What is the Corporate Income Tax?
The corporate income tax is a direct and personal tax levied on the profits obtained by companies in Andorra.
The Andorran corporate tax was established for the first time in the Principality in 2010.
Taxation of Corporate Income Tax
In this other article we detail more information about the taxation in Andorra.
It is important to take into account that the Andorran Corporate Tax is one of the most attractive of all the European territory:
So Andorra has one of the most interesting corporate tax rate in the European Union. Even Andorra is not part of the European Union, it has a lot of agreements whit that. What makes extremely interesting to live in Andorra.
Should be noted that the tax based on Andorra has not increase in the last years.
The corporate tax rate in Andorra it’s very interesting for those who want to save some money. The Corporate tax is completely legal and is one of the most important tax rates in the Principality.
There is no other country in the European union with these attractive tax rates and this is one of the reasons of why so many enterprises chose Andorra to set up their own headquarters. The tax regime for companies is lower than in Spain and in France, so that makes that a lot of Spanish and French people come to live Andorra.
Taxation in general makes that people can save some money from the income that they receive.
Taxes in the real estate market
Transfer Tax
This is a tax of an indirect nature that is levied on onerous and lucrative inter vivos transfers of real estate in Andorra.
In general, this tax must be paid at the moment the transfer is made, that is to say, at the signing of the deed of sale of the real estate in Andorra before a Notary Public.
Who must pay this tax?
It must be paid by those who buy the real estate in Andorra.
What is the tax rate?
The tax rate of this tax, that is to say, the percentage that we will have to pay for the purchase of a real estate in the Principality of Andorra, is divided into:
- The state quota: which is always 1%.
- The communal quota (that is to say the one of the town hall where the real estate is located): It oscillates between 0.5% and 3% depending on the Comú.
Therefore, the tax rate, in the worst case, will be 4% of the value of the real estate in Andorra.
Taxation with respect to capital gains tax
The real estate capital gains tax, is a tax of direct nature that taxes those increases of value of real estate that are given in the transmissions of these onerous or lucrative «inter vivos».
One of the simplest cases is to find this tax when selling our property in Andorra.
Applicable Tax Rate
The tax rate applicable to this tax in Andorra is determined according to the number of years that the seller has disposed of the real estate.
We show it concretely in the following table:
| YEARS BEING A PROPERTY FROM THE SELLER | TAX RATE |
| 1 Year | 15% |
| 1 Year and 1 day – 2 Years | 14% |
| 2 Years and 1 day – 3 Years | 13% |
| 3 Years and 1 day – 4 Years | 12% |
| 4 Years and 1 day – 5 Years | 10% |
| 5 Years and 1 day – 6 Years | 8% |
| 6 Years and 1 day – 7 Years | 6% |
| 7 Years and 1 day – 8 Years | 4% |
| 8 Years and 1 day – 9 Years | 2% |
| 9 Years and 1 day – 10 Years | 1% |
| More than 10 Years | 0% |
It is also important to mention that in case the purchaser of the real estate in the Principality is not a resident of Andorra, the Notary at the time of purchasing this property in Andorra will withhold 5% of the total value from the total value.
Substantial tax benefits for residents in Andorra
The Corporate Tax is not the only tax in Andorra which is interesting for its residents. We have commented it in other occasions in this blog, but it is really simple to understand why many businessmen are fleeing to Andorra: tax savings.
The tax hell that is lived in the neighboring countries to Andorra, leads many entrepreneurs or simply people who want to invest in the Principality of Andorra, prefer to change their tax residence to Andorra. This is simple, but it is necessary to count on a period of time of 3 months to manage the whole change.
In this simple table, you can see the main differences of the tax system in Andorra, compared to the tax system in Spain:
It is no longer simply the benefit that can be saved on corporate tax, but also on personal income tax in Andorra, therefore the savings are for companies and individuals who are tax residents in Andorra.
Personal income tax in Andorra is ideal
The personal income tax in Andorra is one of the main attractions of the Principality and the main reason why foreigners apply for tax residence in Andorra (also the corporate tax).
This tax is quite simple to understand in the Principality and is that since Andorra stopped being considered a tax haven and introduced its tax system, it also created different advantages for all types of income.
In Andorra, it is important to know that the tax law greatly benefits the residents of the Principality, why? basically because of the following points:
Individuals IRPF will be able to:
- Not to be taxed for the first 24.000€ that they generate for work income (i.e. as salary or remuneration from a company).
- Pay only 5% tax on the next €16,000, i.e. pay only €800.
- The remaining amount will be taxed at 10%.
However, if you have a company in Andorra, you can benefit from one of the most important advantages of the Principality: the exemption of taxation on the distribution of dividends.
This means that all the money that a company in Andorra transfers to its partners will not have to pay taxes. This is one of the points that makes this country highly interesting compared to countries such as Spain and France.
Comparison with Spain
We return to buy fiscally (personal income tax) Spain and Andorra and in the following table, it is clearly shown that Spain does not benefit neither the high incomes, nor the low incomes of its country:
It should be noted that Corporate tax is also very different between Andorra and Spain. A lot of entrepreneurs try to come to use all the benefits from corporate tax.
Tax on Products and Services (VAT)
Finally, we would like to mention the value added tax (VAT) or general indirect tax (IGI) in Andorra.
This tax, in Spain, has a maximum rate of 21% that must be taken into account by all companies and entities in the country. However, in Andorra, the maximum rate of this tax is 4.5%, so that both companies and entities in Andorra who are those who bear this tax and finally the person who buys a product in any store, can benefit in Andorra of a lower IGI.
Here, we explain in detail the most important points about the IGI and VAT that companies in Andorra and companies in Spain have to pay.
It should be noted that in Andorra the tax is clearly more beneficial, which is also a reason why a Spanish company becomes an Andorran one. However, it is also possible that any Andorran company can bear Spanish VAT and must register with the Spanish tax system (Tax Authorities).
