Taxes in Andorra

How does the tax system work in Andorra?

Taxation in Andorra is one of the greatest advantages enjoyed by residents of the Principality. Since it has a system that favors tax members. Despite including the statutes of conventional systems in its structure, it manages to incorporate points in its favor. This gives them a great advantage over other countries.

Also among the best known we find the IRPF. Which, like VAT in Andorra, is considered one of the lowest in the world. In addition, up to €24,000 is exempt. After that, a 50% discount is applied without exceeding €40,000.

ADVANTAGES OF TAXES in Andorra

Andorra offers much more beneficial tax advantages than its neighboring countries Spain and France in both IS (Corporate Tax) and IRPF (Income Tax on Physical Persons) or VAT (called IGI in Andorra), and also It is one of the lowest in the world.

Business benefits of taxes in Andorra

Taxes in Andorra generate many benefits even for SMEs (small and medium-sized businesses). With an IS of up to 10%, being one of the lowest in Europe. In addition to having a contrasted difference with neighboring countries.

Likewise, Andorra’s tax system has many other business benefits:

• The corporate tax is set at a maximum of 10%.
• Only 5% is taxed on the first €50,000. This is fulfilled in the event that the company invoices less than €100,000 in three years. In the event that the profits may be greater than €50,000, the maximum applicable percentage is 10%.
• There is a government tax aimed at companies, this varies between €200 and €800 per year.
• The Principality and the French government have agreements by which double taxation of tax obligations is avoided. Therefore, companies can pay them only in the Andorran territory if applicable.
• VAT in Andorra has a value of only 4.5% for the exchange of goods or consumption in the territory.
• Social security contributions have a low cost compared to other countries. The system is considered one of the best in the world.
• Andorran taxation does not provide for wealth or inheritance taxes. So you have complete freedom in these cases.

Taxation regarding capital gains

The Principality’s taxation treats taxation with respect to capital gains in a more flexible way than in other countries. In the first case, depending on the source, it can be considered common income. To which would correspond a tax of up to 10% for financial capital gains.

On the other hand, in the event that a profit is being obtained from sales of shares, two situations can arise. First, a holding company that owns 25% or less of a stake in a company would be exempt. The same would happen if the percentage is higher, but the possession time is greater than 10 years. Because capital gains taxes do not apply to properties older than that age.

On the other hand, if you own a percentage greater than 25%, but you do not have that seniority, the payment is made. That is why it is attractive for companies to have tax residence in Andorra.

Additionally, the government could apply a withholding corresponding to 5% of the capital gain. This is in order to know if the company is not sanctioned. They even have the purpose of avoiding speculation in the price of assets or capital. This can last from three to six months.

Tax on Products and Services (VAT)

VAT in Andorra is one of the lowest among European countries. Being only 4.5%. One of the great attractions that the Principality has. Of course, VAT in Andorra can have reductions. This depends on the activities it is related to. In the health case it reaches 0%. While in the educational branch up to 1%. In addition to VAT in Andorra, IS (corporate taxes) is applied. This is in charge of company taxation and reaches a maximum of 10%.

Unlike taxes in France  and  taxes in Spain  , where VAT is 20% or 21%, in Andorra the general VAT or IGI is only 4.5%.

Within this tax we find, in addition to the general one, 4 other tax types depending on what it is applied to.

• Super-reduced rate: this value is 0%, that is, free of VAT or IGI, to activities related to the health and educational field mainly, but we find other occasions where the super-reduced rate is also applied, such as housing rentals or gold. intended for investment.
• Reduced: in this case the tax value of this section is 1%, which applies to food, both for people and animals, (without taking into account alcoholic beverages), to water intended for human and animal consumption and for irrigation and publications that do not contain commercial advertising.
• Special rate: this applies to the transportation of people, to the provision of services offered by non-public, non-profit organizations (libraries, fairs, museums, theater, among others) and to collectibles, art or antiques; applying 2.5% VAT.
• Increased tax: this section applies to financial and banking services, applying 9.5% VAT on operations.

Who pays VAT and who settles it?

VAT must be paid by the final consumer of the product or service purchased. On the other hand, the marketer of the product or service is the one who must bear the VAT, which will later be passed on to the end customer.

The settlements of this tax are made periodically, which will be marked by the annual business figure of the previous year:

• When these exceed 250 thousand euros, the settlement will be carried out semiannually.
• Those that exceed 3.6 million must make their quarterly settlements.
• For the rest of the cases, VAT will be settled monthly.
• Simplified special regime: When the business figure does not exceed 100 thousand euros per year, the professional may benefit from this declaration regime, which must be maintained for a minimum of three years.

Corporate Tax (IS)

This is a tax that is applied to the profits obtained by a company. Regarding corporate tax, its maximum is 10%. That is why it is an ideal country for SMEs and multinationals, making it one of the lowest in all of Europe.

In the case of dividends or profit shares, they are exempt from taxation for residents of Andorra.

Corporate tax settlement

The payment of corporate tax is made in the following way:

• In September of the current year, an advance payment is made, which is calculated with half of the total percentage of the IS in reference to the benefits obtained the previous year; That is to say, if we had to pay a 5% tax, that September we would pay 2.5% of the profit generated in the previous year.
• The second step would be the final settlement, in July of the following year the percentage to pay of the corporate tax for the year that has ended is calculated, from which the amount that was previously paid would be subtracted.

Personal Income Taxes (IRPF)

The personal income tax or IRPF applies to those people who are considered tax residents in Andorra.

Personal income tax in Andorra does not apply to salaries less than €24,000 per year. From this amount it is in accordance with the income, never being higher than 10%, and it applies to salaries starting at €40,000. In Spain, however, it reaches up to 53%.

Can the general base be reduced?

The basis on which personal income tax is applied may be reduced by applying bonuses or deductions, such as contributions to pension plans, payment for habitual residence or compensatory pensions, among others.

Presentation and settlement deadlines

The person who is obliged to submit and settle personal income tax has a period from April 1 to September 30 of the following year for which he or she must settle.

To resolve other doubts related to the  declaration and settlement of personal income tax , you can go directly to the official bodies of the Government of Andorra.

Other types of taxes and fees in Andorra

In addition to the taxes in Andorra already mentioned, there are others. These continue the trend of being low compared to the rest of Europe or neighboring countries.

Taxation in Andorra establishes different types of taxes. Among them are the direct ones that come from obtaining income or holding assets. While we can find the indirect ones that are related to the consumption made.

Among the direct obligations imposed by taxation in Andorra are:

• Taxes on the income of non-tax residents.
• Taxes on gambling activities.
• Taxes on capital gains on property sales.

Among the indirect obligations imposed by taxation in Andorra we can find:

• VAT in Andorra or general indirect tax.
• Taxes on benefits in insurance services.

Furthermore, another tax in Andorra is the IRNR. This is the income tax of non-tax residents. Which is applied to border workers. These people reside in nearby countries such as France or Spain. But they have a center of economic or labor interest in the Principality. The value of this same has a rate of 10%.

Finally, among the tax obligations required by taxation in Andorra we have the parochial ones:

• Foc and lloc taxes required by taxation in Andorra. This obligation must be paid by residents between 18 and 65 years old.
• Taxes on built property.
• Commercial activity location taxes.

Taxes in the real estate market

Taxation in Andorra has different types of tax obligations. In the case of the real estate business there is the property transfer tax. Which is set between 4% and 4.5%. This percentage is distributed between the government and the parish.

The other obligation imposed by taxation in Andorra is capital gains on real estate. These vary between 15% and 0%. The value of this percentage is reduced according to conditions governed by the time the home was maintained. It is a tax that has been in force since 2006 due to taxation in Andorra. Which is applied to sales of properties whose acquisition is less than 10 years.

This is a way that the Principality has chosen to reduce or avoid real estate speculation. The obligation imposed by taxation in Andorra has managed to keep inflation under control with respect to the value of real estate.

The way in which this type of taxes is applied in Andorra is as follows:

• If the property is sold within a period of one year, the applicable percentage is 15%.
• If the property is sold before two years, the applicable percentage is 13%.
• If the sale of the property is made before three years, the applicable percentage would be 10%.
• From year 3 onwards, the percentage applicable to the tax is reduced by 2% annually.

This capital gain is calculated with the help of a corrective coefficient. Which is determined by the Principality. After 10 years, this tax is no longer applicable.

Comparison of taxes with other countries

If we compare Andorra with France and Spain we can observe the tax advantages of residing in Andorra compared to living in any of the mentioned countries. In addition, it offers much lower taxes than the European Union average.

Tax EXEMPTIONS in Andorra

Taxation  in Andorra  also offers a series of benefits in the form of exemptions to both entrepreneurs and companies:

• The first €3,000 for return on movable capital.
• The total of dividends issued by the Andorran company, and received by an Andorran resident.
• 100% of the first €24,000 are exempt from personal income tax, and 5% between €24,000 and €40,000.

This makes the Principality a very attractive option to create or move all types of businesses there, either as a company or as a freelancer, including  holding companies , e-commerce companies, or a  real estate investment.