Remuneration and taxation of business owners in Andorra: the legal framework
Wages and dividends
How to opt for the best strategy when you are an entrepreneur in Andorra in order to optimize your own remuneration? First of all, it is necessary to differentiate the place occupied within the organization by the associates who carry on an activity there.
Thus, a collaborator who works as a manager is likely to perceive two types of income:
- a salary corresponding to his function within the company, that is to say his managerial role necessary for the proper organization and operation of the structure,
- dividends linked to the company’s results, whose distribution among the partners is decided upstream.
This distinction is important insofar as the taxation applied in Andorra differs according to the two cases mentioned above.
Business leaders and taxes in Andorra: the obligations of the bosses
First concept to bear in mind: a salary is considered a burden for the company. In fact, it contributes to reducing the taxable portion subject to corporate tax (Tax on Companies, an important axis of taxation in Andorra).
On the other hand, dividends received by employees and managers of an enterprise in Andorra are not part of the deductible expenses (according to Article 13.1.a of the SI Law). They can only be distributed after having been subject to taxation, the effective rate of which in the Principality is fixed at 10%.
In summary, wages are considered as labor income, dividends as income from capital.
The case of residents
The situation of entrepreneurs living in Andorra is also to be taken into account because the impact of the two forms of remuneration is not the same at the time of the declaration of the income tax (IRPF, Income Tax of the Physical Persons, another most important axis of Andorran taxation).
Thus, for business executives residing in Andorra, the first € 24,000 collected as salary is exempt from tax.
For the salary range between € 24,000 and € 40,000, a tax rate of 5% is applied.
It should also be noted that the dividends received in respect of the remuneration of entrepreneurs in Andorra are totally exempt in the calculation of the IRPF, which seems logical since they have already been taxed at 10% and paid at the end of the year, payment of the IS. Double taxation is avoided.
Taxation of entrepreneurs in Andorra: what strategy to adopt in the end?
What to retain of the landscape of the remuneration and the taxation for the bosses of company in Andorra? Without doubt one of the best solutions is to opt for a maximum annual salary of € 40,000! In this case, the actual tax never exceeds 10%.
Note that this is a general statement and that each case should be treated according to its specificities. If you wish to obtain more information according to your particular situation, do not hesitate to call on Set Up, whose knowledge of the Andorran territory and its main wheels, especially in the field of taxation, will undoubtedly enlighten you.
Additional information on the transfer of dividends from France to Andorra
After having developed the global scheme of the conditions of remuneration and taxation applied to the entrepreneurs of Andorra, here are listed some additional information likely to answer the most frequent questions.
Transfer of the capital of a French parent company to an Andorran company
How to proceed to the recovery of the company’s dividend in Andorra if you have a holding company already operating outside the Principality, in France for example?
The French entrepreneur must first take the necessary steps to obtain the status of active resident in Andorra, then open a company on his own in the country.
Dividend distribution: 2 solutions
As part of the distribution of dividends, there are now two options:
- to raise the dividends of his French company as a natural person,
- buy the shares of the French company via the new Andorran company; in this case, the legal entity becomes the recipient of the dividends.
There are big differences in the tax applied in Andorra according to the choice of one or the other of these situations (the rate of the IS is not the same). These must be considered in order to determine which is the most advantageous. As the process can sometimes be complex, do not hesitate to contact Set Up, who can put you in contact with his network of lawyers and tax specialists of this area.
Agreements between France and Andorra
Lastly, agreements have been made between France and the Principality of Andorra to avoid double taxation. They are listed in article 10 of the Official Bulletin of October 14, 2015.
Here again, a careful study of the situation of each company incorporated in Andorra must be accomplished. It will make it possible to concretely determine the most suitable solution for the tax optimization of the new company created in Andorra.