Andorra Tax Haven

There is no consensus on whether Andorra is a tax haven or not. The European Union and the Organization for Economic Cooperation and Development – OECD do not consider Andorra as a fiscal paradise since 2018.

On the contrary, the NGO Oxfam International keeps Andorra on the list of 73 countries considered tax havens due to low tax pressure, and in detail lower percentage of revenue contributed to the state to the GDP (Gross Domestic Product). Pyrenean micro-state remains an important financial haven thanks to significantly lower taxes than neighboring countries.

What Makes Andorra a Tax Haven?

One of the factors that determine whether a country is a tax haven is banking secrecy, the prohibition to disclose information about client accounts to third parties outside the financial institution. Through various transparency agreements, Andorra abandoned banking secrecy in 2017, allowing the exchange of information with the European Union and the OECD, and managing to get out of their blacklists. This decision had negative consequences for Andorran banking, which saw a decrease in the number of foreign investment deposits.

Spain removed Andorra from the list of tax havens in 2010, after agreeing on several bilateral measures. The pact established Andorra’s commitment to adapt its laws by OECD principles, as well as to establish collaboration with the Spanish Tax Agency, including the possibility of carrying out tax inspections in the micro-state.

Andorra is still in the process of cleaning up the reputation of its financial sector after scandals such as that of Banca Privada d’Andorra, which in 2015 was accused by the US Treasury of money laundering of funds related to organized crime. Along these lines, the International Monetary Fund admitted Andorra as a new member in 2020, helping to forge a new image of economic multilateralism for the country.

Why Do People Think Andorra Is a Tax Haven?

Although according to the criteria of some institutions, Andorra is no longer a tax haven due to its commitment to greater data transparency, however, is still an attractive tax destination thanks to low taxes. For example, personal income tax is between 0 and 10%, compared to 49% in Spain, or 45% in France and Germany. Andorra also has no wealth tax and the lowest VAT in Europe: 4.5%, compared to 21% in Spain, 20% in France, and 19% in Germany. All this has allowed the trade, tourism, and finance sectors to be the most important factors of the Andorran economy.

Because of tax advantages, large fortunes, movie, and sports stars, YouTubers, have set up their headquarters in Andorra to pay less tax. Although it is not illegal, tax avoidance is controversial, as the country of origin of these people, where they would normally have their tax domicile, loses the income necessary to support, among other things, the welfare state of its citizens.

Why is Andorra still a tax haven for many foreign citizens? Despite the evolution in the economic and fiscal framework promoted by the principality to remove Andorra from the list of tax havens, Andorran residents continue to enjoy an advantageous taxation system:

• Maximum 10% tax on personal income above €40,000
• Andorra corporate tax capped at 10%
• VAT rate (IGI) at 4.5% for most goods and services (the lowest in Europe)
• Inheritance tax-free
• Non-taxable bank interest up to €3,000 per year
• No wealth tax
• Low contribution to CASS (Caixa Andorrana de Seguretat Social)
• Very reasonable tax rates on Andorra real estate investment
• Double taxation treaties with several countries

Is Andorra Tax-Free?

Andorra is a country that has an incredible tax system, however, it is not completely tax-free. The country has no capital gains, inheritance, or sales taxes. In addition to these benefits, the Andorran government does not impose any tariffs on imports and exports. With a maximum of 10% income tax and corporate tax, living in Andorra is a really attractive option if you are looking for a way out of paying high taxes!

Andorra: Fiscal Paradise vs Tax Optimization

Tax optimization is fully compatible with transparency. Since 2018, the principality’s banks have the duty to collaborate and contribute to the fiscal clarity effort being made by Andorran institutions. Non-resident EU citizen opening a bank account in Andorra is obliged to communicate their existence to the country of holder’s origin.

Advantages of Andorran Residency in Terms of Taxation

Although the principality remains for many foreigners a tax haven, Andorra does not cease to seduce foreign investors. With a clearly advantageous taxation system and a tax structure designed to encourage Andorra residency by investment and entrepreneurship, the principality is one of the top countries for welcoming foreign investment. Andorra has bureaucratic mechanisms, however, management and procedures with the different administrations must be carried out in the official language of the principality, Catalan.

This is not an obstacle for entrepreneurs to establish their businesses or their habitual residence in the country of the Pyrenees. Andorra continues to work to offer advantageous taxation and very interesting tax residence. As an example, we can cite the numerous double taxation agreements that the principality has signed with countries such as France and Spain.