Taxes in Andorra and their differences with Spain
Taxes in Andorra, do they exist? Many think not, but taxation exists in Andorra and it is very different compared to Spain making Andorra so fiscally attractive.
In the following article we are going to talk about the differences in taxes from Spain to Andorra.
Taxes in Andorra compared to taxes in Spain are much more attractive, why? Because their tax rates are much lower.
Therefore, many companies seek to set up in Andorra in order to be able to pay their taxes in Andorra.
The tax system in Andorra
The small Principality of Andorra is well known for its spectacular scenery, snow-capped mountains and ski slopes.
However, in addition to everything mentioned here, Andorra has an increasingly diversified tax system that attracts a high percentage of online and offline entertainment professionals.
In fact, the number of Spanish citizens living permanently in Andorra is quite high and the number has increased in recent years.
National data shows that 28,015 Spanish citizens inhabited the principality at this time – about 34% of its population.
Main differences with the Spanish system
There are three main taxes in Andorra.
The general indirect tax (IGI), equivalent to VAT in Spain, which has a tax rate of 4.5% (generic), while in Spain it is 21%.
The personal income tax irpf, which in Andorra has a maximum tax rate of 10%, while in Spain it can reach almost 50%.
Corporate income tax, which in Andorra has a rate of 10%, while in Spain it is 25%.
Who pays taxes in Andorra? 🤔
Andorran residents who reside there have to pay taxes.
In addition, other indirect taxes are paid as residents and non-residents, such as VAT on purchases of goods and services.
Therefore, it is the people who have tax residence in Andorra, who have to pay their taxes in Andorra.
It is important to note that Andorra IS NOT A TAX PARADISE. In this article you have all the information about the country and its taxes.
Personal Income Tax (IRPF)
Personal income tax in Andorra is an important tax, as it is in Spain.
The government imposes a tax on income earned by the individual derived from employment income, which includes pension income from assets.
The tax is applicable to all residents of the Principality and is levied on all income earned by the individual worldwide.
However, in this country taxes paid abroad can be deducted if there is a double taxation agreement (DTA).
The residents in Andorra do not pay the initial 24,000 euros to the IRPF.
From 24,000 euros they pay 5% and;
From 40.000 euros they pay 10%. Therefore, from 40,000 euros, it will be when you start to pay tax at 10% in Andorra.
It is very important for you to know, as we have explained in this web page that taxing in Andorra, implies that the dividends you receive from a company in Andorra, in Andorran territory, if you reside in Andorra Andorra considers that you should not pay for them again, so all dividends from companies in Andorra are exempt in Andorra.
Personal Income Taz or income tax in Andorra
If you live in Andorra, you are therefore obliged to pay IRPF in Andorra.
Specifically, the Personal Income Tax does not include donations and inheritances.
Here are some examples of what it is like to be taxed in Andorra and about the country’s taxation of individuals.
Tax on trading in Andorra
Andorra does not tax capital gains on the sale or use of listed shares as long as the sale price is at least 25% of the total.
The instrument is based on the rights of the shareholders on the shares being exchanged.
In relation to cryptocurrencies, 10% of the profit is paid as from €3,000. The first 3,000 euros are totally exempt. The base tax rate will be the generic personal income tax rate in Andorra.
The IGI: the Andorran VAT
The VAT in Andorra is called IGI.
The general indirect tax on products and services in Andorra is 4.5% and this is very much in contrast to the 21% in Spain.
The statement of accounts will be based on the average income of a company.
Those who earn below 250,000 € per year must pay it annually between January and July.
Companies invoiced between 250k and 300k carry out quarterly settlement, while companies with total annual revenues exceeding 300k euros carry out monthly settlements.
The general IGI of 4.5% includes some reductions such as:
- The 0% reduction applies mainly to medical and educational products and services and to transfers.
Here you will find more information about taxation in Andorra, specifically about VAT in Andorra.
Business taxation
Company rates are among the lowest in neighboring countries, which makes it a good way to start a business in Andorra. Corporate taxation in the Principality is highly attractive.
Corporate taxes under Andorran law provide an average of 10% on profits. It applies to any company, regardless of its legal form.
Corporate Income Tax (IS)
Finally, one of the most important tax laws is the corporate tax on the company’s profits in its territory.
It is a very small tax in the country like others such as IGI and IRPF.
How much is paid? The company also pays 10% of its profits to certain types of companies.
Also companies based in Peninsula Spain pay 25% of the profits, so the taxation in Andorra is also interesting.
Taxes that only exist in Andorra and not in Spain
Andorra can offer taxes that are not found in Spain.
Some very interesting and famous city taxes such as the traditional «foc i lloc» tax are paid that vary depending on the city in which they are from the parishes.
The parishes are based on the geography and structure of Andorra. These taxes are aimed at adults aged 18 to 65 who reside in a single parish in Andorra. There are more taxes in Spain and Andorra than in other countries.
Taxes in Andorra vs. Spain
In this case, we will better see the difference in a picture, since the tax rate of a tax varies greatly depending on whether it is paid in Spain or in Andorra. We should also take into account the autonomous community in Spain, in which for example individuals are making their tax return.
Tax on income of non-residents in Andorra
In some cases, the Andorran Tax Agency may impose a withholding tax on those individuals or legal entities that carry out professional activities in Andorra without having their tax residence in Andorra.
These are cases such as, for example, a professor who lives in Spain and gives occasional classes at the University of Andorra.
In this case the Andorran country will have to withhold a withholding tax at a rate of 10%, however that person will be able to deduct the amount paid in Andorra, in Spain, in his tax return.
Advantages and disadvantages of paying taxes in Andorra with respect to Spain
The main advantages of residing in Andorra are related to its lower tax burden compared to Spain.
VAT/IGI, personal income tax, corporate tax and inheritance taxes in Andorra are significantly lower compared to Spain and make Andorra a very attractive economic destination.
In addition to not paying any property tax. Most disadvantages can have a social security quotient that is often extremely high, so if you are a freelancer, you may have to spend between 40,000-50,000 euros per month on your income.
How low taxes affect public services in Andorra
In spite of having low taxes, it must be taken into account that at the time of making the income tax declaration and paying the corporate tax in the country, even if it is at a rate of 10%, the Andorran country collects a lot of money.
Therefore the public coffers of the Andorran country compared to Spain, are higher.
This is projected in quality public works, a good social security, a health sector that enters the world top in relation to the quality of their doctors, a variety of bus lines of public transport, etc..
Even in Andorra we can find three different types of public education systems.
The quality of life and safety in Andorra is much higher than in neighboring countries, even than in the vast majority of countries in Europe.
Property tax in Andorra 🏠
In Andorra there is no property tax as in IBI in Spain or in France. Compared to these countries, property investment in Andorra is much more interesting.
In the country there is a large real estate market, this real estate is constantly moving and makes the market constantly booming, as the real need for housing in Andorra is real.
More and more people want to reside in the country because of its low taxes and that makes that there is more and more need for real estate in the Principality to be able to formalize effectively and legally the residence.
That is why the real estate market does not cease, compared to other European countries.
Taxes on the purchase of a property
The owner of the property in Andorra pays 4% of the value for which the property was purchased and the purchase tax. This tax is much lower than in the EU.
Here you have in detail more information, an example of the taxes in Andorra that you have to pay if you buy or sell an apartment in Andorra.
Taxes in the real estate market
Andorra’s tax legislation has several taxes. We are talking about real estate.
Note that in the Principality of Andorra, in the case of real estate you will have to pay capital gains tax if you sell a property in the Principality, provided that you have made a profit.
Please note that you will not have to pay tax again in Andorra on the income obtained from the sale of your home or any other real estate.
Inheritance and gift tax in Andorra
In the Principality of Andorra there is no inheritance and gift tax.
This also makes the fiscal framework in Andorra very attractive, since many people consider living their retirement in the Andorran country, and if they donate in life the properties or incomes they have, as well as any house to their children.
This is completely tax free in Andorra, so no tax rate is applied.
Other taxes and fees in Andorra
There are other types of taxes and fees in Andorra, such as the tourist tax, which applies only to foreigners in Andorra.
But Andorra is one of the countries in Europe with less taxes.
Contact us
If you need more information, about corporate tax (IS), IRPR, IGI, etc. Or about real estate, the residence in Andorra or if you need to make the income tax in Andorra, do not hesitate to contact us without obligation.
Here and here you have a guide and more information about taxes in Andorra available on our website.
It is possible that you have doubts about how to establish a capital company in the country, about its taxation, or about the taxation to which it is subject or that you have other aspects that you want to comment related to our services.
We can help you.