Up until 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 Even though its previously long-standing reputation as a tax haven is no longer valid (legally at least), the tax rates here are still significantly more favourable when compared to most other European countries.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.
Known locally as Impost sobre la renda de les persones físiques, or IRPF, income tax in Andorra is calculated on annual basis: 1 January to 31 December.
Rates vary based on whether you are a resident or a non-resident and specifications for both scenarios are explained below.
Resident Income Tax Rates
The basic income tax rate for residents in Andorra is 10% and 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 are tax-exempt for residents. If you, as a resident, make money through investments, you pay zero tax on the first €3000.
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%
- €40,001 or higher: 10%
Unlike most countries, the income tax rate here is applicable to all salaries, pension income and foreign investments. This means that if you are 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 will have to pay IRNR. Levied at a rate of 10%, IRNR is payable 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 further up. Although the 10% rate is still a very low for income tax, it’s important to note that Andorra currently has taxation treaties with only 24 countries. Depending on where you live, you may be taxed twice.
Until a few years ago, this was a real concern for French and Spanish cross-border workers, however Andorra now has tax agreements in place with both countries.