Key Aspects of the New Double Tax Treaty Between the United Kingdom and the Principality of Andorra

Key Aspects of the New Double Tax Treaty Between the United Kingdom and the Principality of Andorra

On 22 December 2025, the new Double Tax Treaty (DTT) between the Principality of Andorra and the United Kingdom entered into force.

Its primary objective is to determine which State has taxing rights over each category of income and to prevent the same income from being taxed twice.

The agreement represents a significant step forward in strengthening economic and fiscal relations between both countries and provides greater legal certainty for businesses, investors and individuals with cross-border interests.

Taxes Covered by the Treaty

The treaty applies to the main direct taxes in each jurisdiction.

Andorra

• Corporate Income Tax.

• Personal Income Tax (IRPF).

• Non-Resident Income Tax (IRNR).

• Tax on Capital Gains Derived from Real Estate Transfers.

United Kingdom

• Income Tax.

• Corporation Tax.

• Capital Gains Tax.

The purpose of the treaty is to coordinate taxation between both States and avoid international double taxation.

Resolution of Dual Tax Residence Conflicts

The treaty also regulates situations where an individual may be considered a tax resident in both Andorra and the United Kingdom under each country's domestic legislation.

Article 4.3 establishes the following tie-breaker criteria in order of priority:

1. Permanent home available.

2. Centre of vital interests (personal and economic ties).

3. Habitual abode.

4. Nationality.

5. Mutual agreement between the competent authorities.

These criteria provide a clear framework for determining the applicable country of tax residence.

Taxation of Different Categories of Income

Real Estate Income

Income derived from real estate is generally taxed in the State where the property is located.

This includes both rental income and capital gains arising from the disposal of the property.

Business Profits

Business profits are generally taxable in the State of residence of the company.

However, where the company operates through a permanent establishment in the other State, that State may also tax the profits attributable to that establishment.

Dividends

As a general rule, dividends are taxable in the State of residence of the recipient.

The treaty provides for a 0% withholding tax, except in certain situations involving real estate income, where a maximum 15% withholding tax may apply.

Interest and Royalties

Interest and royalties are taxable exclusively in the recipient’s State of residence.

This provision facilitates tax efficiency in international financing and intellectual property structures.

Capital Gains

Capital gains derived from real estate are taxable in the State where the property is located.

Other capital gains are generally taxable only in the taxpayer’s State of residence.

Employment Income

Employment income is generally taxable in the employee’s State of residence.

Nevertheless, where the employment is exercised in the other State, that State may also acquire taxing rights under certain circumstances.

Pensions

Pensions and similar remuneration are taxable exclusively in the State of residence of the beneficiary.

Entertainers and Athletes

Income earned by entertainers and athletes may be taxed both in the State where the activity takes place and in the State of residence.

Students and Trainees

Income received by students and trainees may be exempt in the State where they study, provided the treaty conditions are met.

Elimination of Double Taxation

Where both States have taxing rights over the same income, the treaty includes mechanisms to eliminate double taxation.

In Andorra

Double taxation is relieved through the foreign tax credit method, limited to the amount of tax that would have been payable in Andorra.

In the United Kingdom

The United Kingdom also applies the foreign tax credit method, supplemented by specific exemptions for certain dividends and profits attributable to permanent establishments.

Non-Discrimination Clause

Like most international tax treaties, this agreement includes a non-discrimination clause.

This provision ensures comparable tax treatment between residents and non-residents regarding the same tax, without requiring States to grant identical deductions, allowances or tax benefits.

Conclusion

The entry into force of the Double Tax Treaty between Andorra and the United Kingdom is an important development for businesses, investors and individuals engaged in international activities.

The treaty provides greater legal certainty, prevents double taxation and facilitates economic relations between both jurisdictions, further strengthening Andorra’s position within the international economy.