Hidden away in the Pyrenees Mountains is the low-tax Principality of Andorra.
Andorra offers endless possibilities for both residents and tourists. However, many of these people would never have found Andorra on the map without its low but fair tax system.
In this article we will look at Andorran tax rates, the different types of taxes and laws related to the Andorran tax system for both individuals and companies.
Resident personal income tax
Andorran income tax for resident individuals is known as IRPF, or “Impost sobre la renda de les persones físiques”.
What is the personal income tax rate in Andorra?
The nominal personal income tax rate in Andorra is 10% . That is, the maximum that an individual will pay is 10%.
Global personal income tax rates. Look to Andorra, which is at the competitive end of the table. Click for interactive version.
However, like many other countries, Andorra uses a bracket approach to its personal income tax system.
Income tax rates for individuals
- €0 – €24,000: 0%
- €24,001 – €40,000: 5%
- €40,001+: 10%
Income tax rates for married couples
- €0 – €40,000: 0%
- €40,001+: 10%
Who is responsible for the IRPF?
The IRPF applies to any individuals who have tax residence in Andorra, that is;
- someone who resides in Andorra for more than 183 days a year, or
- a person who carries out the majority of his business, economic and life activities in Andorra, which in some countries is usually called his “domicile”.
What type of income is taxed?
Andorran income tax applies to all forms of income, capital gains and losses. Unlike many countries with a territorial tax system, Andorra taxes its residents on income earned throughout the world.
Taxable income includes:
- salary from a foreign employer,
- dividends or coupons from investments located abroad,
- pension, pension, savings or insurance plans from abroad.
Are any types of income exempt?
Some types of income, although limited, are exempt from tax. In most of these cases, investments must be made within Andorra.
Types of income exempt from tax include:
- income from Andorran government bonds,
- dividends and other income from participation in companies registered in Andorra,
- dividends and other income from participation in Andorran resident enterprises,
- capital gains and losses,
- income from funds deposited in an Andorran bank, up to 3,000 euros,
- government grants and scholarships,
- literary, artistic or scientific prizes.
For more information, see Article 5 “Tax-free income” of Law 5/2014.
Income tax of non-residents
The tax on the income of non-resident individuals and legal entities is known as IRNR, or “Impost sobre la renda dels non-resident fiscals”.
IRNR is paid when a non-resident individual or legal entity receives income from economic activities in Andorra.
IRNR, Andorran income tax for non-resident individuals and legal entities is 10% .
Corporation tax in Andorra
Any company registered in Andorra or resident in Andorra (by virtue of having a registered office or effective management in the country) is considered tax resident in Andorra.
Andorran resident organizations are subject to IS tax or “Impost de societats”.
The nominal corporate income tax rate in Andorra is 10% . Although there is a special effective tax rate of 2% for certain types of companies, such as holding companies investing in foreign companies (for example, those owning property and intellectual property), it is expected that there will be significant changes to this system.
Global corporate tax rates. Look to Andorra, which is at the competitive end of the table. Click for interactive version.
Corporate income taxes
The corporate withholding tax rate in Andorra , also known as dividend tax, is 0% .
Royalties are taxed at a rate of 5% .
VAT; Indirect tax
Andorra is known for its duty-free trade, but in reality most sales made within the country are subject to a 4.5% value added tax.
This rate can be reduced to 0%, mainly for non-profit organizations, education and health care. 1% on food (except alcohol), books, newspapers and magazines and 2.5% on tour operators and art.
An increased rate of 9.5% applies to banking and financial services.
Due to Andorra’s low VAT rate (known as IGI), alcohol and tobacco shops are located throughout the country.
Capital gains tax
The nominal capital gains tax rate in Andorra is 10% . However there are some exceptions:
- If you own less than 25% of a company’s share capital, you are not liable for capital gains tax.
- This is especially interesting for traders of publicly listed companies (note: options, commodities and other investments do not qualify for this exemption).
- Any asset held for more than 10 years is exempt from capital gains tax.
Capital gains tax in Andorra applies to investments worldwide. If tax of 10% or above the Andorran rate has already been paid on these investments abroad, it will not be levied locally due to double taxation legislation.
Please note that the capital gains tax on real estate in Andorra is again different, as we will explain below.
Property tax
Property in Andorra is not subject to inheritance or transfer tax, however owners are responsible for both purchase taxes and capital gains tax on sale up to 13 years of ownership.
Tax on the purchase of real estate in Andorra
When buying property in Andorra you have to pay two different types of taxes:
- Fixed tax: 1.5% of the sales price, paid to the commune (local government).
- Impost de Transmissions Patrimonials: 2.5% of the sales price paid to the Andorran government.
Tax on the sale of Andorran real estate (capital gains tax)
Sales taxes are much more volatile.
Real estate in Andorra is subject to capital gains tax ranging from 0% to 15% . The amount you pay depends on how long the property has been owned:
- 1 hour: 15%
- 2 years: 13%
- 3 years: 10%
- 4 years: 9%
- 5 years: 8%
- 6 years: 7%
- 7 years: 6%
- 8 years: 5%
- 9 years: 4%
- 10 years: 3%
- 11 years: 2%
- 12 years: 1%
- 13 years or more: 0%
Double taxation agreements
Following a radical change in Andorran tax legislation to comply with international obligations and prevent blacklisting as tax havens, the Andorran government is negotiating double tax treaties with countries around the world.
As of today, the following countries have double taxation agreements with Andorra currently or will do so in the near future:
- France: effective July 1, 2015
- Liechtenstein: valid from 21 November 2016
- Luxembourg: effective March 7, 2016
- Malta: signed on 20 September 2016
- Portugal: Effective April 23, 2017
- Spain: effective 1 August 2017
- United Arab Emirates: effective August 1, 2017.
Andorra has been negotiating with Belgium, the Czech Republic and the Netherlands, and has also expressed its intention to negotiate with Estonia, Latvia and Lithuania.
Andorran tax system
Although Andorran tax laws continue to evolve, the system remains simple enough to negotiate without too many headaches.
Whether you plan to register a company or live in Andorra, you will enjoy some of the lowest tax rates in the developed, compliant world.