On February 26, 2016, the Spain / Andorra Double taxation treaty will come into force, after it was signed on Jan. 08, 2015.
The entry into force of this Convention will permit the correction of double taxation of the residents in any of the two signatory countries and will also reduce taxation of income obtained in one Country by the residents of the other Country. These measures, in conjunction with the highly competitive taxation of Andorra compared to the rest of EU countries, will contribute promoting the economic relations of both States.
✔The double taxation treaty Convention covers Corporate income tax, Personal income tax and Non-residents income tax. Besides and in relation to residents of Andorra, it also covers the Tax on Capital gains deriving from the transfer of real estate and the Local tax on income.
It does not cover the so-called indirect taxes such as VAT or the Indirect tax applicable in Andorra, (IGI – Impost General Indirecte).
✔In general terms, the Double Taxation Treaty follows the OECD Model Tax Convention. In relation to income that can be taxed in the State of source, when it is received by a resident of the other Contracting State, the Convention sets forth the following maximum rates (as the minimum rates will depend on the domestic regulations of each one of the Contracting States):
- Dividends: if the beneficiary is a company that has, at least, a 10% interest, the taxation rate is 5%. For the rest of cases, the rate is 15%.
- Interest and royalties: the taxation rate is set at 5%.
Capital gains deriving from the transfer of shares in real estate companies or when there is a minimum holding of 25% can be taxed in the State of residency of the company whose shares are being transferred.
To avoid double taxation, the foreign tax can be credited up to the amount of tax payable on the same income in the State of residency.
✔ It is foreseen that the double taxation treaty Convention will permit, not only the exchange of information following stand – alone requests (as it has been done up to now) but it allows group requests or the identification of the individual or company from whom the information is requested.
For example, it will be possible to request information of Spanish residents having a concrete financial product in a bank in Andorra that has not been declared to the Spanish tax authorities.
Besides, Andorra has the compromise to apply the exchange of information of financial accounts as from 2018.