Double taxation treaties are international agreements between two countries aimed at implementing measures to avoid a double taxation of income for residents, companies and all the economic agents having activities in several countries.
Why Andorra needs to have double taxation treaties
In an environment where the economic relations are getting more and more internationalized, tax authorities are trying to implement measures to avoid a double taxation of agents having international activities.
Some countries can adopt unilateral measures, thus the agents under double taxation will benefit from tax deductions in these countries. However, these unilateral actions are not always enough to solve double taxation situations, that is why some countries also jointly take appropriate action to clarify and unify the fiscal situation of tax-payers having economic activities in several countries.
The procedure: tax treaties with Andorra until today
Andorra is in the process of signing tax treaties with several European countries such as Belgium and Switzerland, as well as with some Middle Eastern countries. Double tax treaties to avoid a double taxation have already been signed and ratified with Andorra’s neighbours France and Spain, as well as Portugal. Andorra has already signed an agreement with Luxembourg, Liechtenstein, Malta, Cyprus, the United Arab Emirates, San Marino and Hungary.
The agreements signed with France and Spain entered into force in January 2016 and the agreement signed with San Marino entered into force on 1 January 2022.
The DTA with Croatia was signed in October 2022 and entered into force in October 2023. Similarly, negotiations with other EU countries are already underway and options with Germany started to be explored in 2020.
In 2022, tax treaties were also signed with the Czech Republic, Monaco and Iceland. The DTAs with the Czech Republic and the Grand Duchy of Luxembourg entered into force in October and November 2023 respectively. The DTA with the Netherlands was signed on 12 October 2023 and the DTA with South Korea was signed in November 2023. In 2024, the DTA with Lithuania was signed.
In May 2023, negotiations with Belgium were concluded. In January 2024, the text agreed with Montenegro was initialed. These agreements are pending the internal procedures of each country for their future signature.
On 23 January 2025, the Andorran General Council approved the ratifications of the agreements negotiated with Latvia, Montenegro and Romania.
So far, Andorra has signed 20 DTAs.
Why are double taxation treaties so important for Andorra?
Without bilateral treaties and conventions to avoid double taxation, residents, companies and permanent establishments would be taxed twice on the same income. This phenomenon concerns, on the one hand, a country’s residents who receive labour income and other revenues from another country. On the other hand, it may also affect companies having transactions with foreign companies, but also all the economic activities happening between two countries.
In other words, every country has its own tax rules that every resident has to follow, and everywhere it is compulsory to pay income taxes. However, in the cases described above, it implies that the economic agents would need to pay taxes on the same income twice as they have activities in several countries. That is the reason why double taxation situations have to be avoided.
To prevent the residents and companies operating in various countries to be taxed twice on the same revenues, sometimes some States decide to implement double taxation treaties and conventions to avoid such situations.
When there are no double taxations treaties, it is much more difficult for companies to settle in Andorra and develop their economic activity there. Thus, with the globalization and the economic liberalization, it is essential for foreign investors to have such agreements signed between Andorra and their country.
Andorra was considered a tax haven until 2009, the year when the OECD decided to remove the Principality from its Uncooperative Tax Havens blacklist. Since then, an extensive process of adaptation and harmonization with the OECD international tax laws has been launched in Andorra.
With the implementation of a Value Added Tax, a corporate tax and a personal income tax, Andorra is about to achieve successfully its adaptation to OECD rules and to the European Community in general, including with its neighbours France and Spain. This procedure has greatly contributed to facilitate the negotiations and the signature of double taxation treaties with these countries.
Previously known as a non-transparent country and considered a tax haven, Andorra has succeeded in turning into a country abiding by the OECD harmonized tax laws. In the meantime, the Principality has a lower tax rate and less tax pressure than the European Union countries.