tax system. Nestled between France and Spain, this country is not part of the euro zone. However, it maintains close cooperation with the European Union. Moreover, its government is constantly making efforts to attract foreign investors. This is done through, among others, the double taxation agreement.
Among the types of taxes in this country, we list those subject to personal income tax or IRPF. It applies to the income of individuals and does not affect legal entities (companies). There is also the general indirect tax or IGI as well as the communal and governmental tax. The IS or corporate tax is what interests us most. Through these lines we will dig a little deeper into the taxation of Andorran companies.
Creation of a company in Andorra and taxation
Creating a company in Andorra is an excellent investment, not only because of the country's tax system, but also for its social, economic and environmental framework. The legislation and economy of Andorra remain favorable to the setting up of an offshore company, regardless of your activities. You simply have to apply for Andorran residency status and respect some requirements.
Company tax in Andorra
In the Principality, corporate income tax is imposed on the income of legal entities. This applies as soon as the company is established on the whole Andorran territory.
Who is concerned by the IS?
Just as the tax on individuals is subject to Andorran residents, the taxable legal entities are those with an Andorran tax residence. The constitution of the tax on companies is in accordance with the law in force in the country.
Collective investment entities falling within the scope of Law 10/2008 of 12 June 2008 are also subject to the tax. Also included are public, parapublic and public law entities.
The companies must meet certain requirements in order to qualify as Andorran tax residents:
- To have been created according to the Andorran legislation concerning the creation of companies;
- Have an office in the Principality;
- Have an effective management on the Andorran territory.
The corporate tax rate in Andorra
The fiscal situation of Andorran companies is particularly favorable to their development. Therefore, investors are not infrequently thinking of creating companies in this country. Although it is not part of the European Union, the euro is the official currency in Andorra.
Taxation was almost non-existent in Andorra for a long time. It was often referred to only as direct taxes. However, to comply with the requirements of the OECD (Organization for Economic Cooperation and Development) and to better respect the rights of taxpayers, the government of Andorra has begun to sign agreements.
Regarding corporate tax, it came into force in Andorra in 2012 and its maximum rate does not exceed 10%. It will be subject to the profits made by them. Nevertheless, there will be cases of tax exemption for certain companies, such as holding companies that hold shares in other companies outside Andorra.
Some points to remember about Andorran taxation in general
Before we delve further into the IS or Andorran corporate tax, it would be fair to recall the main points of its taxation system. Here are some of the details you should keep in mind:
- Tax rates ranging from 2 to 10% maximum, whether for individuals, legal entities or companies,
- The Principality does not impose any tax on wealth or dividends,
- Social security contributions are relatively low,
- The rate of the IGI, the equivalent of the French VAT, is only 4.5%. It is among the lowest in Europe,
- No tax on company cars,
- No inheritance tax.
The tax rate according to the type of business
The maximum rate of the IS is 10% of the profits in the case of the Principality of Andorra. To have an idea of the tax advantages to be taken advantage of in the country, it would be wiser to know that the standard rate is 25% in France. The corporate tax rate is not the same in this country. It varies from 2 to 10%. The type of business is one of the elements that can influence it.
In the case of companies with an international vocation, among others, the tax rate is a maximum of 2% on profits. The same applies to management companies and those specializing in intra-group financial investments. It should be noted that in order to be able to set up with these statutes, companies must elect residence in Andorra.
For the management companies of SICAV and the holding companies of foreign companies, the taxation is 0%.
Indirect General Tax or IGI
The indirect general tax or IGI concerns companies carrying out commercial activities in the Principality. It is the set of indirect taxes in Andorra. It can be assimilated to the VAT in France and applies to the consumption of goods and services in the country.
New measures adopted since 2012
Adopted in 2012 to improve the tax rules established since 2006, the IGI benefits more from a more flexible system. Indeed, the authorities aim to make the tax law in force in Andorra more flexible, both for individuals and legal entities. The indirect tax framework has also seen improvements in the indirect tax correlated with commercial and professional services, domestic production, different business activities and others.
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Tax collection by the Andorran state
To further facilitate the procedures, some changes have been made regarding the declaration of the IS in the Principality. It must be done through dedicated forms. The modalities that are included are established by the Ministry of Finance. Companies will have to file their tax return during the six months before the end of the tax period. As for the modalities of payment, they should be done by nominative transfer to the account of the Government of Andorra or by direct debit.
However, the Principality has made efforts to simplify the tax return process as much as possible, with the aim of speeding up the process of filing the tax return. Specifically, to speed up the process. In addition, the country will not be affected by the new reform on the taxation of multinationals adopted by the G-20 and OECD member countries. Investors in Andorra, SMEs or VSEs, youtubers or other web actors and others will be able to continue to take advantage of the flexible taxation offered by the government of Andorra.
Choose to invest in Andorra for its favorable tax system
If you are particularly used to the French tax system or that of another European country such as Spain, you will find that the tax situation in Andorra is particularly flexible. In France, corporate tax is 25% at the standard rate, which is 15% higher than in Andorra. The Andorran financial system is efficient. It is considered the most solvent in Europe and the most stable. Social security contributions are 15.5% maximum compared to a minimum of 30% for the majority of European countries. Without forgetting to mention the agreement of non double taxation.
For a better optimization of your company’s taxation, the intervention of an Andorran tax specialist is recommended. Whatever your activity, he is able to assist you. If you do not know where to turn, our Gestoria is available to accompany you in your installation in Andorra as well as in the elaboration and the follow-up of the application file of your future Andorran residence.