Andorra’s corporate income tax law (Llei 95/2010, Article 38, as amended by Llei 6/2018) provides for a special regime for entities holding participations in other companies. This is officially known as the “règim especial de societats de tinença de participacions en societats” or, as it is commonly referred to, the Andorran holding regime.

Originally, this regime only covered participations in foreign companies (the former “STVE” or Societat de Tinença de Valors Estrangers). However, the 2018 reform expanded its scope to include participations in both Andorran and non-Andorran entities, making it significantly more flexible.

How does the Andorran holding company work?

The main advantage of establishing a holding company in Andorra is the tax exemption on dividends and capital gains received from subsidiaries or affiliated companies, provided certain conditions are met.

Under the current legislation, the holding company benefits from an exemption in its tax base for dividends received from participations in other companies and for capital gains derived from the sale of such participations.

However, this exemption is subject to the requirements established in Article 20.2 of the Corporate Income Tax Law, which include:

• Minimum participation: The holding company must hold, directly or indirectly, at least a 5% stake in the capital, equity or voting rights of the investee company.
• Holding period: The participation must have been held continuously for at least one year prior to the date on which the dividends become payable or the date of the transfer.
• Taxation of the investee: The investee company must be subject, without the possibility of exemption, to an income tax similar to Andorra’s corporate tax at a nominal rate equivalent to at least 40% of Andorra’s general rate (currently 4%, since Andorra’s general corporate tax rate is 10%). Alternatively, the investee may be resident in a country with which Andorra has signed a Double Tax Agreement (DTA).
• Corporate purpose: The company’s corporate purpose must be exclusively the management and holding of participations in other companies.
• Nominative shares: All shares or participations representing the capital of the holding company must be nominative (registered, not bearer).

Regarding the taxation of the investee, if the directly held company does not meet the minimum taxation threshold but the indirectly held company does, the requirement is considered fulfilled.

What is the effective tax rate for an Andorran holding company?

With the exemption on qualifying dividends and capital gains, the effective taxation on these income streams can be very low. However, it is important to understand that an Andorran holding company is not taxed at 0%.

Since January 2023, Llei 5/2023 introduced a minimum effective corporate tax rate of 3% for all companies generating profits in Andorra. This means that, regardless of exemptions or deductions applied, any company with a positive result must pay at least 3% on its taxable base.

Additionally, dividends distributed by the holding company to its individual shareholders who are Andorran tax residents are exempt from personal income tax (IRPF) when they come from participations that meet the conditions of Article 20 of the IRPF Law (Llei 5/2014). In practice, this means that well-structured holding companies still enjoy a very competitive overall tax burden, but the idea of “zero taxation” is no longer accurate.

Important tax considerations: CFC rules and financial expense limitations

In 2023, Andorra introduced two additional rules that directly affect holding structures:

CFC Rules (Article 17 bis, Llei 95/2010)

The fiscal transparency regime requires Andorran taxpayers to include in their tax base the income obtained through controlled foreign entities that:

• Are subject to taxation below 50% of what they would have paid in Andorra
• Do not carry out substantial economic activity
• Obtain passive income (dividends, interest, royalties, capital gains from participations, insurance income, or income from financial activities)

This means that if an Andorran holding company controls a foreign subsidiary in a low-tax jurisdiction without real economic substance, the subsidiary’s income could be attributed directly to the Andorran parent.

Financial Expense Limitation (Article 14, Llei 95/2010)

Net financial expenses are only deductible up to 30% of the company’s operating profit (or a minimum of €500,000). This is particularly relevant for holding structures that use leverage (debt) to finance acquisitions of participations.

Who would benefit from a holding company in Andorra?

The holding regime is particularly attractive for the following profiles:

• Family offices looking to establish their wealth management and investment vehicle in a competitive tax jurisdiction within Europe.
• Entrepreneurs with multiple companies who want to consolidate ownership of their businesses under a single Andorran entity and benefit from the participation exemption.
• Venture capital and private equity investors who need a flexible vehicle for managing a portfolio of participations.
• High-net-worth individuals who reside in Andorra and want to channel their international investments through a holding structure.

How can I apply for the holding regime?

Taxpayers wishing to benefit from this special regime must apply to the Ministry of Finance through the corresponding declaració censal (census declaration). The regime takes effect from the tax period ending after the Ministry grants its authorisation.

Once approved, the holding company must identify the following information in the notes to its annual accounts each year:

• A detailed breakdown of all participations held or maintained during the fiscal year
• The net asset value of the portfolio
• Dividends or reserves received during the year

The regime remains in force until the company formally communicates its withdrawal to the Ministry.

How can I set up a holding company in Andorra?

Incorporating a holding company in Andorra follows the same general steps as setting up any Andorran company. The process typically takes between 4 to 8 weeks and involves:

• Foreign investment authorisation: If the incorporator is a non-resident, a foreign investment filing must be submitted to the Andorran government. Under the new Llei 5/2025 (Sustainable Growth and Housing Law), foreign investment rules have been updated and the process may require additional scrutiny.
• Company name reservation: Apply for and secure a unique company name with the Companies Registry.
• Opening a bank account: A bank account must be opened at an Andorran bank to deposit the share capital and obtain the corresponding certificate.
• Notarial incorporation: The company is formally constituted before an Andorran notary public.
• Apply for the holding regime: Once the company is registered, submit the application to the Ministry of Finance through the census declaration.

If you are already a tax resident in Andorra, the process is straightforward. For more details on the general company formation process, you can read our full guide on setting up a company in Andorra.

Can I have a holding company in Andorra while living in another country?

Many prospective clients contact us about setting up an Andorran holding company while remaining tax resident in Spain, France or another country. While it is legally possible to incorporate a company in Andorra as a non-resident, doing so without relocating brings significant tax risks.

Even if the holding company is Andorran, the tax authorities in your country of residence could challenge the arrangement under several doctrines:

• Effective place of management: If key decisions are made outside Andorra, your local tax authority could argue that the company is actually tax resident in your country.
• CFC (Controlled Foreign Company) rules: Most OECD countries have CFC legislation that can attribute the holding’s income directly to the controlling shareholder. Andorra itself introduced CFC rules in 2023.
• Substance requirements: International standards increasingly require genuine economic substance in the jurisdiction where a company claims tax residence.

For non-residents who still wish to proceed, we only recommend doing so if they can demonstrate real substance in Andorra:

• Economic substance: The holding company must have a physical office, qualified employees (ideally asset managers or financial professionals) and incur real operational costs in Andorra.
• Effective management: Decisions must be taken in Andorra. Ideally, the directors should be Andorran residents, and board meetings should take place physically in the Principality.
• Visible presence: A local telephone number, a professional website and a real business address that demonstrates operational presence in Andorra.

Double tax agreements and international planning

Andorra has signed over 20 double tax agreements (DTAs) with countries including France, Spain, Portugal, Luxembourg, the UAE, Malta, Cyprus, Liechtenstein and others. These agreements are important for holding structures because:

• They can reduce or eliminate withholding taxes on dividends flowing from subsidiaries to the Andorran holding company.
• They provide legal certainty regarding the tax treatment of cross-border income.
• A subsidiary resident in a DTA country automatically meets the minimum taxation requirement under the holding regime, even if its effective tax rate is below 4%.

This growing treaty network makes Andorra an increasingly viable jurisdiction for international holding structures, particularly for European portfolios.

How to get started

If you are considering setting up a holding company in Andorra, we can guide you through the entire process, from initial structuring advice to incorporation and tax regime application, provided you are committed to meeting the substance and effective management requirements.

If you are also interested in becoming an Andorran tax resident, we recommend reading our guide on how to become a tax resident in Andorra. You can also explore how corporate tax works in Andorra or learn about dividend taxation in the Principality.

For any questions, feel free to contact us using the form below.