How does the tax system work in Andorra?
In Andorra, taxation has become a key advantage for the citizens of the Principality. Because the law favors the membership tax and the personal income tax.
VAT in Andorra is one of the lowest percentages in Europe. The figure of 4.5% is incredibly small. The main attraction of the tax system. It also has different VAT rates (IGI in Andorra) that are even further reduced.
In this other article refers to a small guide on the main taxes in Andorra including for example the IRPF, the VAT (IGI in Andorra) and the corporate tax (IS).
If you are more interested in the salary in Andorra according to your salary category, here you have more information.
The tax system in Andorra
The small Principality of Andorra has a beautiful natural environment with snow-capped mountains and ski areas. However, Andorrans have a tax system that attracts more professionals than any other country with similar conditions.
Andorra has in 2022 a total of 80,544 people of which the number of Spanish citizens in Andorra is still very high, despite a steady growth in recent years. Specifically, the percentage of Spaniards is 30.74%.
Main taxes in Andorra
Like most countries, Andorra is a developed social state which is necessary for its survival with a huge budget. The Andorran National Administration collects taxes in Andorra for its citizens.
That is why Andorra is not a tax haven as it is often repeated. In this article we explain in detail when Andorra ceased to be a tax haven to become a tax system approved by the European Union and with the following taxes:
What is the IRPF?
Income tax is a direct tax used in the Andorran legislation that is levied on worldwide income earned by individuals.
This is one of the most interesting taxes in the Andorran tax system as the maximum tax rate is 10%. Therefore the IRPF translates into 10%.
The IRPF has a minimum exemption and a gradual rate in terms of income earned by individuals.
Personal Income Taxes (IRPF)
Personal income tax is levied on individuals who are considered tax residents in Andorra.
To be considered a tax resident in Andorra you must legally spend more than 183 days a year in the country (for cases of active residence), 90 days in cases of passive residence (non-profit).
In Andorra it applies to workers earning more than 24,000 euros per year. That is to say, the first 24,000 euros are completely exempt, the following 16,000 euros are taxed at a rate of 5% and from 40,000 euros onwards a rate of 10% is applied.
This is so for workers and also for those who have economic activities. That is to say all those individuals who have a business (self-employed) and do not have a company in Andorra.
Deadlines for filings and settlements
The deadline for filing personal income tax returns is from April 30 to September 30 of the following year.
However, this year 2022, two more weeks have been made available to file the personal income tax return (IRPF).
Is it possible to reduce the general base?
Several different methods can be used in the IRPF, such as the application of compensations and bonuses for the use of certain pension plans or the payment of ordinary housing.
Corporate Income Tax (IS)
Corporate income tax is a direct tax levied on the profits of companies based in Andorra (on income earned worldwide), it is levied on company profits.
Corporate taxes are limited to 10%. This is also one of the most interesting taxes in Andorra, combined with the personal income tax.
Both income tax and corporate income tax have a maximum rate of 10%. However, something highly interesting is that the distribution of dividends from a company located in Andorra to individuals who live in Andorra and are therefore tax residents in Andorra, is completely exempt.
How can I benefit from corporate income tax? – Setting up a company in Andorra
If you are interested in benefiting from the Andorran taxes, specifically the Andorran corporate tax or the Andorran personal income tax, it is necessary (in most cases) that you go through the creation of a company in Andorra.
Creating a company implies that you can pay corporate tax in Andorra. Now, to create a company in Andorra, you need to carry out the following steps:
Once you have created the company, you will have to transfer the 15.000€ to the AFA (Andorran Financial Authorization) and you will be able to obtain your residence in Andorra and thus be able to pay the income tax (IRPF in Andorra).
Once you have completed these steps you will be able to benefit from the taxes in the Principality (IRPF for your personal income and personal capital), IS (for your company’s capital), IGI (for your company’s sales), etc.
Tax on Products and Services (VAT) – Consume
VAT or IGI in Andorra is a tax levied on the exchange of goods in the country, including export goods and the provision of services. It is an indirect tax.
Compared to the French tax and the tax in Spain, where the VAT is 20% or 21%, Andorra has only about 4.5% VAT/VAT. In addition to this general tax there can be 4 other tax rates depending on how they are applied.
Here you have all the history and comparative evolution of VAT in Spain and IGI in the Principality.
The comparison of these two countries makes very noticeable the differences between Spain and the Principality, even between Spain, the Principality and France.
Who pays the VAT and who settles it?
The final buyer must pay VAT on the service purchased. The seller must pay the VAT which is then passed on to the end customer. The liquidation of the tax is carried out regularly, marked by the annual income of the previous year.
Depending on the company will have to meet its obligations to make the IGI declaration on a quarterly, monthly or annual basis.
Taxes in Andorra vs. Spain
Paying your taxes in Spain, in high incomes can be hell, or that is how many individuals who have resorted to change their tax residence have defined it.
Here you can see the main tax differences between paying your income (i.e. your IRPF) in Spain and paying it in the Principality:
As can be seen, the difference between the two countries is abysmal, which means that Spain is far behind when it comes to paying personal income tax. This is why many individuals currently living in Spain or France choose to pay their income elsewhere in the world.
Wealth Tax
In Spain, the wealth tax is something feared by high income earners. However, we have good news, in the Principality there is currently no wealth tax.
This means that you will not have to pay extra income for having more capital.
Wealth Transfer Tax
In this case, our country is still much more attractive than other countries, since at the time of transferring real estate capital, this will be at a maximum rate of 4%.
Capital gains tax on the purchase of real estate
In this case, the rate established is between 0% and 15%. This will always be paid by the person who sells the real estate depending on the years of possession of the real estate. It is not the income obtained by the seller that is taxed here.
Advantages of living in Andorra
Besides getting more profit on your income since you pay less taxes. Living in Andorra means a better quality of life in many aspects.
Social Security
The social security (CASS) in the country works by a co-payment system in which a worker contributes a total of 22% between his salary and what the employer/payer contributes.
Self-employed workers contribute approximately €460 per month to the CASS.
This means that when it is time to go to the doctor, the CASS is able to pay 75% of the medical bill, while the person concerned pays 25%. The health system is one of the best in the world and it is practically the same as a regular private health system. However, if this 25% may seem «a problem», there are different complementary insurances that cover this 25% on a monthly basis.
In addition to the advantages on the taxation of individuals and legal entities in the Principality, obtaining residency in this country means that you can live in a country located in Europe but not currently part of the European Union. Nevertheless, it is a country in Europe with legal security.
Contact us
If you have any doubts about taxation or if your economic activity or activities can be taxed in Andorra or about deductible expenses, dividends or even the impossible tax bracket or base, for example, we can help you without obligation.
You can consult our guide on Andorran taxation here.
In Andorra Services we can help you with the processing of your change of residence or with any doubts you may have about it, either through our direct whatsapp or through our email.
Before starting the process, it is important that you solve absolutely all your doubts since changing a residence involves many aspects to consider, both personal, economic and professional.
We recommend that you put yourself in the hands of lawyers and not advisors since in the country, there are currently many unqualified advisors advising fiscally which can eventually lead to a serious problem with the Treasury of the country of origin of the client.
We are at your disposal to help you with your economic activities and to save your capital.
