Andorra has one of the lowest capital gains tax rates in the world, averaging around 10% . This is significantly lower than other European countries such as France, where the figure is 33%.
Before the recent changes, there was no capital gains tax at all in Andorra.
If you are a company shareholder or an overseas property investor, you may be wondering how this will affect you.
In this article we will tell you everything you need to know about capital gains tax in Andorra. We’ll assume you know what capital gains are, as there are plenty of excellent resources already available on this topic.
Andorran capital gains tax on real estate
The Andorran government has introduced a capital gains tax to help combat inflation in the property market. While the country welcomes property investors, they want to minimize the wasteful practice of “flipping”.
For this reason, the rate mainly depends on the period of ownership of the property.
If you sell property in Andorra, you are subject to capital gains tax at a rate of up to 15% on the profit you make. This assumes the property has been owned for only one year or less. After the second year the rate drops to 13%. Then, after the third year, the capital gains tax rate is reduced to 10%.
Then the rate decreases by 1% every year until it reaches 0%. This encourages property owners to hold on to their properties for a longer period rather than selling them for a quick profit. It’s easier to understand in visual form:
If the property being sold is the seller’s primary residence, he will not be subject to capital gains tax if another property is purchased within 6 months.
Capital gains tax in Andorra on company shares
Setting up or investing in an Andorran company are common approaches to applying for a residence permit. It’s worth noting that there may be a 10% capital gains tax charge if these shares are sold.
However, if these shares are held for more than 10 years, this no longer applies.
Likewise, if you own less than 25% of a company, you are not liable for capital gains taxes. Consider this with the example of a stock market trader who buys and sells shares that represent much less than 25% of that company’s total capital. As a result, that trader’s capital gains (but really income) are exempt from tax.
Summary
Residents, business owners and investors can take advantage of Andorra’s capital gains tax system. While this is higher than the non-existent levels of a few years ago, current rates of 15-0% are still among the lowest in the world.
Property owners and real estate investors can reduce or eliminate capital gains taxes by holding their properties for a longer period.
Minority shareholders of companies will not pay capital gains tax on their shares, making investing much more profitable. Majority shareholders who participate for more than quick wins may also see their capital gains liability drop to 0%.
Andorra’s low capital gains tax makes it an ideal country for doing business, from real estate to corporate investing.