Andorra's Banks and Hotels Pay Under 5% Corporate Tax Despite High Profits

Andorra's banking sector and hospitality industry paid less than 5% of their profits in corporate tax last year, despite their central role in the economy, according to government sources.

Banks recorded combined profits of €163 million in 2023 and €175 million in 2024, yet their corporate tax contributions stayed below the 5% mark—the same as the overall average across sectors, where the maximum rate is 10%. This low rate stems from several legal factors. Banks are increasingly earning revenue through foreign branches, where profits are taxed under double-taxation treaties, shrinking the taxable base in Andorra. Additional deductions include costs for maintaining headquarters, offices, and ATMs, as well as provisions for bad loans from the 2008 subprime crisis and capital injections required by the European Central Bank. These allowances must be amortised over time, delaying full tax recovery.

Hotels and restaurants face a different challenge. High cash flows are offset by substantial annual amortisations from heavy investments in property purchases, renovations, and equipment, which sharply reduce taxable profits.

In contrast, retail—the third pillar of tourism—ranks as the second-highest corporate tax contributor, behind professional services. It benefits from low investment needs, many rented premises, and three times more outlets than hotels or restaurants.

Rising sectors like infocommunications, driven by digital content creators, now rank third in tax contributions. Construction leads the pack, followed by services; education and healthcare lag, while agriculture and livestock make minimal input, as expected given Andorra's profile.

Total corporate tax revenue has climbed steadily since the post-pandemic recovery, surpassing €100 million and projected at a conservative €160 million for this year—potentially higher despite tensions from the Iran conflict. A 2023 law change requires firms to tax 3% of profits even while offsetting past losses. Adding personal income tax and non-resident levies could push direct taxes to €256 million. Indirect taxes, led by the general indirect tax, tobacco, and fuel duties, are forecast at around €360 million.