Residences

Guide on Taxes compared and tax residence in Andorra: Fintax Andorra

By
Jose Maria ALFIN
on
November 4, 2022

Comparative guide among Andorra and other countries in terms of tax rates and key aspects of the tax residence in Andorra

Which country is on everyone's lips and has unwittingly generated a thousand and one controversies on the television talk shows of its neighbouring countries? Yes, you guessed it: it is Andorra.

Andorra is one of the smalest countriyour nationality may be the key factor in determining on the old continent d is located between France and Spain. Its capital is Andorra la Vella (Andorra la Vieja), and the population of the objectively assess the tax rates in each count coun as a whole is only around 80,000. It covers a total area of 465 square kilometres and is noted for its breathtakingly idyllic mountain scenery (although its detractors point out that it is landlocked), its desirable standard of living, and for being one of the safest countries in the world, with a crime rate that is practically unheard of.your nationality may be the critical factor in determining

But why is it one of the most talked-about countries on social media as a place to live? Well, mainly because of the tax advantages available to its residents. For many years, and about this fact, there have been several controversies that have been highlighted by the different media, especially in neighbouring countries, in which people have been criticised (and also praised) who have their tax residence in their respective countries, have changed it there to take advantage of these advantages. 

Here is a compilation of some of the most relevant questions on this topic. 

Let's get down to business: what are the advantages and attractiveness of tax residence in Andorra for high-income taxpayers? 

First of all, we should find out what taxes there are in Andorra and what kind of advantages (fiscally speaking) can result from living there. To find the answers to these questions, we are going to analyse the central taxes in different countries and compare them with Andorran taxes to see how attractive it would be to live in the principality:

We will start by analysing the corporate income tax.

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 judge this figure effectively, it is necessary to compare it with other corporate taxes in neighbouring countries, with Spain's and France's being 25%. In the worst-case scenario, you would be taxed 15% less.

The second tax to analyse is the Andorran General Indirect Tax (IGI).

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%).

The third Andorran tax to compare is the personal income tax or IRPF.

This tax is usually one of the most significant for the countries as it is levied, among others, on the personal income from the work of each of the taxpayers resident in Andorra. Personal income tax is made up of the general base, which includes income from work (the employee's salary), income from real estate capital (exploitation of rental property and rights over this property) and income from economic activities, and the savings base which is made up of income from real estate capital (dividends and interest) and capital gains. We will now examine this in more detail: 

Personal income tax in Andorra is taxed as follows: the first 24,000 euros are not taxed; the next bracket, from 24,000 to 40,000 euros, is taxed at 5% (only on the bracket, not on the total) and, from 40,000 euros onwards, it is taxed at 10% (as above only on the bracket, not on the whole). It will be clearer if we illustrate these data with some examples: a person with a salary of 30,000 euros will pay 300 euros in personal income tax, while a worker with an annual salary of 40,000 euros will pay 800 euros in taxes; in the case of a person who earns 50,000 euros per year the amount will be 1800 euros (800 euros of the 5% of the first tranche and 1000 euros of the 10% of the second tranche). 

Comparisons are odious but necessary, and if we analyse Spain's personal income tax, we find that from the first euro, you start paying taxes, with 19% being the lowest percentage and 47% for incomes over 300,000 euros. In France, we find similar figures to those in Spain for high salaries. However, with marked differences for medium and low wages, with significantly lower rates than in Spain: from 0 euros to 10,225 euros, no tax is paid at all, and from 10,226 to 26,071 euros, only 11% is paid. 

Referring to the examples above, 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.

Income from movable capital, which includes interest earned on bank accounts, rental income, share dividends and capital gains on the sale of assets and the like, is 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 in this country even more attractive.

How can I obtain a residence permit and tax residence in Andorra to benefit from these advantages?

Inevitably, once you have conducted a superficial analysis, you can see the significant difference between other countries and Andorra. At the same time, you will have made a mental calculation of the savings you could have made if you lived in Andorra. For this reason, you will probably have wondered how to obtain tax residency in the principality and what the requirements are to be able to enjoy such optimal conditions. 

The list of conditions you must fulfil to apply for becoming tax resident in Andorra and the details you must take into account before leaping are not simple. However, on an economic level, there is a gap compared to other countries. 

To begin with, you should be aware that you cannot have tax residency in two countries at the same time and that the tax authorities of the countries of origin are increasingly trying to avoid these income leaks, as they are often associated with large fortunes that seek, in a completely legal manner, much more favourable taxation.

The complexity of the procedures will make it difficult for you to do it on your own, and you will have to be advised by specialists in the field who will guide you but, roughly speaking, if we look at Andorran law, a person is considered a tax resident as long as:

- 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 centre of economic interest is in Andorra. In other words, the majority of your personal income must be based in the Andorran territory. It will be easier if we are talking about a worker who is providing services in the principality. Still, for certain types of companies, it will be more complicated to meet the conditions at this point.

- The family resides in the country. Here it is also necessary to clarify that it CAN NOT be a distant cousin who lives in Andorra... 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.

You should bear in mind that if you do not meet any of these criteria, the nationality you have may be the critical factor in determining in which country you will have your tax liability. The different tax authorities in the countries of origin carry out more incisive inspections of people who change their tax residence. These inspections are thorough, and if the requirements are not met, fines, penalties and even criminal charges (some of which carry a prison sentence) may be imposed for non-compliance with the tax obligations generated. Persons in this situation must demonstrate clearly and convincingly that they have complied with the conditions set out. For this reason, we recommend advice from specialised companies with years of experience in the sector, which will save you problems and worries.

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 economic 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 simply 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 residency 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.

Finally, this post may have resolved some of your doubts, but it will probably have generated others; you will have discovered the advantages of being a tax resident in Andorra and what you would have to do to be able to do it, but also the disadvantages and what you would have to sacrifice to achieve it. As each person has their own peculiarities and each case is different, if you are determined to make the change, the best option is the specialised advice adapted to your needs that you can get from the company FINTAX ANDORRA.

This firm of Lawyers, Tax Advisors and International Consultants is made up of a team of professionals of the highest level and with extensive experience in the field, which will facilitate, advise and help you in all the necessary steps to successfully achieve your objective in a personalised manner, looking after your interests and with the discretion required for this type of procedure.