UK–Andorra Tax Treaty: Key Provisions

International tax

On February 20, 2025, the United Kingdom and Andorra signed a Double Taxation Convention (DTC), a key milestone aimed at facilitating investment and economic exchanges between the two countries.

The treaty aims to prevent double taxation of the same income in Andorra and the United Kingdom by determining, for each category of income, which of the two States has the taxing rights over it.

It is important to note that the treaty has not yet entered into force. Its implementation will depend on the completion of the legislative and administrative procedures required by both jurisdictions.

1. Taxes covered by the treaty

The treaty applies to the following taxes in each contracting State:

In Andorra: Corporate income tax (impost sobre societats), Personal income tax (impost sobre la renda de les persones físiques), Tax on Income for fiscal non-residents (impost sobre la renda dels no residents fiscals), Tax payable on the increase in value in immovable property Capital gains tax on real estate transfers (impost sobre les plusvàlues en les transmissions patrimonials immobiliàries).
In the United Kingdom: Income tax, Corporation tax, Capital gains tax.

2. Tax residence

A resident is understood to be any person who, under national legislation, is subject to tax in that State due to their domicile, residence, place of management, place of incorporation, or any other similar criterion.

When a taxpayer is considered a tax resident in both Andorra and the United Kingdom under the domestic rules of each State, the treaty sets out, through its tie-breaker rules, the place of residence of the taxpayer in order to avoid double taxation.

According to Article 4 of the treaty, an individual shall be deemed a resident of one of the contracting States based on the following criteria:

the place where the individual has a permanent home;
if none, the place of the centre of vital interests (closer personal and economic ties);
if none, the place of habitual abode;
if none, the place of nationality.

For legal entities that are residents of both States, the competent authorities shall determine by mutual agreement the place of residence, taking into account the place of effective management, the place of incorporation, or any other relevant factors.

3. Distribution of taxing rights: place of taxation

The treaty determines the place of taxation based on the category of income:

Category of income	Place of taxation
Income from real estate	Taxable in the State where the property is located (Art. 6). However, the State of residence of the recipient may also tax the income (see Section 4, methods for the elimination of double taxation).
Pensions	- Private pensions: taxable only in the State of residence of the recipient (Art. 17). - Public pensions: taxable only in the source State, except as otherwise provided by the treaty (Art. 18).
Income of entertainers and sportspersons	Taxable in the State where the activity is performed (Art. 16.1), but may also be taxed in the State of residence of the beneficiary (see Section 4 - methods for the elimination of double taxation). ).
Dividends	- General rule: 0% withholding tax. - Exception: 15% withholding tax if dividends come from real estate income distributed by a tax-exempt investment vehicle, unless the recipient is a pension fund, in which case an exemption applies (Art. 10).
Interest	Taxable only in the State of residence of the recipient (Arts. 11 and 12).
Royalties
Real estate capital gains	- Gains from the sale of property may be taxed in the State where the property is located (Art. 13 § 1). - Gains from the sale of shares (value >50% from immovable property) may be taxed in the State where the property is located (Art. 13 § 2).
Movable capital gains	Taxable only in the State of residence of the alienator, unless the assets are linked to a permanent establishment in the other State (Art. 13 § 3 and 5).
Business profits	Taxable only in the State of residence of the company, unless it carries on business in the other State through a permanent establishment. In that case, only the portion of the profits attributable to that establishment may be taxed in the other State (Art. 7).

4. Methods for elimination of double taxation

When both States have the right to tax the same income, the treaty provides two main methods to eliminate double taxation (Art. 22):

In Andorra: Double taxation is avoided through the tax credit method, applied to the Andorran tax on income sourced from the United Kingdom, provided that such income is taxable in Andorra under the treaty. However, the tax credit may not exceed the amount of Andorran tax.
In the United Kingdom: Double taxation is also avoided through the tax credit method. However, specific exemptions may apply to dividends paid to a UK-resident company and to profits from permanent establishments located in Andorra, provided certain conditions are met under UK law. If dividends are not exempt and a UK company holds at least 10% of the voting rights in the Andorran company, the tax credit will also consider the Andorran tax paid on the profits from which the dividends were distributed.

This article provides an overview of the tax treaty signed between Andorra and the United Kingdom. It does not constitute a recommendation or personalized tax advice. Each situation being unique, a case-by-case analysis is necessary.

It should be noted that the treaty has not yet entered into force, and its application will be subject to the completion of legal and administrative procedures in both countries.

Carlota Pastora Business Law Firm remains at your disposal to answer your questions and support you in interpreting and applying this treaty.

Source: GOV.UK – UK-Andorra Double Taxation Convention – not in force