What are the advantages of creating a holding company in Andorra?
Director of Augé Grup’s Tax Department Marc Urgell Díaz answers:
“One of the most traditional and efficient systems of asset management is the creation of holding structures. Holdings are companies that hold and manage participations (stocks or shares) in other companies. These companies receive the dividends distributed by their subsidiaries or the capital gains generated by the transmission of the shares thereof.
Andorra has set up a model of a Holding regime at article 38 of the Law on Coprorate Tax, inspired by the best regimes in the European Union, that presents similarities with advantageous regimes such as those in place in Spain, Luxembourg or Holland.
Holding companies may present advantages in different aspects such as planning the inheritance regarding family assets or as a way of obtaining a consolidation of a corporate group. Moreover, from a tax perspective, incorporating a holding company in Andorra generally allows to significantly lower taxation at an international level.
As mentioned above, this type of companies can be interesting for entrepreneurs planning an inheritance or seeking control of consolidated accounting and tax. At a tax level, it may be interesting for the Andorran residents who conduct business abroad and who seek to reduce the overall tax burden.
Holding companies receive dividends or capital gains from its subsidiaries. All income earned is exempt from taxation, provided that the subsidiaries are foreign entities with nominative shares and all operations are detailed in the company books. The Andorran residents who receive dividends from an Andorran holding are totally exempt from taxation.
The treaties to avoid double taxation generally provide for a favorable international taxation when the recipients of the distributed dividends are corporations. Moreover, holding companies also allow deferral of taxation on dividend.
Example of Spain
Without a holding company:
An Andorran tax resident receives a dividend from a Spanish company in which he owns 30% of the shares. The taxation on said dividend, based on the Treaty to avoid double taxation signed with Spain is 15% (withholding tax for non-residents in Spain), and 10% in Income Tax in Andorra (this Andorran Tax resident can deduct the taxes paid in Spain ending up with a 0% taxation in Andorra).
With a holding company:
The holding company incorporated in Andorra receives a dividend from a Spanish subsidiary in which it owns 30% of the shares. The dividend is taxed, pursuant to the Treaty to avoid double taxation, at 5% (holding withholding tax), and is completely exempt from the Andorran corporate tax. The dividend paid from the Andorran holding to an Andorran resident is exempt from any taxation.
