Repeal of special corporate tax regimes

Repeal of special corporate tax regimes

The amendment of Law 95/2010 on Corporate Tax was published in the Official Gazette of the Principality of Andorra on 16 May.

The Law on Corporate Tax was drawn up under the principle of competitiveness with respect to the surrounding countries, thereby contributing to the arrival of companies and the enrichment and diversification of the economic fabric of the Principality of Andorra.

This Corporate Tax envisages particular fiscal regimes for specific economic activities, reflected in a particularly advantageous level of taxation. The activities which have benefited from these special regimes are: international exploitation of intangibles, international trade in goods without them passing through Andorra, intra-group financial management and investment and holding companies with the exclusive purpose of owning shares in foreign companies.

In recent years, however, the European Union and the OECD have developed certain criteria and directives to create fiscal standards known as the BEPS project, seeking to prevent regimes liable to generate a risk of artificial relocation of profits and levels of taxation significantly lower than those which are generally applicable.

In order to adapt the Principality’s fiscal legislation to the standards of the international community, and to prevent the erosion of taxable bases and the transfer of profits, the above-mentioned regimes have been repealed or amended by this Law.

In particular, the special regimes for companies involved in international trade and intra-group financial management and investment have been repealed.

The special regime for the exploitation of intangibles has been amended, as a result of which the requirements for its application are different from those envisaged to date.

For the international trade, intra-group and intangible regimes, the Law stipulates a transitional period which allows a progressive and non-immediate process inasmuch as they do not fulfil the new requirements. The 80% reduction they benefited from, and applied until the 2017 financial year, will be gradually reduced to 60% in 2018, 40% in 2019 and 20% in 2020 and fully repealed in 2021.

The companies included in the special regime for those owning shares in foreign companies will be able to continue operating under the same terms and conditions for income obtained from investments acquired before 1 July 2017 and until 31 December 2020.

As of the entry into force of the amendment of the Law, taxpayers who opt for the application of the special regime for companies owning shares in foreign companies will only be able to apply the exemption of dividends and income resulting from the transfer of shares, insofar as the investee company or the subsidiary of the investee company leading to the distribution of the results will be assigned a tax rate of at least 4% (40% of the general rate of Andorran Corporate Tax) or a CDI between the jurisdictions.

In summary, the amendment of the approved Law envisages that, by 2021, companies engaged in the international trade of goods without them passing through Andorra and intra-group financial management and investment companies will have a general tax rate of 10% or the one in force at that time.