While cryptocurrencies, DAOs, DeFi and other blockchain-related projects are developing at a rapid pace, most governments are struggling to keep up. Coupled with the extremely risk-averse attitude of many banks around the world, bridging the gap between traditional finance, taxation and digital assets is a major challenge, if not a frustration, for many.
Andorra is a hidden gem when it comes to dealing with cryptocurrencies such as BTC, ETH, SOL and so on. The country remains open to this type of business and also provides a number of advantages to those who want to start their own business.
With minimal tax rates on cryptocurrency profits, Andorra could be a great option if you decide to move and become a tax resident here.
When it comes to Bitcoin and other digital currencies in Andorra, there are a few things you should know, including tax rates, requirements, regulations, platforms, transactions and more.
In this guide, we’ll walk you through each of these aspects so you can better understand why becoming an Andorran tax resident is so beneficial for cryptocurrency investors and business owners.
Cryptocurrency tax rates in Andorra
In most scenarios, profits from digital currencies are subject to personal income tax since most trading occurs at the individual or personal level. The maximum personal income tax rate for residents is 10%.
But although the general rate is 10%, the reality is often different. Similar to stock traders who realize their profits through capital gains, most gains in crypto occur as a result of hodling during periods of volatility to realize significant upside potential.
If an investor owns less than 25% of a company and sells those shares, they will generally not be liable for capital gains tax in Andorra. This is an important point to note: if a crypto investor is properly structured, he will be able to significantly reduce his tax burden.
However, keep in mind that the current tax code is ambiguous when it comes to cryptocurrency profits. Changes to the Tax Code are expected to further clarify the government’s position on digital assets next year.
Requirements
It is clear that Andorra has low tax rates and relatively easy ways to carry out cryptocurrency trading.
However, this does not mean that the process is completely independent, as you will still have to consider several important requirements to maintain legality and transparency. Below we will provide some information.
Proof of source
It is extremely important to provide proof of the source of your funds. Although banks in Andorra value confidentiality, they are also risk averse due to the problems the banking system faced in 2015, as well as the need to work with the government to ensure that the country is not labeled as a tax haven.
Since cryptocurrency trading is relatively unregulated, the risks of illegal and morally ambiguous sources of business are very real.
For this reason, it is important for Andorran banks and financial institutions to be able to verify the source of your funds to ensure legal transparency. They will also check how you use these funds to prevent any liability for money laundering on their behalf.
As Bitcoin, Ethereum, Solana and other coins rise in value and popularity at a rapid pace, financial institutions need to further regulate the trading process.
The best way to think about it is that banks need to protect themselves first. It is also important for the reputation of the financial authority and the government. It is important for them to maintain transparency to ensure that they can continue to operate within the broader global banking system and provide services to people like you and me.
So, expect a request from your bank confirming the origin of the initial capital. If you can do this, you will find that these are relatively basic compliance requirements on the bank’s part.
Record keeping
It is also important for you to keep a record of your funds and transactions with Bitcoin or any other cryptocurrency. This is again necessary to maintain the necessary level of transparency so that legal problems do not arise in the future.
Due to the sensitivity of this type of investment and trading, you should expect this type of regulation. While this may seem frustrating at the moment, remember that this requirement is ultimately quite simple and is intended to provide legal status to your activities.
These records should also clearly indicate how you created these funds and how and when you plan to convert them into fiat currency.
Intermediate transactions
It is important to remember that most intermediate transactions or trades will likely be taxed because you receive a benefit in the form of some kind of currency in exchange for the trade.
As a result, investing in Bitcoin or any digital currency represents your personal income or assets, which are then taxed at the end of the financial year.
There needs to be transparency in these types of transactions so that you can pay the necessary taxes by clearly declaring it. This type of exchange is usually applied to most types of transactions and assets to maintain their legal status.
By correctly declaring your profits, you can be sure that everything is done legally. This is especially important if you ever plan to return to your country of citizenship. You will be able to prove to your country’s tax department that you have paid tax on any income in Andorra.
Installed platforms
There are several established platforms that can help you do this type of investing and trading in Bitcoin and other cryptocurrencies. These platforms can make it easier for you to conduct transactions safely and securely.
Although we do not support any platforms, it has become clear that Andorran banks are familiar with both Binance and Coinbase. Familiarity entails less compliance effort.
These platforms are preferred due to their verification process, security features, and transaction history.
Mining and blockchain operations in Andorra
Andorra also allows you to carry out cryptocurrency mining and blockchain transactions. This is largely due to the exceptional internet speed and low latency, as well as the low cost of electricity and internet.
With electricity costs as low as €0.0776/kWh, not to mention the cool climate, mining in the Principality can still be profitable.
Home Internet connection speeds can reach 700 Mbps thanks to the presence of fiber optic cable, which reaches all homes in the country, including apartments. Symmetrical 1 Gbps connections with redundancy and static IP addresses are also available.
There are also several attempts being made in Andorra to improve the technology of blockchain projects with the help of other companies. In general, the government is very supportive of these projects.
Current and future regulations
Currently, all regulations that exist in Andorra are aimed at protecting the legality of your funds and investments in Bitcoin and other cryptocurrencies. These rules were aimed at giving legitimacy to an unregulated area.
Autoritat Financera Andorrana (AFA), Andorra’s financial regulator, is committed to monitoring all aspects of cryptocurrencies and is also developing these rules in conjunction with the government.
Recent amendments to Law 35/2014 have better defined many terms related to digital assets and business. This law clarifies simple concepts such as timestamps, certificates, online signatures and other elements, helping the country move towards an increasingly digital future.
It’s worth translating and reading the entire document, but the main takeaway is that this amendment supports the government’s appetite for digital assets. They see that this is the future and try to accept it as best they can.
We expect that the increased legitimacy this legislation will bring will provide a useful bridge for investors to move funds out of cryptocurrencies and back into fiat currencies, and vice versa.
This type of legal support can be quite beneficial as it can make transactions more transparent and allow for crystal clear agreements at the contract level.
Development in this area has accelerated in part due to the impact of COVID-19 on Andorra. The government was forced to allow features such as work from home and they are now working on developing a digital signature system and also allow taxes and other government fees to be paid online.
This is another good reason to become a tax resident of Andorra.
Investment and Residence in Andorra
Andorra is a great country to consider if you are interested in legalizing your digital asset investments or businesses. Becoming a tax resident here not only gives you access to low taxation on your crypto assets, but also gives you an incredible lifestyle.
But it’s important for you to go through all the residency requirements ahead of time so you know what to expect. While we hope it will become a hub for tech professionals, that is not the case today and that may disappoint some people. Understandably, this means they want to spend time outside the country, but there may also be tax implications.
For example, to maintain tax residency, you may be required to live in the country for up to 183 days a year. If you are unsure of specific requirements, please contact us so I can help clarify this for you.
Other benefits
Let’s not forget that there are several other benefits to becoming an Andorran tax resident and enjoying the benefits of your digital assets.
For example:
- if you don’t already have an EU passport, Andorra gives you access to the Schengen area.
- Operating on Central European Time, Andorra provides you with an excellent time zone base, meaning you can receive calls at reasonable times of day from Asia, Europe, the Middle East and America.
- a healthy local environment means that if you spend a lot of time in front of a screen, it’s easy to take your mind off it all and recharge,
- Andorra has an excellent lifestyle: all residents have a decent salary, an affordable healthcare system, fast Internet and access to high-quality education.