UK-Andorra Tax Treaty Is Live: 0% Dividends From April 6

The UK-Andorra Double Taxation Convention entered full force on April 6, 2026 — the start of the UK tax year. For the first time in history, British residents and businesses with ties to Andorra have a legally binding framework to eliminate double taxation, featuring 0% withholding rates on dividends, interest, and royalties.

This article breaks down the key provisions now in effect, what changed on April 6, and what British taxpayers and Andorran residents need to know going forward.

Timeline: How We Got Here

The treaty was signed on May 20, 2025 in London, making it the first-ever double taxation convention between the United Kingdom and Andorra. After ratification by both parliaments, it officially entered into force on December 22, 2025.

However, the effective dates depend on the type of tax and the country:

In Andorra:

• All taxes covered: from January 1, 2026

In the United Kingdom:

• Withholding taxes: from February 1, 2026
• Corporation tax: from April 1, 2026
• Income tax and capital gains tax: from April 6, 2026

With April 6, 2026 now passed, the treaty is fully operational in both jurisdictions. Every category of income is now covered.

The Headline: 0% Withholding Across the Board

The most striking feature of this treaty is the withholding tax rates — or rather, the absence of them:

Dividends — 0% Withholding

Under Article 10 of the convention, dividends paid from one country to a resident of the other are subject to 0% withholding tax. This applies regardless of the ownership percentage.

For a British entrepreneur who has relocated to Andorra and still holds shares in UK companies, this means dividends flow through without any UK withholding deducted at source. Combined with Andorra’s own 0% tax on dividends from local companies, and a maximum 10% rate on foreign dividends via the IRPF, the total tax burden on dividend income is remarkably low.

Interest — 0% Withholding

Article 11 provides that interest arising in one country and paid to a resident of the other is taxable only in the recipient’s country of residence. There is no withholding at source.

For Andorran residents receiving interest from UK bank accounts, bonds, or loans, only Andorra taxes this income — at a maximum rate of 10%, with the first €3,000 from savings accounts exempt entirely.

Royalties — 0% Withholding

Article 12 mirrors the same approach: royalties paid between the two countries are subject to 0% withholding, with taxation rights belonging exclusively to the recipient’s country of residence.

This is particularly relevant for entrepreneurs with intellectual property, licensing agreements, or digital businesses generating royalty income across borders.

Business Profits and Permanent Establishments

Under Article 7, business profits are taxable only in the country where the enterprise is resident — unless it operates through a permanent establishment (PE) in the other country.

The PE definition follows the OECD model: a fixed place of business such as an office, branch, or factory. Importantly, the treaty includes modern provisions to prevent artificial avoidance of PE status through commissionaire arrangements or contract splitting.

For a UK company with no physical presence in Andorra (and vice versa), business profits remain taxable only in the country of incorporation.

Employment Income and Directors’ Fees

Employment income (Article 14) is generally taxable where the work is physically performed. However, short-term assignments of less than 183 days within any twelve-month period may remain taxable only in the employee’s country of residence, provided the employer is not resident in the work country and the salary is not borne by a PE there.

Directors’ fees (Article 15) may be taxed in the country where the company is resident. A UK-resident director of an Andorran company could face Andorran taxation on their director fees, and vice versa.

Elimination of Double Taxation: The Credit Method

Both countries have agreed to use the tax credit method (Article 22) to eliminate double taxation. If income is taxed in both countries, the country of residence grants a credit for the tax paid in the source country.

In practice, given the 0% withholding rates on dividends, interest, and royalties, the credit method will most commonly apply to employment income, business profits from permanent establishments, and capital gains on immovable property.

The Tie-Breaker Rule

For individuals who could be considered tax resident in both countries simultaneously — common during a relocation year — the treaty provides a tie-breaker rule (Article 4):

1. Permanent home — where do you have a permanent home available?
2. Centre of vital interests — where are your personal and economic relations closest?
3. Habitual abode — where do you spend more time?
4. Nationality — which country’s passport do you hold?

These criteria are applied in order. If the first doesn’t resolve it, you move to the second, and so on. For anyone relocating from the UK to Andorra, establishing a clear permanent home and centre of vital interests in Andorra is essential to avoid disputes.

Why This Matters Now More Than Ever

The timing of this treaty’s full activation coincides with several UK tax developments that make Andorra increasingly attractive:

Non-dom regime abolished. Since April 2025, the UK’s remittance basis for non-domiciled individuals no longer exists. The replacement FIG (Foreign Income and Gains) regime offers only four years of relief. For internationally mobile entrepreneurs, this is a significant reduction in tax shelter.

Frozen income tax thresholds. UK personal allowances and tax band thresholds remain frozen until at least April 2031. With ongoing inflation, more income is dragged into higher tax brackets each year.

Dividend tax increases. From April 2026, UK dividend tax rates rose by 2 percentage points at the basic and higher bands (now 10.75% and 35.75% respectively), while the dividend allowance sits at just £500.

Capital gains tax rises. Business Asset Disposal Relief now sits at 18%, up from 10% just two years ago. The annual CGT exemption is only £3,000.

Against this backdrop, Andorra’s maximum 10% income tax, 10% corporate tax, 0% dividend tax on local companies, zero wealth tax, and zero inheritance tax present a compelling alternative — now with full treaty protection.

What UK Residents Should Do Now

If you are a UK resident considering a move to Andorra, or if you already have cross-border income between the two countries, here are the practical steps:

1. Review your income streams. Identify which categories of income you receive (dividends, interest, royalties, employment, business profits) and how the treaty affects each.

2. Plan your departure carefully. The UK Statutory Residence Test determines when you cease to be UK tax resident. Simply moving abroad does not automatically end your UK tax obligations. Professional guidance is essential.

3. Establish clear Andorran residency. Ensure your permanent home, centre of vital interests, and habitual abode are unambiguously in Andorra to benefit from the tie-breaker rule if needed.

4. Understand Andorra’s residency options. Active residency requires establishing a business or employment with a minimum €50,000 investment. Passive residency, following the Omnibus 2 Law of January 2026, now requires a minimum €1 million investment in Andorran assets.

5. Use the treaty from day one. From April 6, 2026, all provisions are active. There is no need to wait — the protections apply immediately for the 2026/27 UK tax year.

Want to see the exact numbers? Use our free tax calculator to compare your personal tax burden in the UK versus Andorra based on your specific income profile.

Sources

1. UK Government Legislation — The Double Taxation Relief and International Tax Enforcement (Andorra) Order 2025, SI 2025/1203.
2. KPMG TaxNewsFlash — “Andorra: Income tax treaty with UK enters into force” (February 2026).
3. HMRC — International Manual: Double Taxation Relief — Andorra (2026).
4. Govern d’Andorra — Conveni entre Andorra i el Regne Unit per evitar la doble imposició (BOPA, December 2025).
5. Carlota Pastora Advocats — “UK-Andorra Tax Treaty: Key Provisions” (May 2025).
6. Deloitte UK — Tax rates and allowances 2026/27.
7. Association of Taxation Technicians — “2026/27 Tax year updates for individuals”.

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This article is for informational purposes only and does not constitute tax advice. Consult a qualified professional before making relocation decisions.