Understanding the Double Taxation Agreement between Andorra and Spain

Last Updated on 14 January 2025

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The Double Taxation Agreement (DTA) between Andorra and Spain is an important legal agreement that helps people and businesses avoid paying taxes twice on the same income.

This user-friendly guide will break down the key aspects of the agreement, including the different types of income, tax rates, and exemptions.

What is the Double Taxation Agreement?

• A legal agreement between Andorra and Spain
• Helps people and businesses avoid paying taxes twice on the same income
• Provides clarity and legal certainty on how to tax various types of income

Permanent establishment rules

Summary of the permanent establishment rules:

1. “Permanent establishment” refers to a fixed place of business where a company carries out all or part of its activity.
2. Includes: headquarters, branches, offices, factories, workshops, mines, wells, quarries, agricultural, livestock, or forestry operations.
3. A construction or installation project is considered a permanent establishment if it lasts more than twelve months.
4. Permanent establishment is not considered in cases such as: use of facilities only to store, display or deliver goods; maintaining a deposit only to store, display or deliver goods; maintaining a deposit for goods to be transformed by another company; maintaining a fixed place of business only to buy goods or collect information; maintaining a fixed place of business only to carry out auxiliary or preparatory activities; and maintaining a fixed place of business only to carry out a combination of the mentioned activities, provided that their combined activity retains its auxiliary or preparatory nature.
5. If a person (not an independent agent) acts on behalf of a company and has habitual powers to conclude contracts in a contracting state, it is considered that the company has a permanent establishment in that state in relation to the activities carried out by that person, unless their activities are limited to those mentioned in point 4.
6. A company is not considered to have a permanent establishment in a contracting state if it carries out its activities through a broker, general commission agent, or another independent agent, as long as they act within the ordinary framework of their activity.
7. The control of a company resident in a contracting state by a company resident in another contracting state, or the carrying out of economic activities in that other state (whether through a permanent establishment or another form), does not automatically convert either of these companies into a permanent establishment of the other.

Income from Artists and Athletes

• Taxed in the state where the activity is carried out
• Exceptions if the state of residence finances the activity through public funds
• Example: Spanish artistic or sporting event with €10,000 income

• Before DTA: 24% tax in Spain, possible double tax exemptions
• After DTA: 24% tax in Spain, tax credits in Andorra (effective 24% tax, only in Spain)

Dividend Income from Companies

• Withholdings still apply, but at lower rates
• Example: Andorran resident receives €10,000 in dividends from a Spanish company

• Before DTA: 19% tax in Spain, possible double tax exemptions
• After DTA: 5% tax in Spain if the beneficiary is a company with at least a 10% stake, 15% tax in Spain in other cases, possible double taxation exemptions in Andorra (effective 10% or 15% tax)

Capital Gains Tax

• Taxed exclusively in the country of residence, with some exceptions

• Sale of real estate, assets of a permanent establishment, ships or aircraft, and certain company shares or rights

• Example: Sale of a Spanish property with €10,000 capital gain

• Before DTA: 19% tax in Spain, possible double tax exemptions
• After DTA: 19% tax in Spain, tax credits in Andorra (effective 19% tax, only in Spain)

Interest and Royalties Income

• Withholdings apply, reduced to a rate of 5%
• Example: Andorran resident receives €10,000 in interest or royalties from a Spanish company

• Before DTA: 19% tax in Spain, possible double tax exemptions
• After DTA: 5% tax in Spain, double taxation tax credits in Andorra (effective 10% tax: 5% in Spain and 5% in Andorra)

Wage Income as a Worker

• Taxed in the country of residence, unless work is carried out in another state
• Example: Andorran resident works in Spain for 5 months, receives €10,000

• Before DTA: 24% tax in Spain, possible double tax exemptions
• After DTA: Exclusive taxation in Andorra (effective 10% tax or exemption of €3,000 if a natural person)

Company Administrators and Board Members

• Taxed in both the state of residence and the state of the paying entity
• Example: Andorran resident is a manager of a Spanish company, receives €100,000

• Before DTA: 24% tax in Spain, possible double tax exemptions
• After DTA: 24% tax in Spain, tax credits in Andorra (effective 24% tax, only in Spain)

Pensions, Compensation, and Other Income

• Generally taxed exclusively in the state of residence of the beneficiary
• Exceptions may apply based on the social security agreement between Andorra and Spain
• Example: Andorran resident receives €10,000 in retirement pension from Spain

• Before DTA: Taxed in both states
• After DTA: Exclusive taxation in Andorra (no withholdings in Spain)

Students, Apprentices, and Trainees

• Income not taxed in the state where studies are carried out if:

• Income covers maintenance, study, or practical training expenses
• Income comes from sources outside the state where studies are carried out

• Example: Andorran student receives €10,000 to study in Spain

• Before DTA: Taxed in both states
• After DTA: Exclusive taxation in Andorra (no withholdings in Spain)

The Double Taxation Agreement between Andorra and Spain is a crucial legal framework that helps individuals and businesses avoid paying taxes twice on the same income.

By clearly outlining the tax rules for different types of income, the agreement benefits both countries and residents alike.

By understanding these rules and exemptions, taxpayers can ensure they are compliant with their tax obligations and avoid any potential financial pitfalls.