After making changes to its tax system, Andorra has entered into a double tax treaty with Spain for the first time.
Andorra was considered a tax haven until 2009 for OECD purposes. Since then, an extensive process of adaptation and harmonization with the OECD international tax standards was launched in Andorra. This process culminated in the implementation of a value added tax, a corporate tax and a personal income tax.
In line with this, a first double tax treaty between Spain and the Principality of Andorra has been recently negotiated and was finally published on 7 December in the Official State Gazette. The Convention came into effect on 26 February 2016. The key points are as follows:
Withholding tax rates
- On dividends: 5 per cent on corporate shareholdings of at least 10 per cent, in 15 per cent otherwise.
- On interest and royalties 5per cent
Gains arising from substantial stakes (at least 25 per cent) will be taxed in the jurisdiction in which the company transferred is resident. For example, the sale of an Andorran company 100 per cent owned by a Spanish company will be subject to taxation in Andorra (at the rate of 10 per cent).In all other circumstances (except for real estate and real estate companies), taxation will be where the transferor has its tax residence. For example, the sale by an Andorran tax resident of a 20 per cent stake in a Spanish company not engaged in real estate would only be subject to taxation in the country of residence (Andorra).
An information exchange agreement already exists between Andorra and Spain. The double tax treaty establishes guidelines for information exchange as follows:
- The existence of a criminal offence makes no difference to a request for information.
- Group or joint requests may be made (not just individual requests as has been the case to date), such as for a group of Spanish residents with a common interest in Andorra, for example, a certain financial product. Nevertheless, the double tax treaty prevents "fishing expeditions": indefinite searches for evidence or general evidence with debatable relevance.
- Delivery of the information requested must be made within six months of the request, except for particularly complex situations.
Financial information will automatically be exchanged as soon as Andorra adopts the OECD standard. This will be in 2018 to allow Andorra to adapt its banking systems.