Andorra is widely known for having one of the lowest income tax rates in Europe. In this article we will explain the details of income tax in Andorra.
However, the main figure of the Andorran tax system is that no one pays more than 10% of their income in tax.
Other key details include the fact that only the national government levies income tax in Andorra (unlike some countries where residents may pay federal and state income taxes), and a growing number of double tax treaties signal Andorra’s further integration into the global business investment environment. .
Personal income tax is one of the main issues to consider when deciding whether to find a job, set up a company or otherwise live in Andorra.
The advantage of Andorra is that it has a relatively low tax rate and a fairly simple taxation system.
Who pays income tax in Andorra?
All people who are residents of Andorra and spend at least 183 days here in a given year are required to pay IRPF , which means “impost sobre la renda de les persones físiques”.
IRPF is also paid by those who carry out the majority of their personal and economic activities in Andorra. This article is about the details of IRPF and we are using the term Income Tax to mean the same.
Non-residents who receive income from economic activities in Andorra pay IRNR (or “non-resident tax”). It is set at 10%.
Brackets for Andorran income tax
Andorra uses a standard but simplified bracketing system to determine how much a person owes in income taxes. For a specific year:
- All income up to €24,000 is exempt (exemption is €40,000 for married couples) from income tax.
- Individuals pay 5% on income between 24,001 and 40,000 euros.
- Single taxpayers and married couples pay 10% on all income over €40,000.
The simplicity of the income tax system in Andorra also means that there are no complex credit systems like in other parts of the world.
What income is taxed?
Andorra taxes a fairly standard income structure. This includes wages, rent for property or other rights, professional fees and insurance benefits, and other compensation related to personal property.
There are several deductions that reduce the basic taxable income of an Andorran. These include rent/housing benefits, dependent family benefits, child support and pension contributions.
Income tax on investments and savings
Dividends, interest on bonds, interest on savings accounts and other financial income are taxed in Andorra.
The first €3,000 is tax-free, and after that all income in this category is taxed at 10%. Andorran banks will automatically transfer you tax on the interest on your savings account.
Withholding and exemption from income tax in Andorra
Employers and others paying employment income are responsible for withholding a portion of the wages or salary and remitting it to the Andorran government for that year’s taxes as an interim payment.
The deduction increases from 1% for those earning between 30,000 and 40,000 euros per year to 7% for those earning more than 150,000 euros. An individual’s tax withholding rate depends on their earned income in the previous tax year.
Double taxation agreements
Andorra has double tax treaties with a number of its European neighbors, including France, Spain, Germany, Portugal, Luxembourg and Liechtenstein.
These treaties are an important way for two countries to determine how to tax economic activity that crosses their (actual or virtual) border.
Without them, people and companies involved in international trade could be legally required to pay tax twice per transaction.
Thanks to treaties and the elimination of double taxation, it makes sense for more people and corporations to invest and do business in Andorra.