Andorran vs Spanish Corporate Tax: A Fiscal Comparison for Companies and Holdings

Regulatory framework in Andorra

This page summarises the applicable regulatory context and the services BMC provides from its local office. For specific situations, we recommend an individual analysis: each case depends on tax residency, the nature of the assets, cross-border connections, and the applicable administrative timescales.

BMC services in Andorra

The following services are available from the local office by appointment or coordinated from Madrid:

• Corporate tax
• ETVE structure
• International taxation
• Tax planning

Typical cases in Andorra

• Andorran corporate tax rates (10%) vs Spanish rates (25%) and applicable allowances
• Andorran holding regime: exemptions for dividends and capital gains
• Andorran IGI (4.5%) vs Spanish VAT (21%)
• Spain-Andorra CDI 2015: allocation of taxing rights
• Andorran economic substance: verifiable requirements
• Taxation of cross-border dividends between Andorra and Spain

Standard documentation

To open a file we typically request: identity document, tax residency certificate (where applicable), documentation of the assets or transaction, relevant administrative certificates, and, for cross-border transactions, equivalent certificates from the foreign jurisdiction. The exact requirements depend on the type of matter.

Languages

• Spanish
• English
• French

How to schedule a meeting

In-person meetings at the BMC Andorra office by appointment, Monday to Friday. Remote coordination by video conference is available. To open a file, please contact us via the office form or the general enquiry form.

Andorran vs Spanish corporate tax: the comparison every business owner should know

The Andorran corporate tax applies a general rate of 10% on the taxable base. In Spain, the general rate is 25%, with a reduced rate of 23% for entities with turnover below 10 million euros. For a company with pre-tax profit of 500,000 euros per year, the difference between paying tax in Andorra (50,000 euros) and in Spain at the reduced rate (115,000 euros) is 65,000 euros per year. Over ten years, that cumulative difference exceeds one million euros.

The comparison cannot stop at nominal rates, however. The Andorran regime has demanding requirements for genuine economic substance that determine whether a company can maintain Andorran tax residency without being reclassified by the AEAT as a Spanish entity. And the structure has additional costs (physical establishment, employees, local management) that reduce the effective net benefit.

The key differences between Andorran and Spanish corporate tax

The principal differences between the two systems affect four dimensions:

Tax rate: Andorra applies 10% (with the possibility of reducing to 2% for intangibles with strict substance requirements). Spain applies 25% as the general rate, 23% for SMEs, and 15% for companies in their first profitable year.

VAT vs IGI: Spanish VAT applies rates of 21% (standard), 10% (reduced), and 4% (super-reduced). Andorran IGI applies a general rate of 4.5%, with reduced rates of 1% for certain transactions. For companies generating sales in Andorran territory, the difference in indirect tax burden is very significant.

Wealth tax: Spain has a wealth tax (Impuesto sobre el Patrimonio), with variations by autonomous community and a 100% bonus in Madrid. Andorra has no general wealth tax.

Dividends and capital gains: The participation exemption regime (the Spanish ETVE, equivalent to the Andorran ETHE) exists in both systems, but with different conditions. The Andorran ETHE exempts dividends and capital gains derived from participations in non-resident entities when the relevant participation and holding requirements are met.

Analysis process: how BMC assesses the viability of an Andorran structure

Step 1: Analysis of activity and economic flows

The first step is to understand where value is genuinely created in the client’s business. A digital services company that can deliver its services from anywhere has more scope for structuring in Andorra than an industrial company with physical installations in Spain that generate the majority of its value.

Step 2: Assessment of the Spain-Andorra CDI 2015 and the required substance

The CDI 2015 establishes the tax residency criteria applicable when an entity has connections with both countries. The AEAT may challenge the Andorran residency of an entity if its place of effective management (where the strategic decisions that define the real business activity are taken) is located in Spain. The minimum Andorran substance we consider necessary includes:

• Physical office with space proportionate to the activity (not simply a registered address at a management firm)
• Employees with genuine executive functions, not merely nominal local directors
• Strategic decisions documented in board meeting minutes held in Andorra
• Contracts with suppliers and clients managed from Andorra
• Operating expenses coherent with the activity: utilities, communications, office rent

Step 3: Comparative fiscal modelling

We model the net tax position under three scenarios: maintaining the current Spanish structure, establishing an Andorran subsidiary for activities that can be located there, and transferring the registered office with a change of tax residency for the shareholder. The model includes implementation costs (establishment, advisory, local management), the ongoing costs of maintaining substance, and the net tax saving. Many clients who expected a high net benefit discover at this stage that implementation and maintenance costs significantly reduce the real return.

Step 4: Implementation and coordination

If the analysis concludes that the Andorran structure is viable and cost-effective, BMC coordinates the implementation: incorporation of the Andorran entity, bank account opening, registration with the Departament de Tributació del Govern d’Andorra, IGI configuration, and documentation of substance from the first day of activity.

Costs and timescales: concrete figures

The figures that determine the practical viability of an Andorran structure in 2026:

• Andorran corporate tax rate: 10% general rate; 2% for exploitation of intangibles with substance requirements (Art. 40 LISBEA); 0% in the first two years of activity if conditions are met
• IGI (Andorran VAT): 4.5% general rate; 1% reduced rate for food, pharmaceuticals, books, transport; 0% for exports
• Minimum investment for genuine substance: a services company with real Andorran activity typically needs a minimum of 30,000-50,000 euros per year in establishment and local operating costs (office, part-time or full-time employee, management, advisory)
• Andorran company incorporation timescale: between 4 and 8 weeks from the start of the file to obtaining the NRT (Andorran tax registration number)

Common mistakes when structuring in Andorra

The situations that most frequently lead to tax regularisations or inefficient structures:

Incorporating the company without minimum substance. An Andorran SL with a registered address at a management firm and no employees or real activity is the structure most commonly regularised by the AEAT when it analyses groups with an Andorran presence. Reclassification as a Spanish tax resident means paying Spanish corporate tax on all undeclared profits, with late-payment interest that has reached 4.0625% since 2023 and penalties of 50% to 150% of the unpaid tax.

Overlooking exit tax when transferring the registered office. If the Spanish company to be transferred to Andorra has accumulated reserves or assets with significant latent capital gains, the transfer triggers the exit tax under Art. 19 LIS. This tax can make the operation economically unfavourable if not planned in advance.

Assuming that the Andorran structure eliminates Spanish corporate tax on income from Spanish sources. An Andorran company that receives dividends from a Spanish subsidiary remains subject to Spanish IRNR withholding on that distribution. The CDI 2015 may reduce the withholding rate, but it does not eliminate it in all cases.