Accrual accounting in Andorra: the principle that secures reliable books and a risk-free tax position

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🌍 Why the accrual principle matters in a low-tax country

Andorra is known for its competitive tax system, with some of the lowest tax rates in Europe and practically in the world. But this reality has a side effect: some businesses and professionals become more relaxed with their accounting obligations, assuming that with low taxes, “nothing serious can happen”.

Daily practice shows the opposite.

Most tax issues —whether in Andorra, Spain, France or elsewhere— do not arise from the taxes themselves, but from poor or negligent accounting. And at the core of any well-prepared set of accounts lies a concept that structures both the balance sheet and the income statement: the accrual principle.

It is what allows numbers to reflect the economic reality, rather than just the movement of a bank account.

If you want to understand Andorra’s tax system in more detail, see the article Taxation in Andorra: structure, tax rates and real advantages.

📘 The PGC and the accounting basis of Andorran taxation

In Andorra, the Accounting Law and the General Accounting Plan (PGC) are the foundation for both companies and self-employed professionals.

These principles require that income and expenses:

• be recognised in the period in which they arise,
• and not in the period in which they are actually paid or collected.

This is the accrual principle.

When applied correctly, it provides a true and consistent picture of the business. This is essential for calculating:

• corporate income tax,
• income from self-employment,
• periodic tax filings,
• and the annual filing of accounts with the Companies Registry.

Ultimately, everything is connected.

➤ To learn more about the Andorran PGC, see the article Accounting in Andorra: origin and structure of the General Accounting Plan (PGC).

🧾 Accrual: the idea that gives meaning to accounting

Put simply: what matters is not when you pay or collect money, but when the economic event actually occurs — the purchase or the service.

Two simple examples:

• a service performed in December belongs to December even if it is collected in February;
• an annual insurance policy cannot be deducted in full if it covers a period extending into the following year.

When this principle is respected, accounting stops being a simple list of bank movements and becomes a meaningful and realistic picture of the business.

Moreover, without realistic accounting, it is impossible to make serious and coherent decisions, which can lead to unwanted outcomes.

It is also the basis of fiscal profit: you are taxed on what you earn, not on what you collect.

🗂️ The most common question: “Which financial year does this invoice belong to?”

This is probably the question most frequently asked by business owners and accountants, especially from December onwards.

In general, the invoice date determines when the right (income) or the obligation (expense) arises. But there are situations that create legitimate doubts:

• services extending over several months,
• subscriptions or fees collected in advance,
• annual insurance policies or rent,
• projects partially executed before invoicing.

In these cases, the solution is accrual allocation: spreading the income or expense across the months or years to which it actually corresponds.

When this is not done, it often leads to:

• artificially inflated financial years,
• non-existent losses in the following year,
• inconsistencies during accounting reviews,
• issues during tax inspections or due-diligence processes.

A correct allocation avoids all these scenarios — and saves accountants many headaches.

🏛️ When accrual becomes taxation: CIT, personal income tax and IGI

Coherent accounting is not only a useful internal tool for financial management: it is the basis of all taxes.

• For companies, the tax return is built from the accounting profit, adjusted for tax purposes. If the accounting profit is incorrect, the tax return will be too. For further details, see the article Corporate income tax in Andorra: rates, special regimes and tax deductions.
• For self-employed professionals, taxable income follows criteria similar to the PGC. Smaller volumes, same principle. To learn more about individual taxation, see Personal income tax (IRPF) in Andorra.
• For IGI (Andorra’s VAT), although the law has its own accrual rules, consistency between books, invoicing and filings is crucial to avoid issues. To explore this further, consult VAT in Andorra: how the general indirect tax (IGI) works.

Strong accounting simplifies everything; weak accounting multiplies risks.

🤝 Accountants, managers, advisers and consultants: different roles, same need

Business roles are often misunderstood:

• managers handle administrative procedures;
• accountants record transactions;
• tax or legal advisers interpret the rules and their impact;
• consultants help make strategic decisions with a broader perspective.

But they all work —or should work— on the same foundation: accounting that is structured, clear and based on the accrual principle.

When this foundation is missing, problems inevitably appear — usually at the worst possible moment: during a tax inspection, before a capital increase, or when negotiating a business sale or an investor entry.

The article Differences between manager, adviser and consultant: which one does your business need? answers the main questions when choosing the right professional.

📊 When accounting is well structured, everything flows

Good accounting is a management tool, not an administrative formality.

When income and expenses are recognised correctly, it becomes far easier to:

• calculate taxes properly,
• prepare reports for banks, partners or investors,
• file annual accounts smoothly,
• make decisions based on reliable data,
• obtain financing.

Accounting tells the economic story of a business.
If the story is clear, decisions are clear.

🤝 Do you want accounting that withstands inspections and key decisions?

Accrual is just one of the pillars. What truly makes the difference is having a team that understands:

• how to read the reality of your business,
• how to structure it through accounting,
• and how to turn it into solid, defensible taxation.

If you want us to review your accounting or need expert guidance from the beginning, we can support you with discretion and rigour. At AEREUS, we are here to help you do things properly, complemented by ELYSIUM’s fiscal and legal expertise.

The best results always come from teamwork.

If you want to know how we can help, you can reach us through our contact form. If you prefer, you can book a fully confidential consultation using the link below this article.

We are here to assist you with anything you need.

Last updated: December 2025