FINTAX2020 is a very young firm, having been created in September 2020, but is the only law firm in Andorra focused exclusively on tax matters. The firm provides services for many local clients, and also advises foreign companies relating (to) investments in Andorra and companies relocating to the country or individuals who want to relocate to Andorra for several reasons. FINTAX2020 focuses on its specialist area of tax, and has an agreement with Spanish law firm Gomez, Acebo & Pombo on a basis of exclusivity. Due to the experience of the partners in international investments, acquisitions and restructurings, the firm has a vast number of clients who are not Andorran residents but want to invest in IT, digital services and related matters.
Law and Practice
- Types of Business Entities, Their Residence and Basic Tax Treatment
1.1 Corporate Structures and Tax Treatment
It is not compulsory to conduct a business through a legal entity in Andorra, but it is normally more efficient in terms of the deductions that apply to legal entities over individuals, who have more limitations for deductions or exemptions, even when they act as business individuals.
Andorra only regulates two kinds of company by law: Societat de Responsabilitat Limitada (S.L.) and Societat Anónima (S.A.). The main difference is that the minimum capital in the S.L. is much lower (EUR3,000) than the S.A., which has a minimum capital of EUR 60,000. Also, the S.A. is more open to foreign shareholders whereas the S.L. is very restrictive according to law in terms of the freedom of transferring participations to third parties (non-original partners).
1.2 Transparent Entities
The typical entity used for investments is regulated by the Autoritat Financera Andorrana (AFA) under the form of a SICAV (Collective Investment Vehicle). There are different classes of SICAV relating to the investment policy but, from the corporate point of view, all of them are incorporated as Societat Anonima. The key advantage of these entities is the tax treatment: although they are subject to Corporate Income Tax, the tax rate is equal to 0%.
1.3 Determining Residence of Incorporated Businesses
The residence of companies is determined according to three different criteria:
if the company has been incorporated according to Andorran laws;
if the company has its registered office located in Andorra; and
if the company is effectively managed from Andorra (ie, the effective management headquarters are located in Andorra).
1.4 Tax Rates
The general tax rate is 10%. However, SICAVs are subject to a 0% rate. If individuals receive proceeds as a consequence of an agreement to distribute dividends, they would be also fully exempt, according to law.
- Key General Features of the Tax Regime Applicable to Incorporated Businesses
2.1 Calculation for Taxable Profits
The accounting profit is very close to the tax profit, since the Andorra system does not regulate many adjustments to the accounting result. Some relevant adjustments are as follows:
permanent adjustments: exemptions, fines, gifts, donations and unjustified expenses, double tax relieves, etc; and
temporary adjustments: amortization and depreciation, provisions, etc.