There are many common misconceptions about Andorra, a tiny landlocked country between France and Spain in the Pyrenees Mountains.

Those who know enough about the financial side of a country to be dangerous often use the word “tax haven” in their description.

But is Andorra really a tax haven?

What makes a country a tax haven?

There are many different definitions of the term tax haven.

The Government Accountability Office considers the following signs to indicate that a country is a tax haven:

  • no or nominal taxes;
  • lack of effective exchange of tax information with foreign tax authorities;
  • lack of transparency in the application of legislative, legal or administrative provisions;
  • no requirement for a significant local presence;
  • and self-promotion as an offshore financial center.

Similarly, the OECD uses 3 factors in its assessment of countries:

  • no or nominal taxes
  • protection of personal financial information
  • lack of transparency

What is interesting is the negative attitude towards tax havens. Australian journalist Sinclair Davidson writes: “Far from having a negative impact on their neighbors, tax havens appear to have a positive impact on economic activity.”

Blacklists

Countries that are officially considered tax havens are included in the so-called Financial Action Task Force (FATF) blacklist.

The FATF publicly identifies countries with weak anti-money laundering and counter-terrorist financing regimes.

The OECD has its own list of “uncooperative tax havens”.

The EU also has a list of “non-cooperative tax jurisdictions”.

The irony of these lists is that if the same criteria were used in many member countries, many of them would themselves end up on blacklists.

However, Andorra is not included (as a tax haven) in these blacklists.

Why do people think Andorra is a tax haven?

Those who do not want to use the legal definition often use the term in a more general sense.

Many view a tax haven as a place where resident individuals or companies can do business without paying taxes or paying them at low rates.

The Andorran tax system is very favorable;

  • tax on personal income exceeding 40,000 euros is limited to 10%,
  • corporate tax is limited to 10%,
  • there is no double taxation, that is, if your company pays 10%, then you are paid dividends, you will be taxed at a rate of 0%,
  • IGI, Andorra’s sales tax, is 4.5% for most goods and services.
  • Andorran property taxes are very reasonable.

Based on the income tax rate alone, many people might call Andorra a tax haven. If you follow this logic, the same can be said about such famous countries as the Czech Republic, Hong Kong, Singapore and Switzerland.

Likewise, when it comes to corporate tax rates, many countries tax resident companies at lower rates than Andorra, such as Estonia, Latvia, Malta and Hungary.

So is Andorra a tax haven?

From a legal perspective, the answer is a clear “no.” Andorra plays by the rules and pleases its neighbors in the global economy by creating systems that allow the country to comply with the rules.

But when talking to people who are not tax lawyers, many will still refer to Andorra as a tax haven. If your definition of a tax haven is a place where you can  legally  reside and pay a very fair tax rate, then your answer is probably yes.

Andorra works hard to establish double taxation agreements with countries around the world. The list is short, but it is important to remember that Andorra is a small country with few government officials. These things take time.

If Andorra is not a tax haven, then why is the tax rate so low?

The truth is that for a long time the tax situation in Andorra was happy. Small and efficient, Andorra is actually “cheap to run.”

Vicen Mateu, General Syndic of the Andorran Parliament, recently stated:  “Andorra has never made a strategic decision to become a tax haven  . ” He went on to say that a sales tax on goods and services has the potential to finance Andorra’s budget without the need to levy other taxes. However, this tax regime has caused concern among neighbors and non-CIS countries.

Andorra: a compliant low-tax country to live and do business in

It is clear that Andorra plans to cooperate and contribute to the global economy, but since it is a small country, it is likely that it may be “too slow” to always please the OECD and other organizations.

Andorra is likely to remain in a gray area for many governments and political bodies in the coming years, as the country maintains fair tax rates, and as the Andorran banking system works to adapt to rapidly changing standards.

If you are looking for a low tax country to live or do business, Andorra is a great place to consider!

Is Andorra a tax haven?