Tax

What Are the Key Advantages of Tax Residence in Andorra?

By
Jose Maria Alfin
on
January 26, 2023

Detailed explanation of the most important benefits of getting tax residence in Andorra

Did you know that Ivory Coast citizens pay the government 60% of their income in taxes? If you're in search of an affordable county, consider Andorra for permanent residence.

Since nothing will change the necessity of taxes, you can at least benefit from a country that requires you to pay significantly less while enjoying world-renowned ski resorts and picturesque scenery.

Are you interested in Andorra tax residency? If so, keep reading to learn more about the primary advantage of tax residence in Andorra.

Tax Residency Explained

Some countries are considered "tax havens." Examples of tax havens include Monaco, Bermuda, and the Bahamas. Tax havens want to attract high-net-worth people to their countries.

However, Adorra isn't considered a tax haven. Andorra is a low-tax jurisdiction, similar to Singapore and Montenegro.

As such, Andorra is a mix between a tax haven and high-tax OECD countries, working to attract people who want lower taxes but still wish to stay compliant to keep close-by countries happy.

This is where tax residency comes into play. It works to fill the gap by determining what country a person has to pay taxes in.

Not many countries allow citizens to maintain tax residency anywhere. They're considered "perpetual travelers," and continue to move from country to country to avoid tax residency.

The majority of jurisdictions require that individuals pay taxes to the country they reside in most of the time or where they make most of their income. There are laws and international treated that do allow people to apply and pay taxes in other countries, however.

Andorra Tax Residency Requirements

When applying for tax residency in Andorra, you need to follow Andorran law. There are three main requirements you must satisfy:

- The applicant has resided in the area for more than 183 days in the country. A person will be considered a tax resident of the state where he/she has a permanent home and lives there for more than half of the year (183 is only a little more than half of the 365 days in a year).
- The center of economic interest is in Andorra. In other words, most of your income must be based in the Andorran territory. It will be easier if we discuss a worker providing services in the principality. Still, it will be more complicated to meet the conditions for certain types of companies.
- The family resides in the country. When it is said that the family lives in the country, this refers to a legal partner, minor children, or other close relatives who are dependent on them. Here it is also necessary to clarify that it CAN NOT be a distant cousin who lives in Andorra...

If you're able to satisfy these requirements, you can pay taxes in Andorra.

Obviously, is a pre-requirement to get a prior residence permit, as we have explained.

Andorran Tax Residency Benefits

There are many reasons why someone would want tax residency in Andorra. For example, its personal income tax is among the lowest, coming in at 10%.

While the Bahamas and Monaco have better tax rates due to them being actual tax havens, this can cause an issue for anyone who has to prove to their country of citizenship where they pay taxes.

Aside from low taxes, Andorra also offers a high standard of living. It's also a very safe county with some of the highest life expectancies in the world. There's plenty of nature and clean air to enjoy, along with countless leisurely opportunities.

You'll also find an efficient healthcare system that provides good care. There are also educational institutions that are international and multilingual.

Andorran Taxes

Andorra has done things according to a unique set of rules for centuries, creating a feeling of stability and neutrality. It's also one of the world's oldest countries and was formed in 1278.

However, Andorra's tax policies have made continuous strides since 1993. The country strives to modernize its political views and has created a place that's ideal for businesses and investors. Andorra welcomes foreign ownership and capital and aims to create the most favorable environment for taxpayers.

Here's how Andorra's tax policies affect various forms of tax.

Personal Income Tax

In Andorra, 10% is the max applicable tax rate. Actual tax rates are determined by a bracket system based on your income.

For example, you pay 0% of what you make between €0 – €24,000. You pay 5% if you make €24,001 – €40,000. You pay 10% if you make €40,001+.

These rates are only for individuals. If you're married, your tax rate will be 10% if you make over €40,000. Any amount below that threshold has no taxes.

Corporate Tax

Businesses that choose to incorporate in Andorra have to pay corporate taxes. These range from 0% to 10%.

This tax is a tax that companies must pay to the tax authorities of a specific territory and is determined by a percentage applied to the profits generated by a company in a given year. In Andorra, the general tax rate is 10%. To analyze this tax effectively, it is necessary to compare it with other corporate taxes in neighboring countries, with Spain's and France's being 25%. In the worst-case scenario, you would be taxed 15% less.
A key factor to consider is that the distribution of the dividends by the company to the partners or shareholders is exempt. Consequently, to be accurate, the comparison must take into account the total tax burden instead of only the Corporate Tax Rate. Andorra only tax the company, but not the distribution of dividends. Then, the total tax burden is 10%.
Spain, tax the company, but later the distribution of dividends to the shareholders is taxed at 26%, Total burden is about 51%.
France tax rate for companies is 25% and the distribution of dividends is 30%. Consequently, the total tax burden is 55%

Value Added Tax

VAT tax is another type of tax where Andorra is beneficial. For example, Andorra's VAT tax is the lowest in Europe at 4.5%. For services ad goods such as health, food, culture, and education, VAT taxes drop to 1%.

VAT Tax Explained

VAT tax focuses on consumption and not income. This is different from progressive income tax which levies higher taxes on the wealthy. Instead, VAT tax is equally charged on every purchase.

Over 160 countries implement VAT taxes, but it's most commonly used in the European Union (EU).

VAT tax focuses on the gross margin throughout the manufacturing process, including distributing and selling a good or item. As such, VAT tax is collected at each stage in the process. This differs from sales tax, where tax is assessed at the end of the supply chain and then paid by the customer.

This Andorran indirect tax would be the equivalent of the Spanish Value Added Tax (VAT) or the French Taxe sur la Valeur Ajoutée (TVA), both of which are indirect taxes on consumer goods and services. This rate in Andorra is 4.5%, rising to 1% for certain goods and services such as, for example, the health and education sectors. In Spain, the general rate is 21%, and in France, it is 20%. As a curiosity, Spain has a reduced rate of 10% for products such as bread or bottled water and a super-reduced rate of 4% for others, such as flour or vehicles for people with reduced mobility. The latter is almost the same as the general Andorran rate (only 0.5%).

Real Estate Tax

Should you decide to sell property in Andorra and turn a profit, there are capital gains taxes you'll need to adhere to. However, it's worth noting that long-term ownership is rewarded, along with anyone looking to sell a primary residence.

The initial tax rate might be 15%, but if you were to sell your property the second year you own it, your tax rate reduces to 13%. The rate dropped over time, and your third year is reduced to 10% capital gains taxes.

From there, the decrease is 1% annually, rewarding those who stay in properties for an extended amount of time. After 12 years, your capital gains taxes are 0% and you won't be taxed on the profits you make from selling your house.

Should you decide to sell your primary residence, you can skirt capital gains taxes should you use the money to purchase another home within a six-month time frame.

You still need to pay property ownership taxes that amount to €100 per property yearly. And should you buy or sell any type of property, the new owner has to pay 1.5% to 2.5% in acquisition tax, based on the purchase price of your home.

Other Taxes

Andorra doesn't have many other taxes. There's no inheritance tax, wealth tax, or gift tax.

Anyone choosing to run a business based out of Andorra receives social insurance contributions as they age. This equates to 8.5% of any gross earnings and 6% for maternity, work injury, survivors, disability, and sickness. These tax rates are some of Europe's lowest.

We think that an example is more important than a theory. For that reason, we have made an interesting comparison among Andorra, Spain and France to see the most important differences:

In relation to an individual tax resident, an indicative table of the taxes that would be paid in each country is shown: 

For a salary of 30,000 euros:

IRPF ANDORRA: 300 euros

PERSONAL INCOME TAX SPAIN: 7.165 euros

IRPF FRANCE: 5,671 euros

For a salary of 40,000 euros:

ANDORRA income tax: 800 euros

IRPF SPAIN: 10.501 euros

FRANCE income tax: 5.921 euros

For the salary of 50.000 euros:

ANDORRA income tax: 1,800 euros

IRPF SPAIN: 14.200 euros

FRANCE: 11,921 euros

As for the savings base, we will mention it separately as it is exciting for this comparative analysis.

Financial investment income, which includes interest earned on bank accounts, rental income, share dividends, and capital gains on the sale of assets and the like, are taxed precisely the same in Andorra, with the same tax brackets and the exact percentages as mentioned above. 

In Spain, on the other hand, they are taxed again from the first euro in a staggered manner, with figures ranging from 19% for income from 0 to 6,000 euros to 26% for income over 200,000 euros. In France, this percentage can range from 12.8% to 30%. 

Although these taxes are not the only ones, they are the most significant to be able to assess the tax rates in each country objectively. It should also be noted that in Andorra, apart from the figures being significantly lower than in other countries, there are a series of advantageous exemptions for residents that make taxation even more attractive. Andorran Residency Programs

Another attractive feature of Andorra is its residency programs. They're among the most attractive in Europe. Annually, Andorra admits about 500 new residents, so if you're looking to incorporate your business or invest in Andorra, you might be one of these 500 people.

Your passive and active residency will determine if these programs work for you or not. You'll need to obtain a work permit if you plan on working within Andorra but only as an active resident.

Passive residents have various requirements to fulfill, based on their plans to invest or not, along with establishing a small business. If you're internationally recognized, this will also play a role.

Category A: Passive Residence

If you want to reside in Andorra and don't plan on working or incorporating a business, then you must be in the country at least 90 days a year. This is essential for maintaining residency.

You'll also find there are fewer regulations compared to other programs. If you're a Category A resident, you won't have to pay any type of personal income tax.

Here's what you need to qualify for Category A:

  • 18 years of age or older
  • Police certificate proving a clean criminal record
  • Promise to live in Andorra for at least 90 days a year and sign a document
  • Obtain proof of medical insurance that covers Andorra
  • Show that you can own or rent property in Andorra or plan on owning property within six months of when you submit your application
  • Provide bank certificates to show you're self-sufficient and have a balance of at least 300% of Andorra's minimum salary, plus another 100% of Andorra's minimum salary
  • Using the aforementioned funds, you must deposit with the Andorran National Institute of Finance (INAF) €50,000 on behalf of the applicant and €10,000 per dependent; this is a no-interest-yielding bond and is created to pay any debts of yours while an Andorra resident (if you forfeit residency it's refundable)
  • Provide proof of investment in Andorra worth at least €400,000 (within seven months of your application date)

Keep in mind that your initial deposit's value is included in your €400,000 investment.

Category B: Passive Residence

The next category is Category B. It's for international businesspeople who intend to form and then run a business in Andorra. The business must operate rarely outside Andorra.

If you're looking to qualify, then 85% to 100% of your business has to be conducted outside of the country. This type of residency works well with the current 2% corporate tax rate. This is applied to any international trading businesses that choose not to buy and sells goods in Andorra.

There's a minimum stay required. It's 90 days a year, and many of the same requirements of Category A apply. This includes the exemption for personal income tax.

Be mindful of a few key differences. For example, Category B doesn't require you to put forth a €400,000 investment. Instead, you need to submit your business plan and confirm that your business is created in Andorra before a designated deadline.

Here are the requirements:

  • 18 years of age or older
  • Police certificate proving a clean criminal record
  • Promise to live in Andorra for at least 90 days a year and sign a document
  • Obtain proof of medical insurance that covers Andorra
  • Show that you can own or rent property in Andorra or plan on owning property within six months of when you submit your application
  • Provide bank certificates to show you're self-sufficient and have a balance of at least 300% of Andorra's minimum salary, plus another 100% of Andorra's minimum salary
  • Using the aforementioned funds, you must deposit with the Andorran National Institute of Finance (INAF) €50,000 on behalf of the applicant and €10,000 per dependent; this is a no-interest-yielding bond and is created to pay any debts of yours while an Andorra resident (if you forfeit residency it's refundable)
  • Provide proof that you rent or own a residential property located in Andorra; it must be at least 20 square meters, which is the minimum requirement for office space
  • Create and provide a business plan that represents your plans for the next three years; provide with it your CV and any other documents needed to support your plan (income derived from Andorra can't exceed 15% and your business needs to target people and organizations not within Andorra)

Your company's formation must be completed within seven months of when you submit your application.

Category C: Passive Residence

Category C is for international recognization and only applies to a small demographic. You need to fall within the category of people who are known for their athletic, artistic, scientific, or cultural abilities worldwide. However, this honorary residence is highly esteemed and reserved for the Andorran government to decide.

Should you qualify, you still need to meet a set of requirements. Most of these requirements are the same as other residencies.

For example, you need to provide all the same documents listed in Category A and B residencies, down to the bond deposit with a minimum of €50,000. The main difference is that you don't have to invest €600,000 or come up with a type of business plan. You need to present your Curriculum Vitae along with any other documents needed to prove they're you're known internationally for a set of abilities or achievements.

Just like with Category B, you still need 85% or more of your professional activity to take place outside Andorra, since you're considered a passive resident. You do, however, qualify for a personal income tax exemption.

Category D: Active Residence

Category D is for local businesses. This program is designed for anyone interested in starting a local company within Andorra. You also need to live and work in Andorra permanently.

Although there are no formal guidelines dictating what is considered "greater permanency" or a "local company," the longer you're in Andorra, the better it looks and the more legitimate your business is. This will help you pass regular inspections from the Andorran police. Their goal is to check that you live and work within the country.

You're not required to have a formal business plan, but you need to establish your business in Andorra before applying for residency. When you set up a company, plan on it taking upwards of 10 weeks. However, after your business is incorporated, you'll find your immigration procedure is complete within a few days.

There's no need to deposit €50,000 into government bonds. However, keep in mind that you need to show proof of company licensing procedures and show that your company formation was completed within the amount of time it takes to approve your residence, which is three months.

Should you have a spouse or dependents, they have to wait for twelve months before they classify as non-working dependents. On the other hand, you can always include your spouse as a business shareholder with a minimum of 11%. This alleviates the entire waiting process.

Your spouse will then be considered as working under your present arrangement, so you have to make additional contributions to the Andorran Social Security System.

You'll find that this category is the only one which requires you to pay into Social Security or income taxes. But since you'll reside in Andorra the majority of the year you likely won't be paying tax residence elsewhere. Considering how low tax rates are in Andorra, you're getting a great deal while living in a beautiful country.

A new category of Residence for Digital Nomads or individuals related to the Digital Economy was approved by the Andorran Parliament on 1 December 2022 and it entered into force on 23 December 2022. Basically, the Government releases these individuals from the guarantee of €50,000.

Other relevant key questions to answer are:

So, how much does it cost to get a tax residence in Andorra? 

Related to the previous question, to become a tax resident, you must not only meet the requirements described above, but there is another issue that must be resolved and that you must take into account when taking a step towards obtaining this status, and that is the financial requirements that the country poses for this purpose. To obtain the residence permit, active residents must deposit 15,000 euros, which will be returned to them when they cease to be residents.

Concerning this question, it should be noted that there are other types of residence in Andorra, such as administrative residence, which, unlike fiscal residence (in which you consolidate by fulfilling the requirements), is linked to a prior residence permit and subsequent approval by the Andorran authorities with jurisdiction over foreigners. In this case, the passive residence is obtained, and the economic requirements would be an investment in the principality of 350,000 euros (for example, buying a house or other real estate or investing in certain financial assets) plus a deposit of 50,000 euros (also returnable like the 15,000 euros for active residents). It differs from tax residency because the requirements vary (they are only obliged to live in the country for 90 days effectively). We repeat this option is only viable provided the competent authorities grant it.

How long does it take to obtain tax residency in Andorra?

As you can imagine, it can be very variable, as several factors are involved, but in general, as long as the relevant steps are taken and there are no extra obstacles, it can be obtained in less than six months.

Cost of Living

Know that you understand the different types of residency programs in Andorra and how they affect your income taxes, you'll need to consider the cost of living in Andorra.

Should you find yourself looking at Category A for investment residence, you'd pay the government their bond deposit and still have €550,000 left to invest in Andorran real estate. For reference, €550,000 affords you a modern apartment in the center of Andorra's capital (Andorra la Vella).

This equates to 75 square meters, two bedrooms, and two bathrooms, all in a modern apartment with plenty of amenities. However, you could also find different-sized single-family homes, depending on what style of house you like and where in Andorra you wish to live.

Such as we have stated, Andorra is not tax heaven. Consequently, the cost of living is reasonable for those who reside there. Should you choose to forego purchasing a home and lease instead, you'll find a one-bedroom apartment that costs roughly €800 a month, right in the heart of downtown.

If you look outside the city, you can find a three-bedroom apartment for roughly the same price. and three-bedroom apartments outside of the city center are available for about the same price.

Since Andorra is a duty-free jurisdiction, you'll find that retail items, including cosmetics and clothing, along with bars and restaurants, are all relatively low priced. If you love to ski, you'll make excellent use of local world-class ski resorts, without breaking the bank. Labor and services are low as well, making Andorra an affordable place to live.

Banks

Whenever you move to another country, there's always concern over foreign banks and how they operate. However, if you're looking for some of the world's best banks in regard to private investment allocation, Andorra has you covered.

The Andorran constitution guarantees banking privacy. Safe deposit boxes and private accounts are standard in banks with high liquidity, with some featuring liquidity ratios as high as 30%.

Keep in mind that if you're looking for liquidity, stability, and privacy, it's not free. There's no required minimum with these banks, but you'll be charged annual fees, and they're significant.

But these fees grant you access to some of the world's most secure banks, complete with wealth management bankers with plenty of experience. There's even an e-banking interface so you can access all your accounts, managing them worldwide.

These rules and regulations set Andorra apart from other countries. These banks offer privacy but are still compliant with anti-money-laundering standards set forth on an international scale. This makes Andorra one of the world's strictest banking jurisdictions. However, you still want to report any offshore bank accounts you have.

Non-Tax Residents in Andorra

In Andorra, there are border workers from France and Spain. Anyone who exercises the activity in Andorra is considered a non-tax resident.

Non-Resident Tax Residents Income Tax

Andorran non-tax residents have special circumstances for how they pay taxes. They submit to the IRNR should they perform any of the following activities:

  • Real estate rentals or repair or employed by a different service-provided company
  • Technical assistant, teacher, training professional, and so forth
  • Artist
  • Any employee who's associated with the Social Security System (CASS)

On average, IRNR is 10% of any wages earned.

Nevertheless, all kind of income arising from financial investments is fully exempt in Andorra for non-residents.

Benefits of Moving to Andorra

Aside from moving to Andorra for tax residency, the country boasts plenty of reasons to relocate. Besides the tax benefits already discussed, here are more reasons why you should move to Andorra.

Safety

Andorra has a very low crime rate. Since there are really only two ways in and out of the country, you'll find illegal guns very rare and criminals aware that nefarious intentions won't get very far. The unemployment rate is also low, working to reduce property crime.

Cost of Living

Andorra is affordable with a low cost of living. On average, the country's cost of living is similar to Madrid and Barcelona. This is especially true for food, utilities, transportation, and accommodations. If we compare Andorra with other European options of low tax jurisdictions, Andorra is clearly cheaper than Monaco, Switzerland, the United Kingdom (resident non-domiciled); Malta; Cyprus or other privileged regimes in Portugal, Greece or Italy.

For example, in Andorra, a family of four can expect to pay €2,446.8 a month, not including the cost of the rent. A single person, however, can expect to pay €668.9 every month, excluding rent.

Compared to the United States, Andorra's cost of living is 25.2% lower. Even better, rent in Andorra is estimated to be 44/6% lower than rent in the United States, on average.

Outdoor Activities

Andorra boasts beautiful, panoramic views and is ideal for those who love outdoor activities. This includes mountain bikers and cyclists, along with anyone who enjoys winter sports, such as skiing. Since Andorra is a top-tier ski destination, you can enjoy the slopes whenever you'd like.

Healthcare System

In Andorra, you can expect the healthcare system with 3.33 physicians for every 1,000 residents. Although Andorra offers top-of-the-line medical services, it also benefits from France and Spain's healthcare systems and is integrated with them.

Andorra is one of the best countries in regards to its healthcare system, making it an excellent country to relocate to. It is situated as a top healthcare system by the OMS.

Welcoming Community

If you're looking for a welcoming community with friendly people, then Andorra is for you. Yes, there's a language barrier, but if you learn to speak Catalan, French, and/or Spanish, you'll have no issue communicating. Likewise, there's a relevant English community living in Andorra and you can English speakers in some shopping and professionals with international and crossborder experience.

While Catalan is the official language, Spanish and French are commonly spoken by residents.

Since Andorra has ex-pats from across the globe, you'll find yourself immersed in diversity. You can connect with other ex-pats via social media groups.

Tax Residence in Andorra

Tax residence in Andorra is advantageous for individuals, families, and businesses. You'll find some of the lowest tax rates in the world, but you cannot be challenged by other countries by saying that Andorra is tax heaven or does not fulfill all the requirements by the OECD to recognize a country as fully compliant with the international tax rulings, so why not take advantage of them?

If you're looking to take your company global, FINTAX ANDORRA can help you due to our long international experience; the team, who speaks fluently several languages, and our commitment to the client which is always, the top priority.
For that reason, we remain fully independent and we do not recommend the services of third parties looking always for the best service for our clients. Our services include but aren't limited to tax advisors, residence experts, corporate finance, and real estate advice. Book a consultation online to discuss your business needs today.

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