Basing your company in Andorra: the economic substance required

Economic substance: what does it mean?

It is the reality of an activity where it is declared: for the tax authorities, a company exists where it is actually managed and operated, and not only where it is registered. The two countries look at the same facts through their own texts, hence the value of building a consistent file from the moment the company is set up.

No Andorran text defines economic substance in a single article. Yet the idea runs through several rules: the effective management required of the holder of self-employed residency, the effective economic activity imposed on foreign-owned companies, the place of effective management that determines a company’s tax residency, or the resources required for the regime for intangible assets.

Domiciliation, registered office, tax residency: three distinct concepts

Domiciling a company in Andorra means giving it an address there. That alone says nothing about the country where it is taxed: three concepts overlap.

A company can therefore be domiciled and have its registered office in Andorra, while being taxable in France if it is managed there or has a permanent establishment there. That is why substance counts for more than the address.

What Andorra requires of a company domiciled there

For self-employed residency

The immigration law requires the holder to have (Llei 9/2012, art. 38 ter and 58 ter):

• a seat on their company’s administrative body, with a role of effective management and control over how it is run;
• an active business licence, operated by the company within three months;
• on renewal, residence and work in Andorra for at least 183 days a year, and an activity demonstrated by the income of the company and of its licensed business.

Two consecutive refusals of renewal for lack of activity or residence bar any new application for 12 months. See our guide to active (self-employed) residency.

For a foreign-owned company

A company set up with a foreign investment authorisation must carry on an effective economic activity within 18 months of its incorporation (Llei 5/2025, art. 6.3); failing that, the Govern may declare it null and void (art. 17). The regulation of 9 April 2025 sets out the evidence required:

For corporate income tax

An entity is an Andorran tax resident if it is incorporated under Andorran law, if its registered office is in Andorra or if its place of effective management is there, that is, the place where the general management and control of all its activities are exercised (Llei 95/2010, art. 7). The regime for intangible assets also requires a description of the resources the company has in Andorra (art. 23).

Why France is watching too

Because France can tax the director if they remain domiciled there, and the company if its place of effective management is in France or if it has a permanent establishment there:

Articles 123 bis, 209 B and 238 A: the anti-abuse rules

On top of these come anti-abuse rules aimed at residents of France who hold entities established in countries with privileged taxation, including Article 209 B, which targets French companies holding more than 50% of such an entity, and Article 123 bis.

With corporate income tax of 10%, Andorra may fall within the definition of a “privileged tax regime” in Article 238 A: this is an analysis to be confirmed by a tax adviser, not a published classification. Andorra does not, moreover, appear on any official list of non-cooperative states: see whether Andorra is a tax haven.

Article 155 A: when France taxes the sums received by the company

This provision covers services provided by a person domiciled or established in France and paid to an entity established outside France: the sums received by that entity are taxable in the name of the service provider themselves (French General Tax Code, art. 155 A, I), in any one of these three cases:

• the service provider controls, directly or indirectly, the entity that receives the payment;
• they do not establish that this entity predominantly carries on an industrial or commercial activity other than the provision of these services;
• in any event, the entity is subject, where it is established, to a privileged tax regime within the meaning of Article 238 A.

The rule also applies to a person domiciled outside France, for the services they provide in France (II), and the entity that receives the payment is jointly and severally liable for the tax (III). In its version in force since 1 January 2024, the article also covers sums paid for the exploitation of image, name or voice rights, and of intellectual property rights. In practice, a consultant domiciled in France who has their clients invoiced by the Andorran company they control can be taxed personally in France on what it receives.

Company in Andorra, activity in France: the riskiest case

One situation concentrates the risks: an Andorran company whose director continues to live in France, to bring their teams together there and to sign contracts there. Three questions then arise.

• Is the director still a French tax resident within the meaning of Article 4 B? If so, their worldwide income, including what the company pays them, falls within French tax.
• Is the company managed from France? The place where strategic decisions are taken is the criterion for its place of effective management.
• Does the company have an office in France, or a person who habitually concludes contracts there in its name? That is the definition of a permanent establishment.

The answers depend on the facts and the evidence. The treaty has also been amended by the OECD multilateral instrument signed by both States in 2017. Have your set-up analysed by a tax lawyer before you start, not after a tax audit. The complete process of a move is described in our guide to relocating your company to Andorra.

What the courts look at: an example

A judgment of the Marseille Administrative Court of Appeal shows the facts that count (CAA Marseille, 3rd Chamber, 30 January 2025, No. 23MA01440, not published in the Recueil Lebon). An Andorran SL, whose sole director lived in the Alpes-Maritimes, was held to be operated in France within the meaning of Article 209 of the French General Tax Code. The court found that:

• the company’s decision-making centre was in France, with its director;
• the premises made available in Andorra amounted to a domiciliation address;
• the company did not have in Andorra the human resources needed for its activity: its only human resource was this director, who performed the services;
• its vehicle had been acquired in the Alpes-Maritimes, and the servicing invoices were addressed to the director and to their French company.

The outcome: corporate income tax for the financial years 2010 to 2013 and VAT for 2009 to 2013 reassessed in France, tax withheld at source on the profits deemed distributed, and an 80% penalty for concealed activity (Article 1728); the company’s appeal was dismissed. Each case depends on its facts, but these indicators match the list of concrete evidence to gather.

The criteria, on the Andorran side and on the French side

The two countries examine the same facts, with different consequences:

Summary of the texts cited in this guide; it does not replace the analysis of a particular case.

Strengthening a fragile set-up

If your set-up still relies mainly on France, several areas of work reduce the risks. Carry them out with a professional, as each change has tax and social security consequences.

1. 1

   Map the situation

   Where do you live, where do your teams work, where are contracts signed, where are payments made from? Write down the facts, with supporting evidence.

2. 2

   Repatriate decision-making

   Hold board meetings and the annual general meeting in Andorra, and sign important decisions and contracts there.

3. 3

   Give the company resources

   Premises suited to the activity, a business account with an Andorran bank that is in active use, local recruitment if the activity warrants it.

4. 4

   Manage the presence in France

   Avoid any permanent office there and any person who habitually concludes contracts there in the company’s name, or accept them by declaring a permanent establishment in France.

5. 5

   Document over time

   Records of presence, minutes, correspondence: evidence is built up every month, not at the time of a tax audit.

The concrete evidence to gather

No list in the law sets out the evidence of substance. The items below correspond to the criteria the texts rely on; they are built up as you go, not at the time of a tax audit.

• Premises: lease or title deed, energy and telecommunications bills, business licence card at that address;
• Decisions: minutes of board meetings and of the annual general meeting, held within six months of the year end, dated and signed in Andorra;
• Accounts: books kept, annual accounts filed with the register, IS and IGI returns up to date;
• Staff: Andorran employment contracts and CASS registrations if the company employs people;
• Bank: an active account with a bank established in Andorra, from which payments are made;
• Presence: record of the days spent in Andorra, proof of housing, everyday spending and travel;
• Contracts: signed by the company from Andorra, with its Andorran contact details.

Your days in Andorra

Count your days in Andorra over the year, against the 90-day and 183-day thresholds.

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Common misconceptions about substance