On February 8, Law 5/2023 was published in the Official Gazette of the Principality of Andorra (BOPA), on measures for the reform of direct taxation and modification of other tax and customs regulations.
The Law includes a series of reforms that affect different taxes of the tax system, most of which will enter into force as of January 1, 2024, some that have already entered into force and others that will affect as of January 1, 2025.
The tax reform has as an outstanding point that all those companies that have profits will have to pay a minimum of 3% of these, thus avoiding that applying deductions can end up not taxing anything.
We present some of the most important novelties:
- Repeal of the Capital Gains Tax on Real Estate Asset Transfers (IPTPI).
- Corporate Tax: new features are introduced that affect the determination of the tax base, the type of tax and tax incentives.
- Reduction for housing leases: reduction in the tax base equivalent to 5% of the income from rentals of homes located in the Principality of Andorra that are used for habitual and permanent residence.
- Impairment of patrimonial elements: the restriction on the deduction of expenses for impairment corresponding to any type of asset is established as a novelty.
- Limitation to the deduction of net financial expenses: they will be deductible with a limit of 30% of the corrected profit for the year. In any case, 500,000 euros may be deducted.
- Limitation to the application of tax credits: a new limit regarding the compensation of negative tax bases and the application of deductions in the tax quota.
- Novelties related to the Personal Income Tax (IRPF): various provisions are modified to adapt the Personal Income Tax to the reform carried out in the Corporate Tax.
With this new Law, the main objectives of the tax reform are established to provide the Andorran tax system with the capacity to increase tax collection, so that companies generate benefits that favor a minimum Corporation Tax; correct technical dysfunctions of the tax system for greater competitiveness and legal certainty, and bring it closer to international standards.
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