Although many people will not know it, the Principality of Andorra has been carrying out an ambitious process of international economic opening for more than a decade, started in 2010 with the tax information exchange agreement with Spain and deepened with the new 2012 foreign investment law, thus initiating legal and fiscal changes to bring the country into line with international standards, becoming homologated and able to enter into negotiations.
One of the consequences of this transformation was the signing of the Monetary Agreement for which Andorra acquired the euro as the official currency and also represented a great advance for the possibility of signing Double Taxation Agreements (CDI), since to ensure the proper functioning of a CDI signed by any two states it is necessary that the tax system , transparency legislation, and accounting laws are compatible.
What is a double taxation agreement (CDI)?
An agreement to avoid double taxation (CDI) is an international agreement or treaty that establishes mechanisms to prevent the same income obtained by a taxpayer from being taxed by two or more states (double international taxation), for the same generating event and for identical periods.
Globalization in modern societies is implying that economic relations are internalized and that their subsistence depends largely on foreign markets, thus collapsing state borders in the face of the dynamism of the economy. As each State is sovereign to prepare its fiscal legislation, there is an overlap of fiscal sovereignties that may not be compatible with each other. This situation can cause:
- A single person (natural or legal) is taxed in two different countries for the same income
- The same income is taxed on two different people from two different countries
- a single asset is taxed in two different countries.
A first solution to this is unilateral measures taken by the tax administrations of each state, which usually consist of deductions for such double taxation cases. But when these are insufficient, then bilateral provisions such as agreements to avoid double taxation or CDI are required. & Nbsp; Its objective is to clarify, unify and guarantee the fiscal situation of taxpayers who carry out economic activities in other countries.
These conventions are usually based on models proposed by supranational organizations such as the OECD and the UN and it should be noted that they have primacy over the country's domestic law as they are framed in the field of international law. Its structure usually includes, among other things, the scope, the legal definitions and tax rules, the methods to eliminate double taxation, the protocol and some other special provisions.
¿Why CDIs are important?
The CDIs facilitate the promotion of foreign investment and favor the competitiveness of national companies abroad. Its measures apply to individuals and legal entities residing in any of the signatory states and affect taxes on income, wealth or corporate profits. These taxes are payable by each of the contracting states and / or their political and administrative subdivisions, and in these treaties it is established which the two States have the competence to tax income.
Specifically for the Principality of Andorra, its relevant importance lies, for example, in the end of the withholding tax on taxes that certain administrations, such as the French or the Spanish, applied to Andorran companies that wanted to export their services to these countries. It supposes, therefore, a great advance for the international economic opening of the country.
The Double Taxation Agreements of Andorra
As we have indicated, in order to comprehensively consider the taxation of non-residents, it is necessary to take into account, in addition to the internal legislation on the Income tax for non-residents, the different international treaties and conventions that a country has signed in vigor. The Principality of Andorra has signed in recent years a series of agreements with other countries to avoid tax evasion and double taxation (CDI) of all taxes of a direct nature on income:
- corporate income tax
- the income tax of natural persons
- the income tax of non-tax residents
- capital gains tax on property transfers
The provisions of the CDI are incorporated into the legal system from their publication in the Official Gazette of the Principality of Andorra (BOPA), and cannot be modified or repealed by the laws. In accordance with the Constitution, the Andorran tax law recognizes the normative priority of international tax treaties or conventions, in this case, agreements to avoid double taxation. Also, the laws of each specific tribute recognize the primacy of these agreements over domestic law.
Andorra currently has 7 CDIs signed and in force with France, Spain, Luxembourg, United Arab Emirates, Portugal, Liechtenstein, Malta and Cyprus, with prospects of continuing with these types of agreements to continue their process of international opening.
International tax planning
Notwithstanding the foregoing, to carry out a transfer and subsequent establishment in the Principality of Andorra, as well as to operate internationally, strict compliance with all national and supranational regulations is essential. One last note that we can give is that the fact that there is no CDI between Andorra and the country of origin does not necessarily mean the complete and effective double taxation of the income to be received. It will depend in any case on the internal legislation of each state regarding non-residents.
With international tax planning in the hands of the best experts, lawyers, prosecutors and economists such as the associates of Andorra Insiders, you will not only be guaranteed the correct execution respecting all the applicable legislation, but also an optimal tax strategy that will avoid excessive taxation always on the margin. of the law.
Whether it is to open a company, live in Andorra or establish the headquarters of your business in the country, you can contact us here and tell us your particular case. We will make you a proposal with what you need in your situation and budget, as well as the steps to follow. In addition, we offer a wide variety of professional services, which you can see here. And last but not least, we provide you with comprehensive support, accompanying you throughout the process from solving your personal doubts to guiding you through the Principality without obligation once installed, so that it is in the safest, easiest and most carefree way.