An Andorran company management executive may opt to receive a mix of salary and dividends. Paying the lowest personal income tax from both is the most tax efficient effective strategy. Typically, the most effective is receiving a salary up to 40.000 EUR then receiving the rest in dividends.

Substance requirements demand that there are paid employees. The company’s revenue and corporate tax base are affected by outgoing salary payments as these are considered company expenditures. If management receive a salary, then it is a deductible company expense.

On the personal income side of taxation up to €24,000 EUR received is tax exempt. 5% personal income tax is paid on the part between € 24,000 and € 40,000. 10% is paid from the marginal increase past €40,000 EUR.

Shareholders receive dividends when the company is making profits and decides to distribute them. Dividends that are, in general, tax exempt from personal income tax in Andorra but note that corporate tax from company profits is charged at 10%. The company settles the 10% corporate tax on profits before it then decides to distribute the remaining profits after tax as dividends to its shareholders.

As explained dividend payments are tax exempted from;

a. personal income tax if distributed to a tax resident shareholder in Andorra

b. withholding tax if distributed to a non-resident shareholder tax resident elsewhere

The ideal situation simplifies how to receive the most income as a company executive.

Appreciate that real-life cases demand case-by-case tax consulting. Andorra’s company and personal tax laws are complicated. We recommend individuals wishing to optimize their income to consider financial consultancy.