Cyprus: Cyprus Double Taxation Treaty (DTT) with ANDORRA - Company formation In ANDORRA

The Principality of Andorra is a constitutional parliamentary democracy with a population of approximately 85,000. Two co-princes--the president of France and the Spanish bishop of La Seu d'Urgell--serve with joint authority as heads of state, and a delegate represents each in the country. In April 2009 the country held free and fair multiparty elections for the 28 seats in the General Council of the Valleys (the parliament), which selects the head of government.

Andorra is not a member of the European Union, but enjoys a special relationship with it, such as being treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products. Andorra lacked a currency of its own and used both the French franc and the Spanish peseta in banking transactions until 31 December 1999, when both currencies were replaced by the EU's single currency, the euro. Coins and notes of both the franc and the peseta remained legal tender in Andorra until 31 December 2002. Andorra negotiated to issue its own euro coins, beginning in 2014.

Andorra has traditionally had one of the world's lowest unemployment rates. In 2009 it stood at 2.9%.

Andorra has long benefited from its status as a tax haven, with revenues raised exclusively through import tariffs. However, during the European Sovereign-debt crisis of the 21st century, its tourist economy suffered a decline, partly caused by a drop in the prices of goods in Spain, which undercut Andorran duty-free shopping. This led to a growth in unemployment. On 1 January 2012, a business tax of 10% was introduced, followed by a sales tax of 2% a year later, which raised just over 14 million euros in its first quarter.

On 31 May 2013, it was announced that Andorra intended to legislate for the introduction of an income tax by the end of June, against a background of increasing dissatisfaction with the existence of tax havens among EU members. The announcement was made following a meeting in Paris between the Head of Government Antoni Marti and the French President and Prince of Andorra Francois Hollande. Hollande welcomed the move as part of a process of Andorra "bringing its taxation in line with international standards".

On 1 June 2018, Cyprus ratified the double tax treaty (the DTT) it had signed with Andorra on 18 May 2018. The DTT is the first ever double tax treaty between the Andorra and Cyprus and it is based on the the OECD Model Convention. Certain prescribed legal procedures and/or mechanisms in the two countries need to take place (i.e. both Cyprus and the Andorra need to exchange notifications that their formal ratification procedures have been completed), following which the DTT will enter into force with effect as from the 1st January 2019.

Highlights from key provisions of the DTT are summarised below:

1. No withholding taxes on Dividends, Interest, Royalties

The DTT provides for a 0% withholding tax (WHT) rate on dividends, interest and royalties.

2. Capital Gains

For capital gains, under the DTT, it is provided that gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 % of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State, i.e. Cyprus retains the exclusive taxing rights on disposals of shares made by Cyprus tax residents, except where the shares derive more than 50% of their value, directly or indirectly, from immovable property situated in Andorra.

However, the exception shall not apply to gains derived from the alienation of shares of a company listed (disposal of shares that are listed) on a recognised stock exchange ( means of Andorra, Cyprus or European Union (EU)/European Economic Area (EEA) Member State) of one or both Contracting States or a European Union or European Economic Area Member State, where the alienator (the disposer) at all times during the 12-month period preceding such alienation held directly or indirectly not more than 25% of the capital of the company whose shares are alienated (of the disposed-of company).

3. Principal Purpose Test.

The DTT incorporates the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 6 Principal Purpose Test, (PPT), which is about 'Preventing the Granting of Treaty Benefits in Inappropriate Circumstances'. This is a dual test (both subjective and objective) which comprises of the minimum standards and provides, in other words that, a DTT benefit shall not be granted if obtaining that benefit was one of the principal purposes of an arrangement or transaction. Therefore, in order to determine whether the benefit of the treaty should be granted in a specific case one should ask whether, having regard to all relevant facts and circumstances, obtaining the benefit of the DTT was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit? If this is the case, the treaty benefit will not be granted, unless – and this is the objective test – granting that benefit would be in accordance with the object and purpose of the relevant treaty provision(s). This provision operates as an anti-treaty shopping measure i.e. is designed to tackle "treaty shopping" (''Treaty shopping'' generally refers to a situation where a person, who is resident in one country (say the "home" country) and who earns income or capital gains from another country (say the "source" country), is able to benefit from a tax treaty between the source country and yet another country (say the "third" country) and further ensures that operations are supported by the appropriate substance and support a main commercial purpose. This situation often arises where a person is resident in the home country but the home country does not have a tax treaty with the source country.



The incorporation/formation of an Andorran company by non-resident/s must first be approved by the Ministry of the Economy. Towards this effect, an application is made to the Ministry providing all relevant and necessary information e.g. purpose and figures. Since the relevant laws and regulations may change and/or be expanded from time to time it is advisable that it would be better to appoint a lawyer to draft the application letter in order not to risk getting a refusal. With regard to the acquisition of an existing company (already formed-off the shelf company) there would still need an application to be made to the Ministry for certain amendments in order to tailor the company for the exact purposes of the new owner (the acquirer of the off the shelf company).

Once approved by the Ministry, incorporation has to be confirmed/certified by a Public Notary. Following the notary's confirmation an official deed of Incorporation is issued with the name of all shareholders and their respective equity stake (number of shares and/or shareholding). In the same manner, any future transfer of shares due to sale or otherwise must be duly recorded and confirmed/certified by the Public Notary.

The lawyer will also arrange to draft the company constitutional documents.

Foreign shareholding

Foreigners may legally own 100% of a trading enterprise or a non-trading holding company in Andorra provided that, as a pre-condition, an application is made and an approval is granted by the Ministry of the Economy in the case of any non-resident shareholdings of 10% or more of the share capital of the company before the Public Notary can approve and issue the deed of incorporation. In situations where the foreigner has not been officially recognized resident of Andorra, it seems that permission for majority shareholdings may be very difficult to obtain.


Nominee shareholders may be permitted, however, strict and thorough checks are made on the ultimate beneficial owners (UBOs) for Money Laundering purposes as per the relevant laws and regulations.

Bearer shares are not permitted under the Andorran Company Laws and regulations.

Types of Companies-Limited Liability Companies.

a. Societat Limitada (S.L.) which is considered the most common type of entity formed for small family business enterprises. This type of company can have a relatively limited number of shareholders and a minimum capital requirements of Euro 3.000:- (three thousand Euro).

b. Societat Anonima (S.A.) which is considered to be the required type of entity for situations where there exist a big number and different kinds of shareholders and has a minimum share capital of Euro 60.000:- (sixty thousand Euro).

Taxes and Trading.

In order to be allowed to work and trade in Andorra with a company that has been registered/formed, a relevant trading license must be obtain and a registration of the company with the IGI (similar to V.A.T.) and Corporation Tax. V.A.T is currently at 4.5% which is considered of the lowest in Europe and corporation tax on net profits is set at 10%.

It would be an omission not to mention that there is a further tax incentive in Andorra for tech companies in the software development, licensing and intellectual property fields to choose to locate and/or be formed in Andorra which provides for a grant of allowance and/or approval upon a specific application for enjoying a special 2% corporation tax rate.

Published by the Offshore Corporations Comparative and Tax Law Practice

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions