Andorra is a small European country with a huge reputation for favorable tax rates.
Highlights include, but are not limited to, low value added tax, no sales tax and low personal income tax. The benefits also apply to the corporate tax rate in Andorra.
Andorra’s tax rates are not only lower than any other nearby jurisdiction, but they are also relatively simple.
However, if you are considering moving to Andorra, it makes sense to base your decision on a full understanding of the situation.
This is our primer on Andorran tax rates for individuals and corporations. We will cover sales tax, value added tax, income tax and other tax rates.
Sales tax rates in Andorra
There is no sales tax in Andorra . The cross-border shopping that this attracts has strengthened Andorra’s reputation as a tax-free jurisdiction.
Since taxes are already included in the price, it also means you know exactly how much you’ll pay.
Andorra has the lowest VAT in Europe.
Instead of sales tax, value added tax is applied to goods and services. In Andorra, VAT is the lowest in Europe, with a general rate of 4.5% . It is known as “IGI”, short for “general indirect tax”. Exceptions include:
- 1% on certain media such as books, magazines and newspapers,
- 1% on food and drinks (except alcohol),
- 2.5% on works of art,
- 2.5% of fees charged by tour operators,
- 9.5% on commissions for banking and financial services.
Education, healthcare and medicine in Andorra are exempt from VAT.
Income tax rates in Andorra for residents
The basic personal income tax rate in Andorra is 10% for resident individuals . In Catalan this income tax is called “Income Tax for Individuals” or IRPF for short.
Your tax rate may vary based on three levels of tax brackets and a short list of deductions and credits. For individuals, Andorran tax rates are as follows:
- €0 – €24,000: 0%
- €24,001 – €40,000: 5%
- €40,001+: 10%
Married couples pay income tax according to a slightly different scheme:
- €0 – €40,000: 0%
- €40,001+: 10%
All salaries, most foreign investment income and pension income are subject to the same tax rate. Income from Andorran investments (such as income from Andorran government bonds and dividends from Andorran companies) are exempt from this tax rate. There are additional exclusions and inclusions for taxable income – a full list can be found in the official source.
The two main types of deductions are dependents and mortgage interest. We will look at more detailed information about the Andorran tax system in our article on this topic.
Income tax rates for non-residents
Those who spend fewer than 183 days a year in Andorra and otherwise qualify as non-residents pay “Impost sobre la renda dels no-residents financials” or IRNR.
This is a tax rate of 10% on the income that non-residents receive from their economic activities in Andorra .
Andorra tax rates for companies
If a company has its registered office in Andorra, is registered here or is effectively managed here, then it must pay taxes on its profits.
This corporate income tax is called “Impost de societats” or simply IS . The corporate tax rate in Andorra is 10% . At the moment, holding companies that invest outside Andorra only pay income tax at a rate of 2%.
Andorran companies are not responsible for withholding tax on dividends and interest paid to non-residents. (Royalties are subject to withholding at a rate of 5%.)
Capital gains tax rate in Andorra
For both individuals and companies, capital gains are treated like any other income for tax purposes. This means that the nominal capital gains tax rate is 10% .
It’s important to note that you don’t pay tax on gains on the sale of shares if you own less than 25% of the company. This means you can effectively buy and sell (or day trade) most stocks without paying income tax.
In addition, the tax rate in Andorra is 0% on profits from the sale of an asset that you have owned for more than 10 years.
Property tax rate in Andorra
Gains from the sale of real estate are taxed on a sliding scale. For more information on the tax rate reduction, see our article on capital gains taxes in Andorra.
Roughly speaking, it ranges from 15% for properties held for a year or less, to 10% after three years and 0% after 13 years.
Obviously, this system is designed to discourage speculation and encourage Andorrans to invest in their homes, since they plan to live in them for several years.
Summary of Andorran tax rates
The Andorran tax system is fair and simple. As in any country, it has its own nuances and details, but in brief the tax rates in Andorra are as follows:
- 10% of income for residents and companies,
- there is no sales tax, but there is VAT of 4.5%,
- There is no inheritance, inheritance or transfer tax, and no tax is payable on investment income in Andorra.