Andorra Holding Company: formation, structure, banking

The legal backbone of any corporate structure in the Principality is the Llei 10/2012, del 21 de juny, de l’impost sobre societats (Corporation Tax Law). Unlike legacy offshore jurisdictions, Andorra requires a formal 'Inversió Estrangera' (Foreign Investment) approval for any non-resident acquiring more than 10% of a local company. This process, overseen by the Govern d’Andorra, involves a rigorous background check on the UBO and the source of funds. Once approved, the entity is typically formed as a Societat Limitada (SL), requiring a minimum share capital of EUR 3,000.

The holding regime is specifically governed by Article 51 of the same law. To qualify for the 100% exemption on dividends and capital gains, the Andorran entity must hold at least a 5% stake in a foreign subsidiary for a minimum of one year. Crucially, the subsidiary must be subject to a corporate tax rate of at least 4%, or reside in a country with which Andorra has a Double Taxation Agreement (DTA). This alignment with international standards ensures that the structure remains resilient against anti-avoidance measures in the subsidiary's jurisdiction. We assist principals in drafting the 'estatuts' (articles of association) to ensure they explicitly permit holding activities, which is a prerequisite for the tax department's recognition of the holding status. The process concludes with the 'Escriptura Pública' before an Andorran notary.

Andorra’s commitment to the BEPS (Base Erosion and Profit Shifting) framework means that 'brass plate' companies are no longer viable. To maintain tax residency and benefit from the 10% (or 0%) tax rates, a holding company must demonstrate adequate substance. The Registre de Societats and the tax authorities look for two primary indicators: a dedicated physical office space and a local governance presence. A shared 'virtual' office is generally insufficient for a holding company with significant assets; a dedicated room or office suite within a business centre or private building is the expected standard.

On the personnel side, the company must have at least one director. While this director does not strictly have to be a full-time employee, they must be a resident of Andorra and have the professional capacity to manage the holding’s affairs. For many of our clients, this involves appointing a local professional director or relocating a family member under the Category A residency permit (active residency through self-employment). The annual audit requirement applies to companies meeting certain thresholds (total assets over EUR 3.6m or turnover over EUR 6m), but we recommend all holding companies maintain meticulous records of board meetings held within the Principality to evidence that the 'mind and management' of the company is truly Andorran. This is vital when defending the structure against the tax authorities of the UBO's home country.

The Andorran banking sector is distinct from its neighbours in France and Spain. Dominated by local players like Andbank, MoraBanc, and Creand, the system is characterised by exceptionally high liquidity ratios and a conservative approach to risk. For a new holding company, the banking relationship is the most critical hurdle. Under the Llei 14/2017 on the prevention of money laundering and terrorist financing, Andorran banks perform deep-dive KYC on every participant. They require a clear narrative on the origin of the capital being invested and the nature of the underlying subsidiaries.

As advisors, we manage the 'pre-compliance' phase, ensuring that the UBO’s file is presented in a format that meets Andorran standards before the formal application. The bank must issue a certificate of share capital deposit before the notary can finalise the incorporation. Post-incorporation, these banks offer sophisticated Lombard credit facilities, allowing principals to borrow against the value of their holding’s portfolio. However, principals should be aware that Andorran banks are increasingly selective about the jurisdictions where subsidiaries are located; holdings with assets in high-risk or uncooperative jurisdictions may face significant hurdles or higher compliance costs. Furthermore, since Andorra is not a member of the EU (though it uses the Euro via a monetary agreement), it is not part of the SEPA zone in the same way an EU bank might be, though it maintains excellent correspondent banking links across Europe and the US.

While Andorra’s domestic tax rate is 10%, the true value of an Andorran holding company is unlocked through its growing network of Double Taxation Agreements (DTAs). Historically isolated, the Principality has recently ratified treaties with Spain, France, Portugal, Luxembourg, the UAE, Malta, Cyprus, San Marino, Hungary, and Croatia, with more in negotiation. These treaties are modeled on the OECD standard and are essential for mitigating withholding taxes (WHT) on dividends, interest, and royalties flowing from the subsidiary to the Andorran parent. For instance, under the Spain-Andorra DTA, the WHT on dividends can be reduced to 5% or 0% depending on the ownership percentage, a significant improvement over the standard 19% non-resident rate.

For subsidiaries located in non-DTA jurisdictions, Andorra provides a unilateral tax credit to prevent double taxation. This allows the holding company to deduct the tax paid abroad from its Andorran tax liability. However, it is important to note that Andorra does not have a WHT on dividends paid by the holding company to its non-resident shareholders. This makes it an ideal 'exit' point for profits. If the UBO is resident in a high-tax jurisdiction, they must still account for their local Controlled Foreign Corporation (CFC) rules. We work closely with tax counsel in the UBO’s home country to ensure the Andorran structure is not viewed as a 'passive' entity that triggers immediate taxation at the shareholder level, typically by ensuring the holding has active involvement in the management of its subsidiaries.

The administrative burden of an Andorran holding company is moderate but non-negotiable. Every entity must file an annual tax return (Impost sobre Societats) even if all income is exempt under Article 51. The fiscal year typically aligns with the calendar year, and filings are due by the end of July. In addition to tax filings, companies must file annual accounts with the Registre de Societats. These accounts must be prepared in accordance with the Andorran Accounting Plan, which is broadly similar to IFRS but with local nuances.

Furthermore, the Principality’s commitment to transparency is reflected in the 'UBO Register' (Registre d’Alta Direcció i Socis). Access to this register is restricted to competent authorities and entities with a legitimate interest (like banks), ensuring a balance between privacy and compliance. For principals, the main operational challenge is often the 'Comú' (parish) taxes and the 'Taxa de Registre de Societats,' which are annual fees paid to the local and central government. While these are relatively low (usually under EUR 1,000 combined), failure to pay can lead to the freezing of the company's 'Comerç' (trading licence). We provide an ongoing corporate secretarial service to ensure these deadlines are met, maintaining the entity in good standing so it can continue to issue certificates of tax residency—a document often required by foreign tax authorities to grant DTA benefits. This proactive management is what separates a functioning international structure from a liability.