On 31 January 2023, the Andorran General Council (parliament) approved the ratification of the pending income and capital tax treaty with Monaco. The treaty, signed 1 December 2022, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Andorran corporate income tax, personal income tax, tax on income of non-residents, and tax payable on capital gains in immovable property transfers. It covers Monaco profit tax on business income levied on natural persons and corporate income tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities of the Contracting States will determine its residence for the purpose of the treaty through mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, such person will not be entitled to any relief or exemption from tax provided by the treaty, except to the extent and in the manner that may be agreed by the competent authorities.

Withholding Tax Rates

• Dividends - 0%
• Interest - 0%
• Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or comparable rights if, at any time during the 365 days preceding the alienation, the shares or comparable rights derive more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.