Exit Tax and residency in Andorra

The Exit Tax may affect the decision to change your tax residency to another low tax jurisdiction such as Andorra. Nowadays, it is common for new business opportunities to lead technology companies operating internationally to consider moving their organisational structure and activities to another jurisdiction with more attractive taxation. For this reason, Andorra attracts many foreign investors every year, interested in optimising their taxation by opting for active residence or passive residency.  However, it must be taken into account that many countries impose an Exit Tax when changing tax residence to another country. This tax, with its nuances and depending on the country of origin, basically applies taxes on expected capital gains or unrealised capital gains when the taxpayer changes his tax residence to another country.

Exit Tax

The assessment of changing your tax residency to Andorra must be accompanied by a personalised analysis in which the taxes payable in Andorra and those related to the change of tax residency must be taken into account. In this way, it will be possible to look for possibilities of asset planning and optimisation in order to avoid the tax risks that may arise from the change of residence. In short, the correct assessment of the change of tax residence must take into account the taxation in the country of origin and the taxation in the country of destination, Andorra. In this respect, having a consultancy firm with tax and legal specialists in Andorra in its professional team is essential for the correct assessment of your current situation, having the necessary information at hand to make the most appropriate decision.

“The Exit Tax is levied on capital gains, as if all assets had been sold on leaving the home country and this gain realised is declared. In short, it is a tax on unrealised capital gains.”

Exit Tax conditions vary from jurisdiction to jurisdiction

  • France applies an Exit Tax if you have been a tax resident in France for at least 6 years out of the last 10 years prior to your change of tax residence and if your shares or participations are equal to or exceed 800,000 euros or represent at least 50% of the company’s business profits.
  • Spain applies this tax to all tax residents in Spain, provided that they have been tax residents in Spain for 10 of the last 15 years, and at the time of applying for the change of tax residence, they have shares / participations in an entity with a market value of more than 4 million euros or a participation in the entity of more than 25% and with a market value of more than 1 million euros. If one of the 2 conditions mentioned above is met, the Spanish tax resident will have to pay tax on the capital gain (current value of the shares – purchase value).

In short, the Exit Tax affects large capitals and has been presented as an anti-fraud measure to prevent investors with the intention of acquiring holdings or shares in large companies from later changing their tax residence to tax havens in order to pay tax there on the income obtained.

What is the Exit Tax?

It is a tax payable on expected/latent capital gains, if you decide to change your tax residence to another country and certain special conditions are met. This type of tax is also associated with expatriation tax, departure tax, emigration tax or corporate exit tax.

Does the Exit Tax apply to everyone who changes their tax residence?

No. Each country has its own conditions. In Spain you must have a market value of more than 4 million euros or a shareholding in a company of at least 25% and a market value of more than 1 million euros. In France it applies if your shareholding is equal to or above 800,000 euros or represents at least 50% of the company’s business profits.

Is it worth changing my tax residence to Andorra if I have to pay Exit Tax in my country of origin?

The low Andorran taxation is a reason to proceed with the change of tax residence, however, it is necessary to carefully assess whether the tax advantages offered by Andorra will compensate in time the payment of the Exit Tax in your country of origin.

Is tax residence in Andorra advantageous for large capitals?

Andorra has a number of clear tax advantages over other countries, such as Spain and France, in terms of taxation. For this reason, large assets are increasingly interested in transferring their tax residence to Andorra. The benefits are not only fiscal but also for residing in the Principality.

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