As we had previously mentioned in another article on the Andorran taxes and in how to open a company in the territory of AndorraCorporate income tax (IS) is relatively new in Andorra as it came into force in 2012.
The IS is a light tax which was approved in order to be able to open Andorra internationally to other countries and thus receive new investments and that the whole process is legal and can be carried out well.
In the following, we will explain how corporation tax is applied in AndorraThe purpose of the project is to provide information on how it works and where it comes from. Although Andorra is no longer a tax haven, continues to offer significant advantages over neighbouring countries in the financial sector. It can be a great alternative for entrepreneurs and investors whose businesses and companies are not dependent on territorial and physical location.
1. What is Corporate Income Tax (IS)?
The IS is a direct tax levied by a jurisdiction and payable on the income or capital of companies and analogue legal entities.. Many countries have it imposed at national level, it can also be imposed at local or state level. Corporation tax can also be called capital tax. In the case of partnerships this tax is generally not levied on them.
The Corporation tax can be applied to:
- Companies that are incorporated in the country itself
- Corporations that are tax resident in the country
- Foreign companies with a permanent establishment in the country
- Corporations that have their business in the country and receive income from that country
Corporate income is usually determined in much the same way as the income that is levied on individual contributors. There are different ways of applying the tax, in general it is levied on net profits or by taxing shareholders if the company pays a dividend. The tax rate can vary depending on the jurisdiction and is usually fixed.
Net profit is the net profit of the financial statement. and each country may define this according to its particular tax system. In the case of taxation of dividends, the corporation may be required to withhold taxes before the dividend is distributed. There are system-specific rules for the taxation of the entity and its members upon dissolution or termination of that entity.
2. History and structure of corporate income tax
The history of corporate income tax is very similar to that of personal income tax (IRPF). In the United States, until the Sixteenth Amendment various corporate income taxes were enacted, but were considered unconstitutional. It was rectified in 1913 and the Corporation Tax was made formal within the Federal Income Tax.
Corporate income tax is made up of the following structure:
- Passive subject: The tax is levied on companies with capital, with legal personality and where the partners have limited liability, such as public limited companies, limited liability companies, labour companies, etc. Although entities that do not have legal personality are exempt from paying the tax, there may be exceptions for investment funds and pension plans, but it is more common for them to be subject to a special tax.
- Taxable base: is the calculation of net income after deducting deductible expenses from gross income, taking into account depreciation, deductions, changes in assets and valuation of inventories.
- Tax rate: as mentioned above, the percentage applied to companies in general is fixed and independent of the level of the tax baseis proportional in nature. But there may be exceptions and special levies for non-profit companies, as well as for retained earnings and distributed profits.
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3. Corporate Income Tax in Andorra:
This is a comparison of Andorra's corporate income tax compared to other countries:
- ANDORRA 10%
- IRELAND, LIECHTENSTEIN, CYPRUS 12,5%
- SWITZERLAND 18%
- UNITED KINGDOM 19%
- SPAIN 25%
- GERMANY 30%
- FRANCE 33%
Corporate income tax in Andorra is levied on the income of Andorran legal entities, provided that the company or legal entity is a resident of Andorra. Corporate income tax is applied throughout Andorra (irrespective of the tax residence of the payer). In other words, taxation is compulsory for entities and companies resident in Andorra:
- Public entities, public law entities and parapublic entities.
- Legal persons
- Collective investment undertakings within the scope of application of Law 10/2008 of 12 June on the Andorran regulation of collective investment undertakings under the law.
Entities that meet one of the following conditions are also tax residents of Andorra:
- That the registered office is located in the Principality of Andorra.
- That it was constituted according to the laws of Andorra.
- That his or her residence and domicile in Andorra, complying with the Andorran commercial legislation in force
- That the effective centre of management is in the territory of Andorra. A company is understood to have its head office in Andorra when it exercises control over the production of the set of businesses or activities in Andorra or the general management of the company.
3.1. Tax base:
The tax base is generally calculated by direct assessment. Impairment losses, depreciation, its value according to the purchase price, as well as the production cost and the "usual" market value must be taken into account. Correcting the accounting result obtained in accordance with the legislation and the Andorran General Accounting Plan. It should be noted that negative tax bases are able to offset positive tax bases for the tax period ending within the following ten years.
3.2. Rate of taxation:
In general, the type of The corporate income tax rate for taxpayers in Andorra is 10%. However, the levy applied to collective investment undertakings regulated by Law 10/2008, excluding management companies, is 0%.
3.3. Special regimes:
In addition to the above, the special regime has to be taken into account. They apply if the relevant entities meet a number of requirements. They act in the determination of the tax base.
For example, there is a special regime for those entities which are involved in international trade or carry out their exploitation of intangibles, as well as intra-group investment and financial management companies. They can benefit from a reduction of 80% on their tax base (on their general basis they will pay instead of 10% only 2%).
Cooperative societies also have a special regime, tax holding consolidations and entities with activity in the maintenance or holding of shares in foreign companies (therefore there is a great advantage of being a trader or broker in Andorra). In addition, another special settlement regime is offered for new investments. In order to take into account all the important legal aspects, it is important to have the help of Only Andorra's professionals. We will guide you through the whole process of your tax planning, complying with all the laws in the shortest possible time.
3.4. Exemptions to avoid double taxation:
The following are carried out exemptions on profit shares of internal and external entities (international) to avoid double taxation of the same income. For example, if the company receives profits (dividends or participations) from non-resident tax entities (these are exempt with additional limitations) and from entities resident in Andorra
- The Andorran tax resident entity, is not exempt and pays the corresponding corporate income tax.
- The percentage of its shareholding, indirect or direct, equity, capital, voting rights of the tax resident or non-tax resident entity, or assets is equal to or more than 5 per cent.
- The tax entity is subject to an income tax with the same characteristics (similar to Andorra's) as established by law.
It is possible to receive deductions by job creation and also by investment in Andorran assets. The dividends obtained as individuals from Andorran entities are exempt from tax on the IRPF always.
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3.5. Tax period and accrual
The tax period is the same as the entity's financial year, no longer than 12 months. If it is longer, the period ends at the end of the year. In addition, if the company is extinguished, its financial year ends (it is cancelled by registration) and/or when a change of the legal form of the company takes place, thus affecting this tax.
The accrual of the tax is carried out by the last day of the tax period.
3.6. Payments on account
Taxpayers must carry out in September their corresponding payment to settle the tax period. By calculating the 50% on its liquidation quota of the previous financial year. The payment on account is considered to be a tax debt, that payment is deducted from the liquidation quota to be paid after the end of the tax period. If the differential tax liability is negative, the relevant ministry will refund the excess.
3.7. Further interesting reductions
In addition to the above, we would like to mention two reductions for new business to be taken into account:
- In the first year of application of the tax, taxpayers benefit from a 50% reduction of the liquidation quotaThis means that you will be taxed at 5% applied to your profits (taxable income).
- Benefiting micro-enterprises and SMEs, taxpayers that are set up as new entrepreneurs of a professional or business activity, with profits less than €100.000,00The levy applied to them during the period from First 3 years of activity en:
- 5% for taxable income between €0 and €50,000.00.
- 10% for the remaining tax base.
4. Summary and conclusion on IS in Andorra:
Andorra offers very interesting conditions for corporate taxation, the rate of The general rule is 10%, but can be applied different deductions depending on the case and if certain conditions are met requirements and conditions established by law both in Andorra and in the country of origin.
In order to take all these aspects into account, it is advisable to have the support of good professionals who can guide you in legal, tax and accounting services. At Only Andorra will find the best experts in the sector whether to open a company in Andorra, to open a branch of your existing company in your country of origin, to establish your residence, etc.
Each case is unique and we therefore ask you to contact us to discuss your case first hand.
