New Tax Incentives for Patronage in Andorra

Authors: Berta Bonet, Laura Lobón

On 8 February 2023, the Official Gazette of the Principality of Andorra (BOPA) published Law 5/2023 on measures for the reform of direct taxation and the amendment of other tax and customs regulations.

The new legislation, which will enter into force on 1 January 2024, introduces a series of measures aimed at improving tax collection efficiency and encouraging private participation in activities of general interest.

Among its most significant changes is the creation of a new framework of tax incentives designed to promote patronage activities and strengthen support for foundations, associations and projects considered to be of particular relevance to the country.

A New Boost for Patronage in Andorra

The Andorran legislator has considered it necessary to establish mechanisms that encourage private sector participation in activities of public interest.

To achieve this objective, Law 5/2023 introduces new Corporate Income Tax deductions aimed at encouraging:

• Donations.

• Sponsorship and patronage agreements.

• The financing of projects declared to be of special relevance and national interest.

These measures seek to increase the resources available to cultural, sports, social and environmental organisations while encouraging businesses to participate in initiatives that generate a positive impact on society.

New 20% Deduction for Donations

The amendment to Law 95/2010 on Corporate Income Tax introduces a new deduction equal to 20% of irrevocable donations made by Andorran companies to certain qualifying entities.

Eligible beneficiaries include:

• The Government of Andorra.

• The Comuns.

• Foundations.

• Non-profit cultural, sports, social and environmental associations.

However, the following are expressly excluded:

• Membership fees paid by members.

• Donations consisting of services rendered.

Applicable Limits

The deduction may not exceed 10% of the taxpayer’s taxable base for the fiscal year in which it is generated.

In addition, the donation must be supported by a certificate issued by the recipient entity.

Importantly, this incentive is compatible with the tax deductibility of the underlying expense itself, subject to the limitations established under Corporate Income Tax legislation.

10% Deduction for Sponsorships and Patronage Agreements

Law 5/2023 also introduces a new deduction equal to 10% of certain expenses and investments made under sponsorship and patronage arrangements.

The deduction may apply to contributions made:

• Under agreements entered into with the Government, the Comuns, foundations or non-profit associations.

• In favour of athletes or artists who are tax residents in Andorra.

In the case of professionals, the deduction does not apply where the sponsorship is intended to directly promote the sponsor’s image, products, brands or services.

Annual Limit

The deduction base may not exceed €100,000 per tax year.

For these purposes, sponsorship is understood as an agreement under which an individual or entity receives financial support to carry out a sporting, cultural, scientific, charitable or similar activity and, in return, collaborates in promoting the sponsor.

Incentives for Projects of Special Relevance and National Interest

One of the most significant measures introduced by Law 5/2023 is the creation of a specific incentive aimed at encouraging private participation in projects declared to be of special relevance and national interest.

Andorran entities that make gratuitous contributions to finance such initiatives may apply a tax deduction equal to 75% of the value of the contribution made.

This deduction may also apply to certain sponsorship and patronage transactions linked to these projects.

Which Projects Will Qualify?

Projects considered to be of special relevance and national interest will be designated annually through the Budget Law.

These may include:

• Sporting events.

• Cultural projects.

• Scientific initiatives.

• Social programmes.

The legislation provides that each project must include a detailed description of its characteristics, objectives and implementation timeline.

Furthermore, the initiative, management and execution of these projects must be undertaken by the public administration or developed through collaboration agreements with public authorities.

Tax Treatment of Contributions

Law 5/2023 also regulates the tax treatment of contributions made to these projects.

Positive income generated as a result of certain non-monetary donations will be exempt from taxation.

Likewise, recipient entities will benefit from a specific exemption in respect of the donations received.

Conclusion

The approval of Law 5/2023 represents a significant step forward in the development of Andorra’s tax framework for patronage activities.

The new tax deductions encourage private sector participation in projects of general interest, strengthening the country’s network of foundations and associations while facilitating the financing of cultural, sporting, scientific and social initiatives.

Companies operating in Andorra should assess these new tax opportunities and consider how they may be incorporated into their corporate social responsibility and tax planning strategies.