Understanding dividend taxes in Andorra

Written by Marc Cantavella, AndorraInc Co-Founder & Andorran Tax Expert

There is a fair amount of confusion when it comes to understanding how dividends are taxed in Andorra, and much of this stems from mixing up the rules for dividends originating from local (Andorran) companies versus those from foreign entities.

In this article, we aim to clarify these rules in detail and dispel the most common misconceptions. By the end, you should have a clearer picture of how dividends are taxed for both residents and non-residents, how double taxation treaties (DTTs) come into play, and how all of this impacts real-world scenarios, like receiving dividends from a U.S. company such as Apple.

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How many taxes do dividends pay in Andorra?

One of the first points to understand is that Andorra differentiates between dividends coming from local companies (i.e., based in Andorra) and those that originate from abroad. Here is the breakdown:

Dividends from Andorran companies:
- If you are a tax resident in Andorra and you receive dividends from a company that is also based in Andorra, these dividends are subject to a 0% tax rate. In other words, they are completely exempt from personal income tax.
- If you are a non-resident, Andorra does not retain taxes on these dividends either, which also translates to 0% withholding tax for dividends from Andorran companies.
Dividends from foreign companies: this is where things get more nuanced. As an Andorran tax resident, if you receive dividends from any non-resident company, those dividends are generally subject to a 10% tax rate.

At first glance, the taxation of dividends in Andorra seems extraordinarily advantageous: we can receive profits from our local companies without paying taxes and profits from foreign companies by paying just 10% (in neighbouring Spain and France, dividend rate reaches 30%).

However, here we are faced with one of the Andorran dysfunctionalities: unfortunately the Principality has a rather poor network of double taxation avoidance treaties, and dividends received by countries without a double taxation avoidance treaty are subject to a withholding tax ranging from 15% to 35%.

Let’s go into this aspect in more depth.

The problem of the Double Taxation Treaties

Double Taxation Treaties (DTTs) are agreements between two countries intended to avoid or reduce the double taxation of income, such as dividends, earned in one country and received by a resident of another.

Under these treaties, dividends are usually not taxed at source or are taxed to a lesser extent, which avoids double taxation situations that reach punitive rates.

Currently, Andorra has signed DTTs with the following countries:

France
Spain
Portugal
Luxembourg
Liechtenstein
Malta
Cyprus
United Arab Emirates
San Marino
Hungary
Monaco
Croatia
Czech Republic
Iceland
Netherlands
South Korea
Lithuania

Additionally, negotiations are ongoing with Belgium and Montenegro.

However, countries without a DTT with Andorra include large economies such as Germany, Italy, the United Kingdom, the United States, China, India, Japan, and Russia. In each of these jurisdictions, domestic law sets the withholding tax rate, which can be substantial, ranging anywhere from 15% to 35%, depending on the country and the specific tax regulation in question.

Consequently, the lack of DTT can result in higher overall taxation for Andorran residents investing in these markets.

Example: dividends from the United States

Since the U.S. is a major stock market, it is worth exploring the mechanics of receiving dividends from an American publicly traded company, such as Apple, if you are an Andorran tax resident.

U.S. withholding tax: by default, the United States withholds 30% on dividend payments to non-resident aliens from countries without a tax treaty. This means that for every USD 1,000 in dividends, USD 300 is withheld at the source.
Andorran tax on foreign dividends: under normal circumstances, Andorra would tax foreign dividends at 10%. However, because there is no DTT with the U.S., you cannot reduce the 30% withheld at the source to match Andorra’s 10% standard rate. While Andorra does provide a mechanism for international double tax relief, without a specific treaty, you often cannot fully claim back the U.S. portion. In many cases, you effectively end up paying that 30% in the U.S. alone.

In a simplified scenario, suppose you receive a USD 1,000 dividend from Apple. Out of that, USD 300 is withheld by the U.S. You might then look to Andorra’s tax system, but because the foreign tax exceeds Andorra’s 10% liability and there is no treaty to ensure a reduced withholding, you typically do not owe more tax to Andorra, yet you also do not get back what was withheld in the U.S.

The total burden thus remains at around 30%.

What if there was a DTT?

And what happens if you collect dividends from a country with which Andorra does have a double taxation agreement, like for example Spain?

If you are a tax resident in Andorra, the tax burden on, for example, Inditex dividends can be reduced to around 10%.

First, Spain would withhold 5% of the dividend as Non-Resident Income Tax.
Then, Andorra would levy tax on the balance to bring the total up to 10% (by applying a mechanism for international double taxation relief).

Hence, your effective tax in Andorra would top out at 10%, which compares favorably to the up to 30% you might pay if you remained a Spanish tax resident.

Tax advantages of Andorra

While the potential high withholding tax from countries without a DTT might sound discouraging, remember that Andorra’s overall taxation policy remains highly attractive for many investors and residents. Some of the major benefits include:

Low personal income tax: the top bracket for personal income tax is 10%, significantly lower than in many neighboring European countries.
Low or no capital gains tax: foreign non-real-estate capital gains or capital gains from company shares held for at least 10 years do not pay taxes; otherwise, up to 10% is paid.
No wealth or inheritance tax: Andorra does not impose any inheritance tax or wealth tax, making it attractive for long-term estate planning.
0% tax on local dividends: dividends paid by Andorran companies to local tax residents or non-residents come with no additional tax liability in Andorra.
Low VAT (IGI): the general indirect tax (IGI) rate in Andorra is just 4.5%, considerably lower than standard VAT rates in other European countries.

Collectively, these features can significantly offset or even overshadow the disadvantages that occasionally arise from the absence of a DTT, depending on your personal and professional circumstances.

Obtaining a residence permit

To take advantage of Andorra’s favorable tax regime, you need to become a tax resident and that is achieved first by obtaining the administrative residence permit. There are two main types of residency in Andorra:

Active residency (“residència activa”): this typically requires you to work in Andorra—either as an employee or as an entrepreneur setting up a local business. You are generally required to spend at least 183 days per year in the country, demonstrating that Andorra is your primary place of residence.
Passive residency (“residència passiva”): geared toward individuals who do not necessarily want to or need to work in Andorra. This option may be appealing for retirees, high-net-worth individuals, or investors seeking to benefit from Andorra’s low tax rates without actively participating in the local labor market. Passive residents are subject to certain investment requirements (currently around €600,000).

By obtaining administrative residency and meeting a few more requirements (above all, a minimum stay of days per year), you are given the status of tax resident, granting you access to the country’s attractive tax regime.

Interested in the Andorran tax framework?

Dividends taxation in Andorra is straightforward for domestic sources (0%) yet more complex for foreign ones, especially if there is no double taxation treaty in place. Nevertheless, Andorra’s low overall tax burden (very low income tax, 0% local dividend tax, no wealth or inheritance taxes) continues to attract residents and entrepreneurs from around the globe.

If you are considering a move to Andorra for its favorable tax rules, we recommend reading the report “The definitive guide to living in Andorra”, where you will find the most comprehensive information on taxes, residence permits, and daily life in the Principality.

For any other questions or specialized advice, feel free to get in touch with us.

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