Many advisory services in Andorra talk on their websites about tax regimes that allow for a reduction of Andorran taxation below 10%. The international trading regime, the intragroup financial regime, the holding regime, or the Patent Box.
However, they fail to mention that these regimes were modified or eliminated in April 2018.
The Andorran Parliament approved the modification of the corporate tax, which represented a further step towards harmonizing the Andorran tax system with its environment, in accordance with the guidelines of the OECD and ECOFIN, and which eliminated almost all preferential regimes.
For that reason, make no mistake, there is no way to lower the taxation to 10% since the 2018 reform… except through a little-known regime: the Andorran Patent Box.
What is the Andorran Patent Box?
The special regime for the exploitation of certain intangible assets, known as the Patent Box, is a tax incentive consisting of a reduction in the taxable base of the Corporate Tax.
It came into effect in 2010 but was substantially modified in April 2018 in order to align it with the OECD’s BEPS program guidelines.
Its incorporation into Andorran legislation intends to promote competitiveness, create quality employment, as well as the desire to retain and repatriate talent.
How does the Andorran Patent Box work?
The main features of this tax incentive are as follows:
Reduction of up to 80% of the taxable base of the Corporate Tax corresponding to positive income derived from the granting, assignment, licensing, or transfer of patents, utility models, and computer programs protected by copyright. The aforementioned percentage will be applied to the proportion resulting from the application of a correction coefficient calculated based on the expenses associated with R&D activities.
In this way, 80% of the reduction in the taxable base corresponding to positive income derived from the assignment of the intangible depends on a coefficient that is calculated taking into account the physical presence of the company in Andorra.
This coefficient is altered based on the presence of employees and an office in Andorra and the R&D expenditure carried out in Andorra.
Therefore, considering that the maximum tax rate in the Corporate Tax is 10%, with the application of the Patent Box, the effective rate could be reduced to as low as 2%.
How to apply for this regime?
The application of this regime must be requested from the Andorran tax authorities along with a report justifying the fulfillment of all the requirements for the application of the Patent Box.
Are you interested in moving your company to Andorra and trying the Patent Box?
If you are seriously interested in changing your tax residency and bringing your technology company here, we recommend reading the report “The Ultimate Guide to Living in Andorra,” which provides the most comprehensive information on taxation, residency, and Andorran companies.
It is important to emphasize the importance of being well-advised: on more than one occasion, we have encountered clients who chose unqualified advisors to set up their company and ended up with serious problems with their home country’s tax administration.
At Andorra Inc., we guarantee the utmost rigor for the relocation of tax residency and the analysis of the possibilities of obtaining a Patent Box.