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Andorra’s tax system has established itself as one of the most attractive in Europe, offering competitive and transparent taxation that attracts both individuals and companies. The country has a tax framework that combines low tax rates with a clear structure, moving away from the concept of a tax haven.

The main taxes in Andorra are as follows:

Personal Income Tax (IRPF).

Andorra’s personal income tax, as in Spain, is levied on the income of individuals obtained worldwide through earned income, as well as income from wealth.

The Personal Income Tax has a very advantageous progressive structure: the first 24,000 euros are exempt from taxation, 5% is applied for income between 24,000 and 40,000 euros and only 10% for higher amounts.

The comparison with Spain is very favourable for Andorran residents. Thus, for example, a professional with an annual income of 80,000 euros would pay approximately 4,800 euros in Andorra, while in Spain the taxation could reach 25,000 euros, representing a considerable tax saving that can be used for investment or savings.

Income from movable capital (interest from bank accounts) is treated particularly favourably under the Andorran tax system. The first €3,000 of savings income is exempt and there is a full exemption for gains from the sale of listed shares and units in investment funds. Dividends from Andorran companies are also fully exempt.

In the real estate field, capital gains from the sale of property are subject to personal income tax. If a property acquired within two years of acquisition is transferred, a tax rate of 15% applies. Between two years and one day and up to 5 years, the capital gain will be taxed at 10%, with the tax rate decreasing in subsequent years, until a total exemption is reached from the tenth year onwards.

Corporate Income Tax (IS)

Corporate Income Tax (IS) maintains this line of fiscal moderation, with a general rate of 10%, which can be reduced to 2% in certain special cases. Newly created companies enjoy a 50% reduction during their first year of activity, provided they generate profits. This business tax policy contrasts significantly with the 25% applicable in Spain, making Andorra an attractive destination for the establishment of new businesses and the relocation of existing companies.

General Indirect Tax (IGI)

The General Indirect Tax (IGI), equivalent to VAT, is 4.5% overall, well below the Spanish rate of 21%. There are reduced rates of 1% for food and cultural products, and 2.5% for tourist services, favouring strategic sectors of the Andorran economy. This IGI structure contributes to maintaining a lower cost of living and encourages domestic consumption.

Wealth tax and inheritance and gift tax

There is no Wealth Tax or Inheritance and Gift Tax in Andorra, which facilitates estate and inheritance planning.

How can I access the Andorran tax system?

To do so, it is necessary to obtain tax residency through two main routes: active residency, for those who will develop an economic activity in the country, or passive residency, aimed at investors.

Active residence not only allows foreigners to live in Andorra, but also to develop an economic activity in the country. This residence requires a stay in the country of more than 183 days a year, proof of accommodation in Andorra, self-employed activity, a deposit of 50,000 euros with the Andorran Financial Authority, the incorporation of a company in Andorran territory of which one must own more than 34% of the share capital and hold a position as a director in this company.

Passive residence requires a stay in the country for 90 days a year, proof of accommodation in the Principality of Andorra, proof of income of more than 300% of the Andorran minimum wage, a deposit of 50,000 euros with the Andorran Financial Authority and investments in the country with a minimum value of 350,000 euros.

Exit tax

Finally, and before transferring the tax domicile to Andorra, it is necessary to take into account the Exit Tax, an exit tax for those residents in Spain who change their residence to Andorra and are holders of shares in entities whose market value exceeds 4,000,000 euros as a whole or are holders of shares representing more than 25% of participation in the entity, as long as the market value of these shares exceeds 1,000,000 euros. In these situations, the IRPF in Spain will be levied on the tacit capital gains corresponding to such shares.

 

The tax lawyers at NAVAS&CUSÍ, based in Madrid and Barcelona, specialise in international tax law and offer a comprehensive advisory service for the planning and execution of the transfer of tax residence to Andorra. We analyse each case on a personalised basis, considering all the tax implications both in the country of origin and in Andorra. Our team of experts manages the entire administrative process, guaranteeing regulatory compliance and maximisation of the advantages.

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Navas & Cusí Abogados
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