Setting up a holding company in Andorra: tax regime, dividends and structuring

Centralising several businesses. When an entrepreneur directly owns several companies, each shareholding sits in their personal estate. Setting up a parent company allows these holdings to be grouped under a single structure, which becomes the shareholder of the operating companies:

This structure can make it easier to track shareholdings, split decision-making power, manage investment decisions, bring in new shareholders, and separate personal wealth from the business group.

Reinvesting dividends. A profitable subsidiary can distribute part of its profit to the parent company; where the tax conditions are met, this dividend can qualify for exemption at Andorran level. The funds can then finance the growth of another subsidiary, an acquisition, a capital increase, or build up a cash reserve — the point isn't necessarily to distribute immediately to the individual, but to retain investment capacity within the group.

Preparing an acquisition or a sale. Subject to the applicable regime, the gain made on selling a subsidiary can qualify for exemption at the parent company level, making it possible to consider reinvesting the sale proceeds without an immediate personal distribution.

Organising family governance. Rather than transferring the shares of each company separately, ownership of the parent company's capital can be organised among several family members — which can simplify governance and continuity for the group, without automatically removing the gift or inheritance tax due in the countries involved.

The word "holding" describes the function the company performs. It doesn't automatically determine its tax regime — three configurations need to be distinguished.

A company can legally be regarded as a parent company without being able to benefit from the special regime under Article 38.

Article 20 isn't aimed exclusively at holding companies: it can be applied by any Andorran company under the general regime that receives dividends or realises a capital gain on a shareholding meeting the required conditions.

Foreign subsidiary — it must be subject, with no possibility of exemption, to a profits tax with characteristics similar to Andorran tax, at a nominal rate of at least 50% of the Andorran rate — currently 5%. This condition is deemed met when the subsidiary is resident in a country that has signed a double taxation treaty with Andorra applicable to the income in question.

Shareholding percentage — the Andorran company must directly or indirectly hold at least 5% of the subsidiary's capital, equity, net worth or voting rights.

Holding period — the shareholding must be held without interruption for at least one year; for a dividend, this period can be completed after the distribution, for a sale it must be met at the time of transfer.

Andorran subsidiary — it must be subject, with no possibility of exemption, to the general corporate tax rate.

The burden of proving the conditions are met falls on the company claiming the exemption: the subsidiary's articles of association and registry extracts, evidence of the percentage held, acquisition dates, annual accounts, foreign tax returns, distribution resolutions, tax residency certificates and documents relating to the applicable treaty.

Article 38 provides a dedicated mechanism for companies whose purpose is exclusively dedicated to shareholdings, applied for by an Andorran SL, SLU, SA or SAU.

An exclusive corporate purpose — the company's exclusive purpose must be managing and holding shareholdings in companies resident or non-resident in Andorra. It must not be used at the same time to carry out a commercial activity, provide consulting services, directly rent out property, or invoice operational services; the shares making up its capital must be registered shares.

A prior application — the regime doesn't apply automatically: the company must apply to the ministry responsible for finance via the relevant census declaration. The regime applies from the first financial year closed after authorisation, and then to subsequent years until it's given up.

Foreign subsidiaries — the company held must be subject, with no possibility of exemption, to a tax comparable to Andorran tax, at a nominal rate of at least 40% of the general Andorran rate — currently 4%. The condition is deemed met when the subsidiary is resident in a country with an applicable tax treaty.

Andorran subsidiaries — they must be subject to the general corporate tax rate, with no possibility of exemption.

The text of Article 38 doesn't explicitly repeat the 5% threshold or the one-year holding period from Article 20, but it refers to the limitations in Article 20(2) — which shouldn't lead to applying the regime without proper checks: the status of each shareholding must be documented before claiming the exemption.

Article 20 offers more flexibility for a company carrying out several functions. Article 38 can suit a structure exclusively dedicated to shareholdings, but it imposes much stricter discipline.

This practice is highly likely to be incompatible with the special regime. In a binding ruling published in March 2025, the Andorran tax authority held that, while Article 38 applies, all income must come strictly from managing and holding shareholdings — mere residual income from services rendered in previous years was enough to block the regime in the case examined.

This position means management fees charged to subsidiaries, administrative or commercial services, royalties, interest on intragroup loans, consulting fees, property income, and any remuneration other than a dividend or a result linked to a shareholding all need to be reviewed with caution.

A company wishing to invoice services to its subsidiaries can either remain under the ordinary regime, or separate the functions:

The management company can then invoice genuine services, while the holding company keeps exclusively to its holding function — an architecture to be adapted to the group's economic reality, never set up artificially.

Before any distribution, the subsidiary pays tax on its profit in its country of residence — the exemption obtained in Andorra doesn't erase this initial tax. The subsidiary's country may then apply a withholding tax, the rate of which depends on domestic law, the treaty with Andorra, the percentage held and beneficial ownership status; a treaty can reduce it without necessarily eliminating it. Once received, the dividend may be exempt in Andorra under Article 20 or 38 where all conditions are met — otherwise it's included in taxable profit at 10%. Finally, redistribution to the shareholder depends on their residency: exempt from personal income tax for an Andorran resident, exempt at source for a non-resident but potentially taxable in their country of residence.

This is why the term "0% dividend" is often misleading: there may be tax paid by the subsidiary, a withholding in the country of origin, a failure to qualify for the exemption, or taxation in the ultimate shareholder's country of residence. The overall burden must be calculated across the whole chain, not just at the parent company level.

Gains made on selling a shareholding may be exempt where the conditions of the relevant regime are met — the same logic can apply to certain dissolutions, shareholder withdrawals, mergers, demergers, non-cash contributions or share exchanges. Significant limitations nonetheless apply:

• Andorran property-heavy companies — the exemption doesn't apply where, directly or indirectly, at least 50% of the sold company's assets consist of real estate located in Andorra;
• hybrid distributions — the exemption doesn't apply where the dividend payment generates a tax-deductible expense for the distributing company;
• expenses linked to exempt income — expenses directly related to shareholdings generating exempt income are not tax-deductible;
• capital losses — losses recorded on selling shareholdings that meet the exemption conditions are generally not deductible;
• the subsidiary's country's taxing right — even if exempt in Andorra, the gain may remain taxable in the country where the subsidiary is located, particularly for certain real estate companies.

Setting up an empty company is quite different from transferring already personally-held businesses into it. Several techniques can be considered: selling the shares to the holding company, contributing the shareholdings to its capital, a share exchange, a merger, or another type of reorganisation.

The transfer may give rise to a capital gain for the person contributing or selling, trigger taxation in the country of the transferred company, duties or fees, a change to banking arrangements, the consent of other shareholders, the application of an existing shareholders' agreement, or a foreign investment authorisation. Setting up the holding company should therefore be considered before selling or contributing the shares.

Andorra has a reorganisation regime designed to prevent tax from being an immediate obstacle to these operations — it works mainly as a tax deferral, not a permanent removal of the gain, provided the operation falls within the categories set out, is based on valid economic reasons, and isn't mainly driven by a tax advantage. Andorran law doesn't, however, neutralise obligations existing in the country of origin or of the transferred company.

A parent company can contribute capital to its subsidiaries or take part in financing acquisitions, but intragroup loans need to be handled with care. Under the special regime, interest received is neither a dividend nor a capital gain on disposal: a financing activity can therefore be incompatible with the exclusive purpose required by Article 38. Under the ordinary regime, a company can provide financing, but the terms must match those independent companies would have agreed — transactions between related companies must be priced at market value and documented.

A parent company's debt doesn't guarantee full interest deductibility: the law provides for a general cap on net finance costs and specific rules for intragroup transactions, with exempt income excluded from the adjusted profit used to calculate certain limits. Acquisition debt, guarantees and cash upstreaming should therefore be modelled before signing any financing.

Double taxation treaties allocate the right to tax certain income between states — dividends, interest, royalties, capital gains, tax residency, permanent establishments. They don't amount to a blanket authorisation to transfer income tax-free. For each subsidiary, a checklist should cover:

A tax residency certificate generally needs to be obtained and provided to the payer where the treaty requires it; the treaty network changes over time, so each distribution should be checked against the official list in force on the payment date.

Article 38 doesn't set a universal number of employees, a minimum office size, or a precise level of expenditure — this doesn't mean a mere postal address is enough. An Andorran company is generally considered resident when it's incorporated under Andorran law, has its registered office in the Principality, or exercises its effective management there — the place where overall direction and control of all activities is carried out.

Genuine organisation can be evidenced by directors who actually exercise their powers, strategic decisions taken in Andorra, precise minutes, bookkeeping kept and held locally, a suitable bank account, an address that allows the stated functions to actually be carried out, investment files prepared by the company, and effective monitoring of distributions and acquisitions. Substance should remain proportionate to the function performed: a structure holding a single family shareholding won't necessarily need the same resources as a group parent managing several international businesses.

These terms shouldn't be mixed up:

The Article 38 regime is designed for the first category. A company intended to directly hold a flat, a general asset portfolio, or family property falls under a different, asset-holding type of analysis — an Article 38 company shouldn't, in fact, directly hold a rental property, since its purpose must remain exclusively dedicated to shareholdings. It can, however, hold shares in a real estate company, subject to the tax treatment of that shareholding: the country where the property is located may retain a taxing right, and the gain on a company whose assets are mostly Andorran real estate is excluded from the exemption under Articles 20 and 38.

Yes, a foreign individual or legal entity can hold all or part of the capital of an Andorran company — foreign investment authorisation is normally required. The exemption only applies to transactions where the investor holds a maximum of 10% of the capital or voting rights and total foreign ownership remains below 25%; a structure wholly owned by a foreign entrepreneur therefore normally falls under the prior authorisation procedure.

Companies with direct foreign investment must demonstrate genuine economic activity within 18 months of incorporation: for a holding structure, the file must credibly present the existing or planned shareholdings, their value, the countries involved, expected flows, and the resources required.

Holding a company, or acting as its director, does not automatically grant a residency permit: the immigration process must be considered separately. It's also worth noting that the shareholding regime should not be confused with tax consolidation, a separate mechanism reserved for certain groups of Andorran companies where the parent company holds at least 75% of the capital or voting rights — a different objective from the exemption on international dividends.

The budget mainly depends on the legal form and whether existing shareholdings need to be transferred in.

Additional costs typically include the name reservation (€5.69), the foreign investment authorisation where required (€300), notary fees, drafting the articles of association, tax analysis, the application for Article 38 status, certifications, bank fees, and the valuation of shareholdings. For an existing structure, the incorporation cost is rarely the biggest factor: the analysis should mainly focus on the value of the businesses being contributed, the unrealised gain, and the consequences in the country of departure.

A holding company remains a business subject to the usual accounting, tax and corporate obligations — bookkeeping, annual accounts, corporate tax return, updating beneficial ownership records, documenting transactions with subsidiaries. Under Article 38, the notes accompanying the annual accounts must also identify the shareholdings held during the year, shares disposed of, the portfolio's asset value, and dividends received; the tax return must be filed even where all income is exempt and no tax is due.

• presenting all dividends as exempt, without checking the subsidiary's country, the treaty, the tax borne and the regime chosen;
• choosing Article 38 while invoicing services to subsidiaries;
• setting up the structure after a sale has already been initiated;
• contributing shares without valuing them properly;
• ignoring foreign withholding tax on dividends;
• confusing the parent company with personal residency;
• managing the structure from abroad, risking weakened substance;
• directly holding assets incompatible with the special regime (real estate, consulting, interest-bearing loans);
• overlooking the ultimate shareholder's country of residence when redistributing.