Andorra introduced corporate income tax and tax on nonresidents

New rules that came into effect in Andorra on 1 January 2012

The corporate income tax applies to the worldwide income of resident legal entities at a general rate of 10% (5% in 2012), although taxpayers can request a reduction of 80% of the tax base if the taxpayer is engaged in any of the following activities:
• International operations involving intangible assets;
• International trading of goods; or
• Intragroup financial management and investment.
The holding regime applies to Andorran entities whose exclusive purpose is to manage interests in nonresident entities (shares must be nominative). Under the regime, dividends distributed by nonresident entities are exempt from tax, as are capital gains derived from the transfer of the corresponding participation (regardless of the extent of the participation). The profits that correspond to the income distributed by the Andorran entity to its shareholders also are exempt.

All Andorra-source income received by nonresident legal entities and individuals is subject to tax, although a wide range of exemptions apply. Tax is applied on a transaction-by-transaction basis (provided the nonresident does not have a permanent establishment in Andorra), and there is a withholding obligation on the payer of the income, the custodian, paying agent or asset manager. The general withholding tax rate is 10%, with a 1.5% rate on reinsurance transactions and 5% on royalties.

As part of Andorra’s restructuring of its tax framework, VAT is expected to be introduced as from 1 January 2013 to replace all current consumption taxes. The possibility of introducing an income tax on individuals as from 2014-2015 also is under discussion.