24.06.2021
The tax treaty between Andorra and Iceland entered into force
On May 10, the tax treaty between Andorra and Iceland entered into force. The documents, signed on February 28, 2023, is the first of its kind between the two countries.
Taxes covered
The treaty covers Andorran corporate income tax, personal income tax, non-resident income tax and capital gains tax on the transfer of property. The treaty covers Icelandic income taxes in favor of the state and income taxes in favor of municipalities.
Residency
Where a person who is not a natural person is deemed to be resident in both Contracting States, the competent authorities of the Contracting States shall determine his residence for the purposes of the treaty by mutual agreement, taking into account the place of his effective management, the place where he is incorporated or otherwise established and any other relevant factors. If no agreement is reached, such person shall not be entitled to any treaty benefits or exemptions from taxation, except to such extent and in such manner as the competent authorities may agree.
Withholding tax rates
Dividends:
  • 0% if the beneficiary is a contracting state, its political subdivision or local authority, or the central bank of a contracting state; or a recognized pension fund;
  • 5% if the beneficiary is a company that directly holds the capital of the paying company for a 365-day period including the day of payment;
  • otherwise, 10%.
Interest — 5%, with an exception if the interest:
  • beneficially owned or paid by a contracting state, its political subdivision or local authority, or the central bank of a contracting state;
  • beneficially owned or paid by a recognized financial institution or pension fund;
  • or derived from credits paid in connection with a loan guaranteed or insured by a contracting state, its political subdivision or local authority, the central bank of a contracting state, or a financial institution
Royalty — 5%.
Capital gains
The following capital gains realized by a resident of one Contracting State may be taxed in the other State:
  • gain from the alienation of immovable property situated in the other State;
  • gain from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • gain from the alienation of shares or comparable rights if, at any time during the 365 days preceding the alienation, the shares or comparable rights derive more than 50% of their value directly or indirectly from immovable property situated in the other State.
Gains from the alienation of other property by a resident of a Contracting State may be taxed only in that State.
Relief from double taxation
Both countries apply the credit method to eliminate double taxation. Entitlement to benefits Article 27 (Entitlement to benefits) provides that no treaty benefit shall be granted in respect of an item of income if, having regard to all relevant facts and circumstances, it can be reasonably concluded that the receipt of the benefit was one of the main purposes of any agreement or transaction which directly or indirectly resulted in the receipt of the benefit, unless it is established that the granting of the benefit in such circumstances would have been consistent with the object and purpose of the relevant provisions of the treaty.
Date of entry into force
The treaty shall apply as of January 1, 2025.



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