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Finance
July 30, 2026
Corporate income tax in Andorra is capped at 10% of profits, one of the lowest rates in Europe. This tax rate, combined with a local value-added tax of 4.5% (the IGI) and the absence of taxation on dividends for residents, makes the principality a prime destination for French-speaking entrepreneurs. This guide details how Andorra’s corporate tax system works: the tax base, reduced rates, filing deadlines, a comparison with France, and the conditions that must be met to actually benefit from the system.
Corporate Tax in Andorra: Key Points
- A general tax rate of 10% on net income, compared with 25% in France
- Reduced rates for new businesses and certain special programs
- Dividends paid to Andorran tax residents that are exempt from tax
- IGI (equivalent to VAT) at the standard rate of 4.5%
- Double Taxation Agreements signed with France, Spain, and several other countries
- Accounting and reporting requirements aligned with international standards
How Does Andorran Corporate Tax Work?
Who is subject to corporate income tax in Andorra?
Corporate income tax (impost sobre societats) applies to any company considered a tax resident of Andorra. This is the case when the company was incorporated there, has its registered office there, or—the decisive criterion—exercises effective management there. A resident company is taxed on its worldwide profits, regardless of their geographic origin.
This criterion of effective management deserves special attention: a company registered in the Principality but managed from France may be reclassified by the tax authorities as a French tax resident. The company’s presence must therefore reflect an economic reality, with management and decision-making taking place within Andorran territory.
Taxable Income: How Is Taxable Profit Calculated?
The taxable base corresponds to the accounting profit for the fiscal year, adjusted in accordance with Andorran tax rules. Expenses incurred in the course of business are deductible: salaries and social security contributions, rent, depreciation, overhead costs, fees, and external services.
Losses incurred during a fiscal year may be carried forward against profits in subsequent fiscal years for up to 17 years following the most recent tax reform, which helps smooth out the tax burden for companies in the start-up or investment phases. The system also provides mechanisms to eliminate double taxation for income that has already been taxed abroad.
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The Tax Calendar: Filing and Payment
Tax payment is made in two installments. During the ninth month of the fiscal year, the company pays an advance installment calculated as 50% of the prior fiscal year’s final tax liability. For a company whose fiscal year coincides with the calendar year, this payment is due in September. The corporate income tax return is then filed within the month following the six-month period after the end of the fiscal year—that is, in July for a company whose fiscal year corresponds to the calendar year. The advance payment is then deducted from the final amount, and the balance is paid or refunded depending on the actual results for the year.
Andorran companies must also maintain accounting records in accordance with the national chart of accounts and file their annual financial statements with the authorities. These strict reporting requirements contribute to the international recognition of the principality’s tax system.
Tax Rates: From the General Rate of 10% to Reduced Rates
The general rate of 10%
The nominal corporate income tax rate is set at 10% of net income. It applies to the vast majority of companies, regardless of their size, revenue, or industry. This simplicity contrasts with the multi-tiered or surtax systems used elsewhere in Europe.
Reduced Rates and Special Programs
There are several measures that allow taxpayers to reduce their tax liability below the general rate:
- New commercial, entrepreneurial, and professional activities are eligible for a mandatory reduction in the municipal business establishment tax: up to a 100% reduction in the tax rate during the first 12 months of operation, followed by up to a 50% reduction for the next 12 months. Corporate income tax itself remains at the standard rate of 10% starting in the first fiscal year.
- The special tax regime for certain intangible assets applies to income derived from patents, utility models, and copyrighted computer programs. It provides for an 80% reduction in the taxable base applicable to gains from the sale, licensing, or concession of these assets, resulting in an effective tax rate of 2%. The regime remains open to newly established companies; the application must be filed when submitting the census declaration for the commencement of business activities. Its application requires prior authorization from the Ministry of Finance and mandates that research and development be carried out substantially in Andorra by the company itself, with outsourcing abroad capped at 25% of eligible expenses.
- Undersmiths subject to Andorran law are taxed at a 0% corporate income tax rate. Their management companies, however, are subject to the general tax regime at a rate of 10%.
These programs are subject to strict conditions, which are regularly updated by the Andorran legislature. A case-by-case analysis is essential before developing an optimization strategy based on any of them.
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The Holding Company Regime
Andorra has established an attractive tax regime for holding companies that hold equity interests in foreign companies. The special regime for holding companies exempts dividends received from subsidiaries and capital gains on the sale of equity interests from corporate income tax. Three cumulative conditions must be met: the holding company must be organized as a corporation or a limited liability company; its sole purpose must be the management and holding of equity interests in other companies (whether resident or non-resident); and its shares must be registered. For non-resident subsidiaries, an additional condition applies: the subsidiary must be subject to income tax at a nominal rate of at least 4%, or be a resident of a country that has a double taxation treaty with Andorra. An application for this regime must be filed with the Ministry of Finance. This framework makes the Principality a suitable jurisdiction for structuring an international group or organizing the holding of a portfolio of equity interests, including for wealth management purposes such as real estate investment through dedicated structures.
Andorra vs. France: A Comparison of Corporate Tax Systems
A Company in Andorra and French Tax Residency: What You Need to Know
Forming an Andorran company does not reduce the tax liability of an entrepreneur who remains a tax resident of France. The Franco-Andorran tax treaty governs the allocation of the right to tax dividends: Andorra may apply a withholding tax capped at 5% when the recipient company holds at least 10% of the capital of the distributing company, and at 15% in all other cases. France then taxes these dividends at a flat rate of 30%, with a tax credit equal to the Andorran withholding tax. The benefit of the 10% corporate income tax rate is thus largely offset at the time of distribution.
The risk goes even further: if the company is effectively managed from France, the French tax authorities may consider that it has its place of effective management or a permanent establishment there, and tax its profits in France. The Franco-Andorran tax treaty, signed in 2013 and effective as of July 1, 2015, establishes the criteria for residency and the allocation of taxing rights between the two countries. In particular, it provides, in the event of dual residency of a legal entity, a tie-breaking rule based on the place of effective management. It does not protect artificial arrangements.
In practice, tax optimization through an Andorran company requires a comprehensive plan: the actual establishment of business operations, economic substance on the ground, and, in most cases, the transfer of tax residency to Andorra. It is this overall consistency that ensures the arrangement’s validity in the eyes of the French and Andorran tax authorities.
Other Business Taxes and Fees in Andorra
The IGI, Andorra's 4.5% VAT
The General Indirect Tax (IGI) is Andorra’s equivalent of VAT. Its standard rate of 4.5% is the lowest in Europe, far below France’s 20%. Reduced rates apply to certain essential goods and services (health care, education, food), while a higher rate applies to banking and financial services. For businesses, this difference lowers the cost of local purchases and enhances the competitiveness of prices in the Andorran market.
Municipal Taxes and the Business Location Tax
Companies also pay local taxes to their parish. The main tax is the tax on the establishment of commercial, entrepreneurial, and professional activities. Its tax base is calculated using a location index multiplied by the floor area of the premises, with a minimum tax rate and a cap of 300,000 euros. Each parish sets its own rate through an annual tax ordinance, which explains the variations among Andorra la Vella, Escaldes-Engordany, Encamp, La Massana, Ordino, Sant Julià de Lòria, and Canillo. A mandatory tax credit applies to new businesses, with up to a 100% reduction for the first 12 months, followed by up to a 50% reduction for the next 12 months. The total amount remains modest compared to local taxes in France (CFE, CVAE).
Income Tax for Executives
Andorran resident executives are subject to personal income tax (IRPF) on their compensation. The nominal IRPF rate is set at 10%. Two mechanisms adjust the effective tax rate on earned income: a personal and family deduction equivalent to a base amount of 24,000 euros, and a 50% tax credit capped at 800 euros. The combined effect results in an effective tax rate of zero up to 24,000 euros, an effective rate of 5% between 24,000 and 40,000 euros, and 10% above that amount. Dividends received by an Andorran resident from an Andorran company are exempt from personal income tax (IRPF). The combination of a 10% corporate income tax rate and a personal income tax rate capped at 10% explains the overall attractiveness of the system for entrepreneurs who actually establish themselves in the country.
Set up a company in Andorra to take advantage of this tax system
To qualify for this tax regime, you must incorporate a company under Andorran law, typically an SL (limited liability company) or an SA.
The foreign investment regime was overhauled in 2025 as part of the Law on Sustainable Growth and the Right to Housing. A non-resident may hold 100% of the capital of an Andorran company, provided that prior authorization is obtained from the Government. The framework distinguishes between different types of investment—direct investment in an Andorran company or real estate investment—and specifies cases in which foreign investment is prohibited or cannot be authorized. The incorporation process involves specific steps: reserving the company name, depositing the capital, appearing before a notary, registering the company, and opening a business bank account.
Beyond the formalities, the company must demonstrate that it has real substance: a local presence, effective on-site management, and genuine economic activity. For many entrepreneurs, this project involves personally relocating to the principality, motivated as much by the tax system as by the country’s quality of life, security, and stability.
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FAQ: Corporate Tax in Andorra
What is the corporate tax rate in Andorra?
The general corporate income tax rate is 10% of net income. Reduced rates apply to new businesses and certain special schemes, particularly those involving the use of intangible assets, with an effective rate that can be as low as 2%.
How are dividends from an Andorran company taxed?
For a tax resident of Andorra, dividends distributed by an Andorran company are exempt from tax.
For a French tax resident, the Franco-Andorran tax treaty allows Andorra to withhold tax at a rate capped at 5% (for a stake of at least 10% of the capital) or 15% in other cases. France then taxes these dividends at a flat rate of 30%, with a tax credit equal to the Andorran withholding tax. In practice, the Andorran tax advantage is largely offset.
Can a French company pay its taxes in Andorra?
No, not simply by virtue of registration. Only a company whose effective management and actual business operations are located in Andorra is subject to Andorran tax. A company managed from France remains taxable in France, in accordance with the tax treaty between the two countries.
What are the reporting requirements for an Andorran company?
An Andorran company must maintain its accounting records in accordance with the national chart of accounts, file its annual financial statements, file its corporate income tax return after the end of the fiscal year, and pay a 50% advance payment in September. In addition, it must file IGI returns in accordance with the applicable tax regime.
