Income Tax Brackets in Andorra: Explained

Andorra, a gem tucked in the Pyrenees between France and Spain, isn’t just known for its breathtaking landscapes and skiing resorts; it’s also renowned for its favorable tax system.

Understanding the income tax brackets in Andorra is crucial for residents and prospective movers, akin to knowing the best trails for an enriching hike in its mountains.

This guide will illuminate the path through Andorra’s tax system, ensuring you’re wellequipped to navigate the financial slopes of this serene principality.

Let’s dive in!

What Are Andorra Tax Laws?


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Andorra’s tax laws are still among the best in all of Europe, despite the country no longer being recognized as a tax haven. 

Active and passive residents are subject to slightly different rules. If a passive resident stays here for fewer than 183 days a year, they may be exempt from the personal income tax (IRPF, up to a maximum of 10%). 

Additionally, they are not obliged to announce their movements or make any passive declarations.
There is some gray area when it comes to the actual requirements—183 days for active residency and 90 days for passive residency.

A large number of our clients voluntarily register as fiscal residents and file taxes with the appropriate authorities. They may have no tax return because of exemptions. 

If a person lives in the principality for fewer than 183 days a year, they can be considered fiscal residents. In this manner, you avoid paying taxes on your income. 

To declare taxes in Andorra and only pay a fixed rate of 10% for all income over €40,000/year, you do not need to be physically present in the country for more than 183 days, and your time spent here is not tracked.

What Are The Types Of Taxes In Andorra?

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The goals of the Andorran tax system are designed to encourage economic growth, accept foreign investment, give foreigners a stable base, and foster an atmosphere that attracts entrepreneurship. These are the rates as they appear:

  • Income tax maximum of 10% (zero for non-resident foreign citizens). 
  • 10% corporate tax rate (0-2% on income from foreign sources). 
  • 4.5% VAT is the lowest in Europe (many items are tax-free). 
  • Minimal property taxes—€100 for a large house per year. 
  • Dividends on all Andorran CIF funds for retirees are tax-free. 
  • Interest on bank savings that is not taxable up to €3,000 annually.

IRPF
After pressure from the governments of France and Spain, the Impost Sobre la Renda de les Persones Físiques, or IRPF, was introduced in 2015; before then, Andorra had no income tax.

The tax resident’s marital status affects how much income tax they pay. For married couples who have a mortgage and children, the government offers assistance.

VAT
Value-Added Tax In Europe, this tax is the lowest. Millions of tourists from surrounding nations purchase in the nation to take advantage of lower prices on the most popular shopping items, which include cigarettes, alcohol, and perfumes.

Compared to France, consumer goods are 20–40% less expensive. With the exception of banking fees, the general VAT rate on other purchases is capped at 4.5%. Like other nations in Europe, the product being purchased determines the VAT:

  • 0% VAT is applied to goods like alcohol, cigarettes, and perfumes. Gold, rental properties, and medical services are also exempt from VAT.
  • 1% VAT is applied to water, meat products, books, and magazines
  • 2.5% VAT is applied to tickets for transportation, library memberships, museums, historical site admission, theater tickets, art sales, and similar services. 
  • 9.5% VAT is applied to financial and banking services. 

In contrast, the VAT rates in France, UK, Spain, and Ireland are 20%, 20%, 21%, and 23%, respectively. Because of the low VAT, living here will allow you to enjoy some of the lowest consumer goods in Western Europe.

Business Tax
With numerous tax breaks, the principality has the lowest corporate taxes in all of Western Europe. In contrast, the tax rate in Ireland, the largest corporate tax haven in Europe, is 12.5%. Here, the corporate tax is only 10%.
For tax purposes, you are not required to live in the nation in order to incorporate. Andorra offers incorporation for as little as €3,000 (ad agency fees excluded).

For the first three years, the Andorran government offers tax advantages:
50% off during the initial year. This indicates that for the first twelve months, the effective tax rate is only 5%

✅ The corporate tax rate will only be €50,000 if the business generates income of €1,000,000 or more.

Property Tax

For a large home (150m² or more), property tax is symbolic and typically costs €100 per year. Property taxes will cost you, on average, €0.75 per square meter annually. The parish of residence is used to calculate the tax.

Only property owners who are between the ages of 18 and 65 are subject to the property tax. Property tax is not due by owners of real estate who are over 65. The seller is responsible for paying the 1.5–2.5% transfer taxes on sold properties. 

Annual taxes for the upkeep of infrastructure are levied by each parish and range from €500 to €1,000. In the principality, this is the only significant tax burden that property owners face.

Rental Income Tax

Depending on the resident status of the property owner, Andorra taxes rental income. While foreign residents continue to receive relatively low taxes, local residents benefit from lower taxes on their rental income.

As a local, you will pay between 0.4 and 4% whether you rent out a property on Airbnb or for a longer period of time. The tax rate for foreign investors who receive income in the principality is set at 7.5% of their gross rental income.

Tax on Capital Gains (For Sales)

When an Andorran property is sold for a profit, the owner is required to pay capital gains taxes; the rate varies based on the length of ownership.

If the property is sold within a year of ownership, the rate is at its highest, 15%. In the following years, this drops to 1% in the first year, 10% in the third year, and 13% in the second. If you’ve held the property for more than 12 years, there is no capital gains tax. 

If the property was used as the primary residence and the owner uses the proceeds from the sale to buy another property within a six-month period, capital gains taxes are not due.

Vehicle Tax

Importing a car into Andorra from outside the EU and the European Union is simple. Only 4.5% (VAT) of the car’s market value is subject to import taxes. The import tax on a car valued at €10,000 will only be €450

An automobile must be registered for a one-time fee of €200. The Automobile Club of Andorra is the one who issues the license plate, which costs €60.

Only principality residents who have a valid residence permit and are able to prove their address may register a vehicle.
The rules for importing vehicles are as follows:

  • Automobiles produced outside of the EU will have an income tax of 10%.
  • The EU emission standards require the vehicle to be energy-efficient Class 5 or higher. 
  • Older cars, like expensive classic cars, are exempt from the class-5 rating requirement and can be imported.
  • Residents of the UK should be aware that cars with a right steering wheel are not allowed. 
  • All vehicle registrations in the principality require auto insurance. 
  • Automobiles produced outside of the EU will have an income tax of 10%.

Tax On Dividends

Only foreign dividends are subject to Andorra’s dividend tax. Dividends are exempt from personal income tax if they come from Andorran entities and businesses, such as Andorran CIFs. 

This implies that retirees who put their money into Andorran CIFs will be able to live a lifetime of tax-free income.

The dividends might be liable to personal income tax with a maximum tax rate of 10% if they come from businesses that are not Andorran residents. Nonetheless, the double taxation rule may also exempt these dividends. 

What Are The Principal Advantages Of The Andorran Tax System?

In the past, Andorra has been renowned for its tax-friendly policies. Although not entirely tax-free, the few rates that do apply are among the lowest in all of Europe.

The recently enacted personal income tax is structured in tiers.

The previous Sales Tax regime was superseded by the VAT system, which was implemented in 2013.

Conclusion

With the map of Andorra’s income tax brackets now in your hands, you’re ready to navigate the fiscal landscape of this unique country with confidence.

The tax system here, designed to support both individuals and the broader economy, offers a refreshing approach to taxation, reflective of Andorra’s commitment to fostering a prosperous community.

As you settle into life in Andorra, let this guide serve as your compass, ensuring your financial journey is as smooth and rewarding as the country’s famous ski slopes.

Here’s to a successful and fulfilling experience in Andorra, where finance and nature harmoniously coexist.

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