Can an Andorran “service company” have its employees work in France or Spain?
Albert Barroso Enrich, a senior tax consultant of Augé Grup, answers:
The Andorran market can be very interesting for a large number of companies, both due to the rich and varied profiles of potential customers (tourists, residents, investors or others) and by the services requested.
However, more and more often, professionals seek to provide remote services, sometimes requiring a punctual physical presence abroad.
Similarly, a professional domiciled in Andorra can show great interest in geographically close markets, such as the French and Spanish markets. Indeed, there are a multitude of companies and independent professionals located in the Principality, which benefit from the tax advantages offered by Andorra, but also aim the neighboring markets in France and Spain, which are attractive.
We can therefore raise some issues: Are the services provided physically in France and Spain taxed by these countries? An Andorran employee provides this service outside of Andorra, in which country are the income taxes paid?
Tax Conventions for the avoidance of Double Taxation (CDT) between Andorra and Spain or France, in force since 2016, define two situations: on the one hand, the income received by the company during its employees’ activity abroad and, on the other hand, the personal income (salary) received by the employee as a result of the services provided. The two situations are similar in content, and, therefore, the conclusions are identical.
Corporate Taxation arising from profits made abroad
For the company’s income generated in Spain or France, Article 7.1 of the CDT explicitly solves this point. To clarify the Stable Establishment concept referred to at Article 7.1 of the CDT, Article 5 provides a definition thereof. Consequently, if the Andorran company acts on behalf of an independent resident in France or Spain, or if an employee travels to provide a complementary or ancillary service to the one contracted with the Andorran company, and as long as the work provided does not exceed 12 months if there is an assembly or site, the income received by the Andorran company will only be taxed in Andorra. Because said company has no permanent establishments in France or Spain.
In the case of taxation of the income received by the employee for work performed in Spain or France, Article 14.2 of the CDT provides a solution to resolve that situation.
Consequently, if the presence in Spain or France of the employee of the Andorran company does not exceed 183 days per year and the remuneration is paid by an Andorran company (or from another country outside the Spain or France), the income shall be taxable exclusively in accordance with the terms of the Andorran income tax.
In a nutshell, Andorran companies and their employees that are residents in Andorra can benefit from a large foreign market, while benefiting from Andorrans tax advantages. The Conventions for the avoidance of Double Taxation are fundamental tools for the delimitation of the different taxes applicable in an international activity.