A new framework for fiscal relations with Andorra
Andorra has made some very substantial changes to its tax system in the last few years. It recently approved taxes on the income of individuals (IRPF) and that of legal entities (Corporate Income Tax) with a 10% tax rate. It was also excluded from Spain’s list of tax havens in 2011 as the result of its signing of an Exchange of information agreement with Spain. The signing of such agreement is an important step forward in the creation of a stable framework for fiscal relations between the two countries which complies with international standards.
Double Tax Treaties are bilateral agreements regulating the distribution of taxing powers between states, their aim being to avoid a situation in which, owing to the existence of two fiscal systems (that of Andorra and the Spanish system) a person is taxed on the same income in both countries or, if such a situation does arise, to mitigate its adverse effects.
This Treaty will enable Spanish investors who are legal entities to repatriate income obtained in Andorra, thereby enabling them to apply the exemption regime for dividends and gains made on the transfer of shareholdings in Spain. It will also serve to resolve tax residency conflicts in the case of individuals who move from Spain to Andorra.
At the same time, it will attract investments of Andorran capital in Spain, through reduced taxation. For example, dividends and interest income are to be taxable in Spain, in certain cases, at a reduced rate of 5% (whereas the rate was previously 19%). Similarly, income obtained from transfers of securities in Spanish listed companies will be exempt from taxation in Spain.
Double tax treaties are also a means of preventing tax evasion. The Treaty therefore regulates, among other questions, the procedure for the exchange of information on demand between the two countries in accordance with the new international standards (whereas previously, the exchange of information was regulated by the provisions of the Agreement in force between the two states). This system will be further expanded when the automatic information exchange system starts functioning, foreseeably in 2018.
Garrigues Tax Department