How to remunerate partners and directors legally and tax-efficiently
How to pay partners and directors legally and tax-efficiently, avoiding common mistakes and compliance risks.
Elysium Consulting
Reading time: 9 minutes
🏁 Planning remuneration to avoid mistakes
At the start of each fiscal year, many companies wonder how to handle their results. Paying partners and directors correctly is not only a matter of fairness, but also of legal and tax compliance.
Below, we explain the main forms of remuneration and their practical implications.
💼 Director’s remuneration: payment for managing the company
What does it involve?
Directors can receive compensation for their duties, provided this is stated in the company’s bylaws. The role of director should not be confused with that of CEO.
How it is recorded
- Booked as a salary expense.
- If unpaid, listed as accrued remuneration (liability).
Tax aspects
- For the company: deductible corporate tax expense if statutory conditions are met.
- For the director: considered business income and taxed accordingly.
➤ To learn more, read “Corporate tax in Andorra”
🧾 Professional services: when a partner works for the company
What does it involve?
If a partner provides professional services (consulting, management, advisory…), they can be remunerated separately. These functions differ from their director role.
How it is recorded
- As salary, if under an employment contract.
- As professional fees, if invoiced.
- If the partner owns more than 50%, the relationship cannot be deemed employment.
Tax aspects
- For the company: deductible if real and at arm’s length.
- For the partner: subject to VAT (IGI) if invoiced, or treated as salary otherwise.
👉 To understand how personal income is taxed in Andorra, read “Personal income tax (IRPF) in Andorra”
💰 Dividends: distributing company profits
What does it involve?
Partners may receive dividends proportional to their shares when profits are approved by the general meeting. It’s essential to check that no restrictions apply.
How it is recorded
- Recognised as dividends payable.
- Once paid, offset against cash or assets.
Tax aspects
- For the company: not deductible.
- For partners: taxed as investment income, possibly subject to withholding.
💡 This system forms part of the fiscal advantages discussed in “Why so many entrepreneurs relocate to Andorra”
💳 Loans to a partner: money to be repaid
What does it involve?
The company may lend money to a partner, provided the terms, interest and repayment period are clearly defined.
How it is recorded
- Booked as a receivable (asset).
- Interest received is financial income.
Tax aspects
If the terms are unclear, tax authorities may reclassify it as disguised income (dividends, gifts or remuneration). Substance always prevails over form.
⚖️ Related-party transactions: follow the rules
Transactions between partners and their company must follow transfer pricing rules: arm’s length value, documentation and fiscal coherence.
Proper accounting avoids penalties and ensures deductibility.
“Substance always prevails over form.”
(Spanish National Court, ruling 30/09/2024, Rec. 556/2020)
➤ To understand how business management and residency can align in Andorra, see “Living and working in Andorra: real requirements and benefits”
Conclusion: clarity and planning to avoid issues
Paying partners and directors is entirely legitimate if done transparently, with proper documentation and foresight.
Good planning prevents conflicts and ensures sound governance.
👉 If you want to evaluate the best way to remunerate or structure your company’s tax strategy, you can book a personalised consultation or contact us directly.
Last reviewed: November 2025
