Until 1st January 2014, Andorra didn’t tax individual income. Even though its previously long-standing reputation as a tax haven is no longer valid (legally at least), the tax rates here are still significantly favourable when compared to most other European countries.
Despite the quick modernisation of Andorra’s political system and its progressive fiscal policies, the country has managed to retain a shockingly low income tax rate — one that never exceeds 10%, making it one of the lowest in Europe.
Income tax in Andorra is locally known as Impost sobre la renda de les persones físiques, or IRPF. It is calculated on a one-year basis, namely 1st Jan to 31st Dec.
Rates vary based on whether you are a resident or a non-resident; specifications for both scenarios are explained below.
Resident Income Tax Rates
The basic Income tax rate for residents in Andorra is 10% — this is, of course, subject to credits and deductions. Salaries below €24,000 are not charged any income tax whatsoever. From there on, the tax gradually increases and is capped at 10%.
Dividends issued by Andorran companies, for residents (only), is exempt. If you, as a resident, make money through investments, the first €3000 is exempt.
For individual residents, the tax rate brackets are as follows:
- €0 to €24,000: 0%
- €24,001-€40,000: 5%
- €40,000 or higher: 10%
For couples who are married, the brackets differ, but only slightly:
- €0 to €40,000: 0%
- €40,000 or higher: 10%
Unlike most countries, the income tax rate here is applicable to all salaries, pension income, and foreign investment. This means that if you’re a resident in Andorra making over €24,000, no matter the source of your income, you will be charged a nominal tax.
Income tax here also covers a few key deductions and provisions for your dependents and mortgage payments; each of these will affect your overall personal tax rate.
Non-Resident Income Tax
If you are not a tax resident, i.e. if you do not stay in Andorra but your income is generated in the Principality, you’ll be charged an income tax of 10% on all economic activity that occurs within the country’s jurisdiction.
Once you formally become a resident, you will be eligible for the tiered tax brackets and income adjusted rates mentioned above. Though this 10% is still a very low rate for income tax, it’s important to note that Andorra does not have taxation treaties with a wide range of countries yet, so you may be taxed twice.
This type of tax is most commonly applied to French and Spanish cross-border workers. It also applies to contractors, artists, freelancers, and other service providers. If your income structure is fee-based, 5% of your invoice will be taxed, and an additional 1.5% for reinsurance. If (one of) your income sources consist of real estate rentals, a 20% reduction is applied to the amount received. Basically, all lucrative activity within the country’s borders is taxed.