Andorra has positioned itself as one of Europe's most competitive business jurisdictions with a straightforward corporate tax system. The Impost de Societats (IS), introduced in 2011, features a flat 10% rate that applies to both resident and non-resident companies. This guide breaks down everything you need to know about corporate taxation in Andorra.
Standard Corporate Tax Rate
The standard corporate income tax rate in Andorra is 10% flat. This rate applies to the worldwide income of Andorran tax resident companies and to Andorran-sourced income for non-resident entities. Compared to neighboring jurisdictions, Andorra's rate is significantly lower than Spain (25%) and France (32%).
Both resident companies and non-resident entities operating in Andorra pay this 10% rate. Resident companies are taxed on their global income, while non-residents pay tax only on profits generated within Andorra.
Reduced Tax Rates for New Companies
New companies benefit from attractive tax incentives during their initial years. Companies in their first tax period may qualify for a reduced 2% rate if they maintain their registered office and effective management in Andorra. Additionally, all new taxpayers receive a 50% reduction on the taxable base in their first financial year.
These incentives make Andorra particularly attractive for startups and entrepreneurs looking to establish operations in Europe. The reduced rates apply automatically as long as the company meets the residency and operational requirements.
Special Regimes: Holdings and Investment Companies
Andorra offers highly favorable treatment for holding and investment structures. Holding companies can benefit from a participation exemption regime that allows dividends and capital gains from subsidiaries to be fully exempt from corporate tax. This applies without any minimum ownership percentage or holding period requirement.
The requirements for the participation exemption are straightforward. The holding company's corporate purpose must be exclusively the management and holding of shares, and investee companies must either be subject to minimum 4% taxation or be resident in a country with which Andorra has signed a double taxation treaty.
Investment companies engaged in international trading activities can benefit from a special 2% rate on qualifying income. Andorran collective investment institutions under Law 10/2008 are taxed at 0%. Additionally, Andorra does not levy withholding tax on dividends paid to shareholders, whether resident or non-resident.
