Besides the beauty of its mountains, its valleys and its cultural richness, Andorra has a very interesting tax regime for your company as well as for your personal taxation. The Principality is indeed world famous for its very low tax burden.
A very competitive corporate tax in Europe
Since the Principality wants to be the most attractive for foreign capital, it has a reduced taxation. This is why corporate taxation in Andorra is one of the most favorable in Europe. Indeed with its maximum rate of 10%, which can be reduced to 2% depending on the type of business, the corporate tax in Andorra is one of the lowest on the continent.Thus, creating a company in Andorra or establishing its head office there is an undeniable advantage for small and medium sized companies as well as for larger structures.
Andorra’s VAT: the lowest in Europe
Few of the European countries have a “single digit” VAT. VAT in Andorra is applied at a rate of 4.5%. A rate dropping to 1% for goods and services in the fields of education, culture, health, and food. This makes Andorra the state with the lowest VAT in Europe, far ahead of its French and Spanish neighbors, whose VAT is 20% and 21% respectively.
Personal income tax in Andorra is ideal
Like the taxes mentioned above, personal income tax in Andorra remains much lower than in most European countries. The personal income tax in Andorra does not exist for salaries up to € 24,000 and from that figure it rises with respect to the income of each worker until it reaches 10% in salaries of more than € 40,000. This 10% is the highest personal income tax rate in Andorra, while this same maximum rate in Spain is 50%.
- Exemption of the first € 3,000 as income from investment income.
- 100% exemption of the first € 24,000 for work income, and 50% deduction of the next portion of € 16,000.
- Total exemption of dividends issued by an Andorran company and received by an Andorran resident.
- No withholding taxes on dividends from Andorran companies for non-residents.
Income tax rates in Andorra for non-residents - NRIT
Individuals or companies whose professional or business activity takes place in Andorran territory, but whose tax residency is outside Andorra, are subject to a type of non-residents taxation (NRIT) that is generally 10%. Service providers and employees in Andorran companies are obliged to pay this tax. They are usually Spanish and French cross-border workers who live in their respective countries but sporadically and not permanently work in Andorra. It also applies to employees of service providers, education-related professionals, artists, and CASS-affiliated employees.
The NRIT taxable base is calculated on the basis of the net income obtained related to economic activities, work, real estate income, royalties and capital gains. However, it should be noted that in certain cases non-tax residents in Andorra are subject to taxation on gross income, without the possibility of deducting expenses related to this income, or only some expenses, as is established in the NRIT.
In the case of income paid in the form of fees, the tax is 5% of the invoice paid and for reinsurance is 1.5%. In the case of real estate rentals, a 20% reduction is applied on the amount received.
The NRIT tax return can be filed by the non-resident payee in Andorra or retained as withholding tax and filed by the payer that is resident in Andorra.
Capital gains taxation in Andorra
Capital gains are treated like any other ordinary economic income and generally are taxable at a rate of 10%. However, if capital gains come from the transfer of qualifying participations or the transfer of the corresponding participation in a holding company, they are tax exempt. If you own 25% or less of a company, you can sell your shares with no taxation. There are no taxes on capital gains for assets owned for more than 10 years.
Real Estate taxes in Andorra
To buy a home in Andorra, you have to take into account that the Property Transfer Tax is of 4% in total, distributed between state and parish. On the other hand, there is a tax related to the Real Estate Capital Gain which decreases from 15% to 1% and is applied to the profits generated by real estate operations, sale of real estate, depending on how long the owner kept the house before selling it:
- 15% if you sell your property within 1 year
- 13% if you sell it in less than 2 years
- 10% if you sell it in less than 3 years
- From then on, it decreases by 1% every year
In this way, the Government of Andorra intends to avoid real estate speculation in the country.
Empty housing taxation in Andorra
When the owned real estate in Andorra is empty, the tax is calculated on the basis of the square metres of surface area of the property that are not rented out or used for the purpose of housing or for economic activities. It should be noted that this is not a relevant tax in terms of tax burden in Andorra.
Those who are subject to this tax on empty properties must file a declaration within two months of the date on which the property is considered empty as indicated in the current law.
Gambling Tax in Andorra
Taxes related to gambling in Andorra depend on the type of activity and are calculated on the basis of the prizes won or the margin generated from the gambling activity.
For long-term gaming authorisations, a quarterly return must be filed. For one-off authorisations, an advance payment must be made before the start of the activity. This payment is calculated on the basis of the estimated revenue to be obtained. At the end of the activity, a final settlement must be submitted no later than 20 days after the end of the activity.
Substantial tax benefits for residents in Andorra
Regarding inheritance tax, we have good news since in Andorra inheritances are tax exempted for residents, whether they are local citizens or expatriates whose tax residence is in the Principality of Andorra. Also there is no taxes applying to donations between people resident in Andorra and there are no taxes on wealth. There is no capital duty. If the bank interest received does not exceed € 3,000 per year (deductible), it is also exempt from tax. These are other of the many tax advantages that Andorra offers and reason for why it is attractive to move your tax residence to the country of the Pyrenees.
The tax burden is much lower in Andorra if we compare these tax rates with countries like Spain and France. Establishing tax residence in Andorra, creating a company in Andorra, or working in this country has incredible advantages at the tax level.
Tax developments in Andorra
A new legislative framework is being worked on to accommodate digital assets, explaining how income from cryptocurrency trading will be taxed and also related to income derived from intellectual property, among others. New tax planning opportunities are envisaged for individuals wishing to formalise their participation in digital assets through international holding structures.