Andorra Tax System
Albeit Andorra is no longer a tax haven, Andorra’s tax system presents a much lower rate than the surrounding countries and the European average. Andorra comes with one of the lowest taxes in the world, with more attractive nominal and effective applicable rates. Find out all about the Andorra tax system and the new tax rate of: IGI, IRPF, IRNR.
Andorra Tax Rates
How many taxes are paid in Andorra? Andorran taxation benefits individuals and companies. The tax system aims to attract also large international corporations. Principality does not only benefit the international business but also favors SMEs. With a corporate tax rate in Andorra of 10% (can be reduced to 2% in certain circumstances) the Pyrenean country offers the lowest income and indirect taxes in Europe.
Andorra VAT (IGI)
The Impost General Indirecte (IGI), equivalent to the tax known as VAT (Value Added Tax) in the countries of the European Union is the main indirect tax. As with its European counterpart, Andorran IGI has different rates depending on the product or service taxed:
- The general rate of IGI is 4.5%. Equivalent to 21% in Spain, 20% in France, 19% in Germany, or 23% in Ireland.
- Super reduced rate of 0% for certain medical and educational services, housing rentals, stamps, and gold investment.
- Reduced rate of 1% applicable to human consumption, water for human and animal consumption and irrigation, books, magazines, and newspapers.
- A special rate of 2.5% is applied to transportation (except cable transport), libraries and archives, art and cultural institutions such as museums, historical sites, music, cinema, theater, art objects, collectibles or antiques, etc.
- Increased tax rate of 9.5% applicable only to banking and financial services.
Andorra Corporate Income Tax (IS)
The tax par excellence of Andorra’s corporate tax is called Impost de Societats (IS), which corresponds to a general flat rate of 10%. However, there are some interesting bonuses to take into account for future residents:
- First-year any taxpayer has a reduction of 50% of the liquidation quota.
- For taxpayers who are constituted as new entrepreneurs of a business or professional activity and who have an income of less than €100,000, the tax rate applicable during the first 3 years of activity is:
5% for the part of the tax base between €0 and €50,000, 10% above the remaining tax base.
We recommend reading the tax law or consultation with professionals such as the associates of Andorra Partner since there are different nuances to resort to these bonuses as well as to present the tax correctly. We also suggest finding out about municipal taxes, as well as the procedures to follow to create a company in Andorra.
Personal Income Tax in Andorra (IRPF)
Well known by all, the Andorran personal income tax is one of the lowest taxes in Europe. IRPF is a tax composed of brackets that are applied on the taxable base, similar to that of neighboring countries. Without going into the many details of the individual tax, below we introduce a simplified view:
- From €0 to €24,000€ pays 0%
- From €24,000 to €40,000€ pays 5%
- Any amount over €40,000 is taxed at 10%, which is the highest rate
In the case of married couples the brackets are slightly different:
- From €0 to €40,000 pays 0%
- From €40,001 and above pays 10%
Any dividend received from an Andorran company is taxed at 0% in Andorra, avoiding double taxation. You can read much more about this tax in our article dedicated exclusively to Andorra’s personal income tax.
Who is Subject to Personal Income Tax in Andorra?
- Any person residing in Andorran territory for more than 183 days per calendar year
- Anyone who has economic activity in the Principality that generates benefits, direct or indirect
Income to which the IRPF is Applied
- Trade or activity: remuneration, salaries, bonuses
- Operation of real estate, including rent
- Commercial, professional and administrative activities
- Bank interest
- Income from change in the composition of assets: capital gains or losses
The Following are Not Subject to IRPF Payment
- Donations and inheritances
- Income from the transfer of real estate
Income Tax in Andorra for Non-Residents (IRNR)
Individuals or companies whose professional or business activity is carried out in Andorran territory, but permanent residence is outside Andorra, are subject to a non-resident income tax which is generally 10%. Companies providing services and employees in Andorran companies are obliged to pay this tax.
These are usually Spanish and French cross-border workers who live in their respective countries but sporadically and not permanently work in Andorra. This also applies to employees of companies providing services, professionals related to education, artists, and employees affiliated to CASS.
Capital Gains Tax in Andorra
Andorra capital gains tax is treated as any other ordinary economic income and is generally taxed at a rate of 10%. However, if the capital gains arising from the transfer of qualifying holdings or the transfer of the corresponding interest in a holding company are exempt from taxation.
Andorra Property Tax
When buying real estate in Andorra you have to take into account 4% transfer tax, divided between the government and the parish. On the other hand, there is a tax related to the capital gains which decreases from 15% to 1% and is applied to the profits generated by real estate transactions, sale of real estate, depending on the time the owner kept the property before selling it:
- 15% if you sell your property within 1 year
- 13% if sold in less than 2 years
- 10% if sold in less than 3 years
- It then decreases by 1% each year
In this way, the Government of Andorra tries to avoid real estate speculation in the country.
Other Taxes in Andorra
Municipal or Parish Taxes (Comus)
- The traditional “foc i lloc” (fire and place) tax
- Tax on the real estate property
- Tax on rental income
- The tax on the location or location of commercial, business, and professional activities
- The tax on construction
Municipalities or Comus have the power to create their regulation and local taxation, thus taxes and their burden vary according to the municipality.
- Real Estate Transfer Tax (ITP)
- Tax on the provision of insurance services
- Special taxes
- Tax on capital gains on the transfer of real estate (PLV)
- Tax on the income of non-residents (IRNR)
- Taxation of savings income
- Tax on gambling activities
- Tax on the Registry of Owners of Economic Activities (Registro de Titulares de Actividades Económicas)
- Tax on Vehicle Ownership
- Fees on immigration matters
- Judicial fees
- Trademark Office fees Public prices
- Tax on job applications
- Animal health and food safety tax
- Consumption tax (customs)
- Common external tariff (customs)
Tax Exemptions in Andorra
Taxation in Andorra also offers a series of benefits in the form of exemptions to both entrepreneurs and companies:
- The first €3,000 for income from movable capital
- Total of dividends issued by the Andorran company, and received by an Andorran resident.
- 100% of the first €24,000 are exempt from personal income tax, and 5% of the following €16,000.
This makes the Principality a very attractive option to create or move there all kinds of businesses, either as a company or as a freelancer, including holding companies, e-commerce companies, or a real estate investment.
Substantial Tax Benefits for Andorran Residents
Regarding Inheritance and Gift Tax, we have good news since in Andorra inheritance is tax-free for residents, whether they are local citizens or foreigners whose tax residence is in the Principality of Andorra. There are also no taxes on donations between individuals in Andorra or on wealth. Even if bank interests do not exceed €3,000 per year, they are also exempt from taxation. These are other of the many tax advantages that Andorra offers and why it is interesting 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. Having a tax residency in Andorra, creating a company in Andorra, or working in this country has incredible tax advantages.