One of the most significant advantages of living in Andorra is the favorable and simple tax system. It requires residents to pay a maximum of 10% personal income tax.
Minimizing the amount of tax you pay on your income will be an attractive goal for many, but what are the requirements to become a tax resident in Andorra?
This is the main topic of this article. I will explain the concept of tax residency and how to apply to participate in the Andorran tax system.
What is tax residency?
The huge difference in tax rates between countries such as Scandinavia, the European Union and North America, as well as tax havens such as Bermuda, Monaco and the Bahamas, creates some tension.
High-tax countries don’t want wealthy people using their tax-funded services without paying for them. While tax havens are busy trying to attract these people to their country.
Andorra is not a tax haven, but is a low tax jurisdiction like Montenegro and Singapore. This means it can be found halfway between tax havens and high-tax OECD countries, attracting residents who want to lower their taxes but still comply to keep neighboring countries happy.
Tax residency helps fill this gap by determining in which country an individual will pay taxes.
Today, few countries allow their citizens to be “perpetual travelers”, that is, to not maintain tax residency anywhere while traveling regularly.
Most jurisdictions now require people to pay taxes to the country where they spend most of their time or where most of their economic activity takes place. International treaties and other laws provide exceptions that sometimes allow people to file taxes in different countries.
Requirements for tax residence in Andorra
According to Andorran law, there are two main requirements to apply for tax residency in Andorra:
- Be a passive or active resident and
- Stay at least 183 days in the country.
If you meet these two simple requirements, you are all set and you can pay taxes in Andorra.
Advantages of Andorran tax residency
A quick comparison of tax rates around the world shows that Andorra’s personal income tax of 10% is one of the lowest.
Only countries like Monaco and the Bahamas have higher tax rates as they are true tax havens, but this currently poses a problem for many as their country of citizenship often wants to see proof of paying taxes elsewhere.
Also keep in mind that the 10% tax is the maximum rate applicable to any individual. There is a bracketing system that categorizes your actual tax rate based on your personal income:
- 0–24,000 euros with 0% payout
- 24,001–40,000 euros with 5% payment
- €40,001+ pays 10%
This is for private individuals. For married couples, the tax rate is 10% on any income over €40,000, and no taxes below this threshold.
In addition to personal income tax, Andorra has a corporate tax rate of 10%. It also has a fairly low capital gains tax rate of 0% to 15%, depending on how long the property was owned before it was sold.
Brief description of the Andorran tax residence system
If you want to qualify for Andorra’s low tax residency rates, you must meet the residency requirements and have lived here for more than 183 days. It is so simple.
Living in Andorra, enjoying the incredible nature and benefiting from its excellent programs such as the social healthcare system, while paying virtually no taxes is a combination that cannot be found in any other country.