Exactly how do taxes work in Andorra?

Fiscalidad

Exactly how do taxes work in Andorra?

Being a resident in Andorra entails one of the great advantages over other countries that many people would like to have: that their system favors tax members.

To begin with, vat (IGI) is one of the lowest that we can find among the countries of Europe with only 4.5%.

Best of all? Their reductions are enviable. 0 and 1% applied to goods and services related to health or education. 

In the case of Corporation Tax, which is responsible for the taxation of companies, it reaches a maximum of 10%. 

And as for the Personal Income Tax, up to € 24,000 is exempt and then this index is reduced to 5% for people who justify an income between € 24,000 and € 40,000. 

In any case, 10% is the maximum for this tax.  

Throughout the article, we will explain in depth each of these taxes so that you can know them better.

What are the business advantages of taxes in Andorra?

With the small pill that we have just shown you can get an idea that taxes in Andorra generate great benefits for all entrepreneurs. 

And yes, these include small and medium-sized enterprises. 

Not only is having one of the lowest corporate taxes in Europe considered an advantage, but there are many others:

  • In the Corporate Income Tax, only 5% is taxed on the first € 50,000. This is true in the event that the company invoices less than € 100,000 in three years. In case the winnings may be greater than € 50,000, the maximum applicable percentage is 10%.
  • There is a government tax aimed at companies, this varies between € 200 and € 800 per year.
  • Thanks to the agreements between Andorra and France, double taxation of tax obligations is avoided. Which means that companies can pay them only in Andorran territory if appropriate.
  • Social security contributions have a low cost compared to other countries.
  • Andorran taxation does not apply taxes on wealth or inheritance. So you have complete freedom in these cases.

 

Capital gains in Andorra

When it comes to capital gains, we find that Andorra treats them more flexibly than other countries.  

For this, two different cases can occur:

  • Depending on the source of income, as long as it is considered as a common income, it would be entitled to a tax of up to 10% for capital gain.
  • In the event that a profit is being obtained from sales of shares, new situations may arise:
  • A holding company that has a 25% or less stake in a company would be exempt.
  • If you own more than this 25% the same thing would happen, but the time of possession is greater than 10 years.
  • In the event that you do not have that seniority but 25%, the payment is made.

In addition, the government may apply a withholding tax corresponding to 5% of the capital gain. 

This is given to avoid speculation of the price of equity or capital and can last from three to six months.

 

The General Indirect Tax

The IGI is the tax that we know as the VAT and is given in the exchange of goods and services carried out in Andorra, including imports.

We have already told you that in Andorra, this general tax is only 4.5%, a very low percentage if we compare it with the taxes of France or Spain, in which we find VAT of 20% or 21%.  

Among the tax rates depending on what it is applied to, we find:

  • Super-reduced rate has a value of 0%. That is, vat is not payable on activities related to the health and education field, but there are occasions when it is applied as in the rental of housing or gold for investment.
  • Reduced has a tax value of 1% and applies to food, both animals and people, water intended for both and for irrigation and publications that do not contain commercial advertising.
  • Special rate with a value of 2.5% in transport of people, provision of services offered by non-public non-profit organizations and to the goods of collection, art or antiques.
  • Increased tax with a value of 9.5% applied to financial and banking services.

 

How is VAT settled in Andorra?

As in Spain, VAT is paid by the final consumer of the product or service, while the marketer is the one who must bear the IGI that will be passed on to the final customer.  

The settlement of this tax is marked by the annual turnover of the previous year. Look:

  • If they exceed 250 thousand euros, it is done semi-annually.
  • When they exceed 3.6 million, it is done quarterly.
  • And for the rest of the cases it is settled monthly.
  • Unless you are part of the simplified special regime: that business that does not exceed 100 thousand euros per year for at least three years.

Corporate Income Tax in Andorra

This tax is applied to the profits obtained by a company and its maximum is 10%. 

That is why it is the favorite of hundreds of SMEs and multinationals. 

In addition, in the case of dividends or shares in profits, they are exempt from taxation for residents in Andorra, which makes it much more beneficial.

How is corporate tax settled in Andorra?

To pay corporate tax, two crucial times of the year must be taken into account: September and July. 

In September of the current year, half of the total percentage of the IS is paid in advance in reference to the profits obtained the previous year. 

For example, if you had to pay a 5% levy, in September you would pay 2.5% of the profit generated the previous year. 

In the following July, the final settlement is processed, where the percentage to be paid of the IS of the year that has ended is calculated and the amount that you already paid previously would be subtracted.

Personal Income Tax (IRPF)

This tax applies to people considered as tax residents in Andorra and does not apply to salaries below € 24,000 per year. 

From this amount it goes in accordance with the income and is never higher than 10% while in Spain it reaches up to 53%.

 

How is Personal Income Tax settled in Andorra? 

Settling this type of tax can always generate a bit of a headache, but the reality is that the term that exists is quite wide. 

The people obliged to present this tax have a deadline from April 1 to September 30 of the following year on which they have to settle.

Other taxes and fees in Andorra

Although Corporation Tax, Personal Income Tax and IGI are the best known taxes, in Andorra there are other taxes divided into direct and indirect. 

To give you an idea, among the direct obligations imposed by taxation in Andorra you can find:

  • Income taxes of non-tax residents.
  • Taxes on gambling activities.
  • Taxes on capital gains on property sales.

And among the indirect obligations imposed by taxation are:

  • VAT in Andorra or general indirect tax.
  • Taxes on insurance services.
  • The IRNR. The income tax of non-tax residents is applied to frontier workers residing in nearby countries such as Spain or France and has a rate of 10%.

Finally, we also find the parishes. Those tax obligations that are required by taxation in Andorra:

  • Taxes on built property.
  • Location taxes of commercial activity.

 

Are there tax exemptions for entrepreneurs?

You are in luck, because taxation in Andorra offers you some benefits such as exemptions for entrepreneurs and companies:

  • The first € 3,000 for return on movable capital.
  • The total dividends issued by the Andorran company, and received by an Andorran resident.
  • 100% of the first € 24,000 are exempt from Personal Income Tax, and 50% of the following € 16,000.

  

Are you thinking of moving your company to Andorra? 

We want to make this transition much more comfortable and without you having to worry about paperwork, finding a home to settle in or finding the perfect place for your family. 

To know more about our services, book a call with us to tell you everything we are going to do for you to achieve your goal of going to the Pyrenees to enjoy a new stage.