Reform of Direct taxation:
The Andorran government has approved a reform of the taxation system. The wide ranging review and reform covers direct taxation, both corporate and personal, and other taxes and customs regulations. It is the government’s intention that the reforms will be in place at the start of the new financial year on 1 January 2023.
It is intended that the principal objective of the reform is to improve the financial resilience of the State by providing the Andorran tax system with the tools and the capacity to generate greater tax revenue from the taxation of profitable companies through their contribution to a minimum corporate rate of tax. The intention is set against the background of the overriding wish to balance taxation against the need to maintain the competitive advantage of the Andorran tax system.
The reform also includes further simplification of taxation and corrects what are considered technical dysfunctions in the system, to bring it in line with international standards and compliance with international obligations.
Corporate Taxation:
To align with the OECD’s proposal that an effective rate of 15% corporation tax should be applied to companies with turnover in excess of €750m, the Minister of Finance detailed the changes to the corporation tax regulations.
At present a 10% rate of tax is levied with companies having the opportunity to apply certain deductions which can reduce the effective tax rate to 0%. Under the reform a minimum effective rate of 3% has been introduced, which will apply regardless of the deductions that could otherwise reduce the tax to below 3%. The Minister of Finance stated that the intention is to send an important message to companies that they can no longer have a 0% effective rate of tax in Andorra. We await precise details of the reform.
Tax Simplification:
The current system for the taxation of capital gains applicable on the disposal of real estate will be adjusted to simplify the administration and a threshold established (minimum number of properties or rental income) above which income from real estate is considered to be income from an economic activity.
Deductions:
The deductibility of cultural, social and sports donations has been increased to 4% if the event is of special interest.
Other deductions are targeted at improving investment in digital projects and certain residential accommodation, plus a special allowance for the recruitment of new employees of up to €3,500 providing conditions are met.
The overall package of reforms has been designed with the aim to promote changes in the economic fabric towards activities that are considered strategic by the administration. The Minister of Finance is reported as saying that with these changes, ‘Andorra continues to be in an extremely competitive fiscal position.’
August 2022
Hungary:
The signing of the treaty with Hungary is the 10th such treaty signed by Andorra and marks the further strengthening of ties between the two countries. The Andorran Minister of Foreign Affairs confirmed that the continued development of the network of tax treaties is part of the government’s policy for the diversification of the Andorran economy and efforts to facilitate the internationalisation of Andorran companies.
Further discussion between the Andorran Minister and her Hungarian counterpart confirmed the growing “close and fluid cooperation between the two nations” following the 25th anniversary of diplomatic relations being established. Hungary confirmed its support for Andorra in its continuing negotiations with the EU to enter an Association Agreement. The meeting ended with agreement to cooperate further to develop economic and social ties through the promotion of tourism and cultural exchanges.
Czech Republic:
Negotiations between Andorra and the Czech Republic have concluded with an agreement as to the rubric of the text of the treaty to eliminate the double taxation of income and prevent tax evasion and avoidance. The two states have now started the internal phase with the object of concluding the treaty for approval in the near future.
San Marino:
The Convention against double taxation of income entered into force with San Marino on the 1st January 2022 following its ratification by Andorra. It is hoped that the Convention will encourage the development of trade relations between the states to reflect the strengthening cooperation between them in their continuing negotiations with the EU.
Andorra is currently the signatory of Double Taxation Treaties with Spain, France, Luxembourg, Liechtenstein, Portugal, UAE, Malta, Cyprus, Czech Republic and Hungary.
Tax Reporting:
In a recent development the Andorran government approved the adoption of measures to adapt to international financial reporting standards that are applied in the EU and, with the passing of the Decree, are now applicable in Andorra.
The changes affect principally contingent liabilities and contingent assets, property, plant and equipment and business combination.
February 2022
International Tax Rating:
An analysis completed following the Paying Taxes methodology has highlighted the competitive tax system in Andorra placing it 20th in the world tax standings.
The Paying Taxes methodology has been developed by the World Bank as part of its Doing Business study to assess and compare the tax burden and administrative complexity of the tax system by using the parameters a standard fictitious company. The assessment was completed by PWC, to provide an objective and external view.
The report recorded that the Andorran corporate tax burden is 26.5%, which is substantially below the global average of 40.5% and below the EU and EFTA countries average of 38.9%. The average time spent by companies in Andorra meeting their tax obligations being 135 hours, significantly less than the global average of 234hours and EU and EFTA average of 161hours.
On these and other metrics applied under the Paying Taxes methodology Andorra’s overall assessment achieved a ranking of 20th out of 191 countries.
The Andorran Minister of Finance, Mr Eric Jova, commented that while the tax system must continue to improve, the assessment highlights the competitive tax regime offered by the Principality and ‘…shows our tax structure can be a key element in attracting foreign investment.’
Online Tax Filing:
The new Andorra tax web portal has opened which allows the filing of corporate tax returns and income tax returns by non-residents online. The portal has been simplified to assist tax payers with a more intuitive user experience, with the deadline for filing extended to the 31st August. The portal is accessible at www.impostos.ad
BEPS:
In June the Andorran Council of Ministers approved the ratification of the Multilateral Agreement to prevent tax base erosion and profits shifting in accordance with OECD provisions. The mechanism introduced by the Agreement implements amendments across a network of tax conventions in accordance with OECD rules to avoid double taxation.
June 2021
New tax treaty
The Andorran government expects to enter a double taxation agreement (DTA) with Hungary in the near future, following the conclusion of negotiations earlier this month. An announcement by the government confirmed that the agreement will eliminate double taxation of income between the two nations, while also preventing tax evasion and avoidance.
The DTA is part of the government’s long held policy to diversify the Andorran economy and increase the attractiveness of the nation as a destination for foreign capital investment in Andorran business activity. It considers that such DTA’s represent a guarantee of the tax reform it has pursued over the last few years.
When the DTA is signed and approved by the respective state legislatures, it will become the 9th DTA entered into by Andorra, joining those DTA’s already in force with its near neighbours France, Spain and Portugal plus Malta, Cyprus, Luxembourg, Lichtenstein and the United Arab Emirates.
It is hoped that as the host of the forthcoming Ibero-American Summit in April 2021, Andorra will have the opportunity to highlight its economic potential and business opportunities to the wider international market and to encourage other states to enter similar DTA’s for mutual economic benefit.
Tax Simplification
The Finance Minister’s proposal to simplify the procedure for the importation of goods to Andorra by individuals has been approved. It is expected the changes will reduce the time and paperwork required to complete the importation process and the payment of Andorran VAT (IGI). This forms part of a wider effort to move all tax declarations to a mandatory online service with the long term goal of increasing the effectiveness and efficiency of the department of taxation.
October 2020
July 2018:
Exchange of Tax Information: Changes to the law on the automatic exchange of tax information have been introduced to augment the existing regulations. The changes were made to ensure compliance with the OECD norms of communication and due diligence on financial account information.
The General Council has approved of the latest agreements for the exchange of information with a further 22 states. This brings to 95 the number of jurisdictions that Andorra will exchange tax information.
Double Taxation Agreement: In May Andorra signed a DTA with Cyprus with the nations’ respective Ministers expressing their mutual support in negotiations with the EU. At the same time the Andorran Minister of Foreign Affairs met with his Portuguese and Greek counterparts to discuss closer ties and collaboration, as well as the advances by Andorra to adopt international standards.
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