All about taxes in Andorra

One of the many reasons why some people consider moving to Andorra, is related to tax rates. What are taxes like in Andorra? Is it true that less taxes are paid in the Principality?

Taxes in Andorra: How to pay taxes in the Principality?

The first thing you should know is that Andorra is very famous because its tax rates are low. The main ones that stand out are the IRPF, the IGI (which is the equivalent of VAT) and the Corporate Tax. These three taxes are considerably lower than those paid in Spain and other European countries. That is why the Principality attracts many professionals, especially Spaniards.

Did you know that there are certain Spanish taxes that do not exist in Andorra? For example, the Wealth Tax, as well as the Inheritance and Donation Tax are non-existent in the Principality. And what is necessary to be able to obtain tax benefits in Andorra? To be able to pay taxes in the principality it is necessary to have tax residency in Andorra, which can be obtained if certain criteria are met. 

One of the criteria to meet is living in the Principality for more than 183 days a year (habitual residence), but it is also possible to start paying taxes in Andorra if you They have family ties (spouse or dependents) in the Principality; Furthermore, if an economic nucleus is established in Andorra it is also possible tobenefit from the tax rates in Andorra.

What is the tax system like in Andorra?

The Andorran tax system attracts many professionals whose main occupation is online entertainment, as well as those who are related to the Internet. The numbers of Spanish expatriates grow every day in Andorra and, according to the Diplomatic Information Office of the Ministry of Foreign Affairs, European Union and Spanish Cooperation, there are 20,015 Spanish citizens residing in the small Principality. 

Andorra is a developed State that requires a large budget in order to be crowned a welfare state. For this, it is necessary that there be certain taxes. And what are the taxes in Andorra?

General Indirect Tax

It is known as IGI (Impost General Indirecte) and is the equivalent of Value Added Tax (VAT), also known as VAT in other countries. The objective of the IGI is to tax the consumption of goods and services. In Andorra, the IGI has different tax rates:

• General: 4.5% and that is well below the 21% paid in Spain. 
• Reduced: 1%, applicable to foods for human and animal consumption, among others. 
• Superreduced: 0% and applies, among others, to hospital or public health care, but also to educational and sports services and even to property transfers or first-party purchases housing, among others. 
• Special: 2.5%. This tax applies to the transportation of people, cultural services, libraries, archives and even visits to museums, fairs, galleries, etc.
• Increased: 9.5% and is intended for financial and banking services.

Impuesto de Sociedades

The Corporate Tax or IS is responsible for taxing the profits obtained by a company. The maximum tax rate is 10%, which is why Andorra is becoming the preferred destination for SMEs and multinationals: it has one of the lowest IS on the entire continent.

Residents of Andorra are exempt from paying taxes on dividends and participation in profits. In September, an advance payment of the IS is made. To do this, half of the total percentage of Corporate Tax is calculated in relation to the previous year. If, for example, you have to pay 5%, in September you pay 2.5%. It is not until the month of July when the final settlement is carried out and from which the percentage paid in September is subtracted.

Taxes in Andorra: IRPF

The IRPF is the Personal Income Tax and is responsible for taxing income through work income. This tax rate applies to tax residents of the Principality and who have earnings greater than 24,000 euros, but it is not only responsible for taxing work performance, but also the heritageand commercial activities. 

The Andorran personal income tax must be settled between April 1 and September 30 of the fiscal year following the declared period. The personal income tax came into force in 2015 and is divided into three progressive sections:

• Income less than 24,000 euros. They are exempt from paying personal income tax.
• Income between 24,000 and 40,000 euros. They pay 5% of personal income tax.
• From 40,000 euros. 10% of personal income tax is paid.

Other taxes in Andorra

The Andorran tax system establishes that there are different types of taxes. These can be direct and are those derived from obtaining income or holding assets; while indirect taxes are directly related to consumption. Among the direct taxes of the Principality are:

• About the income of non-residents (IRNR).
• Taxes on gambling activities.
• Gains from equity sales of homes.  

The indirect taxes in Andorra are:

• The IGI (Andorran VAT). 
• Taxes on insurance services. 

In addition to taxes in Andorra, which can be direct and indirect, we must also highlight the tax obligations known as parish. Here we find what is known as Foc i lloc, a tax rate that all Andorran residents between 18 and 65 years old must pay.