Andorra Undertakes First Phase Of Tax Regime Overhaul

by Ulrika Lomas, Tax-News.com, Brussels

29 April 2011

Despite political upheaval in Andorra, legislation providing for a corporate income tax, initially on non-resident entities, at a rate of 10% came into force as of April 1, 2011. The introduction of a Value-Added Tax regime, to be followed by the extension of the income tax regime to resident individuals and corporations are forthcoming but subject to political stability.

Under the Taxation of Non-Residents Act, 2010, published in late December 2010 by the previous, ousted government, non-resident companies and individuals will now be subject to tax on local-source income at a rate of 10%. Entities will be taxed on profits, or income (in the case of an individual), less permitted expenses and deductions. A simplified regime for companies with "modest" turnover is expected to be available.

While details are not as yet confirmed, special tax-privileged regimes are expected for companies involved in international trade, entities holding rights to intangible sources of income, and some financial institution classes. A new regime for holding companies is also forthcoming.

Other legislation, not yet brought into force by the replacement government includes: The Corporate Tax Act 2010 and the draft VAT law.

To phase out the existing consumption tax, the Value-Added Tax rate will be imposed on a broader spectrum of goods and services, at an anticipated 5% rate. A concessionary rate of 1% is expected to be available on a number of healthcare goods and services; on basic living essentials, such as rent and water; and welfare goods and services.

Other proposed changes include a review of the capital gains tax system in place on real estate transfers, historically set at a rate of 15%. A new regime, set at a 10% rate, is expected to be put in place with an exemption to be provided on the payment of tax on a percentage-portion of the gain.

Lastly, while there has of late been no visible progress in this area, tax breaks for producers of renewable energy and energy conservation projects are under consideration.