Andorra and its attractive tax system: Opportunities for expats

The Andorran tax system has been adapted in recent years to take into account the activity and economic structure of the country, transitioning from a predominantly indirect tax system to a direct taxation system, thereby meeting international standards, especially those set by the Organisation for Economic Co-operation and Development (OECD).

Andorra offers a simple and attractive tax framework to encourage the country’s economic growth, facilitating foreign investments and the internationalisation of national companies.

The main taxes in Andorra are Income tax for individuals, Corporate tax, Real estate transfer tax, Non-resident income tax, and the General indirect tax. Additionally, it is worth noting that in Andorra, there is no Wealth tax, Inheritance tax, or Gift tax.

Internationally, Andorra has signed several tax agreements to eliminate double taxation concerning income tax. The countries with which Andorra has signed Double taxation agreements (DTAs) so far are: Cyprus, Croatia, United Arab Emirates, Spain, France, Hungary, Iceland, Malta, Monaco, Liechtenstein, Lithuania, Luxembourg, the Netherlands, Portugal, San Marino, the Czech Republic, South Korea, Belgium and, Latvia. Andorra is also negotiating to expand its DTAs network with other jurisdictions.

Income tax for individuals

• Individuals subject to income tax 

Individuals considered tax residents in Andorra are taxable on all their income (whether sourced in Andorra or abroad), also known as “worldwide income.” Methods to eliminate double taxation on income obtained abroad are provided by international tax agreements or Andorran domestic law.

• Categories of taxable income and income tax for individual rates 

Within income tax for individuals, there are two categories of taxable base: the general income base and the savings income base.

General income base

Income included in the general income base of the income tax for individuals consists of employment income (salaries), real estate capital income (rent from properties), and income from economic activities (income from self-employed professionals).

Net income (i.e., after the application of any applicable tax advantages) from the general base is subject to a progressive income tax for individuals rate, with the maximum tax rate being 10%.

The progressive income tax for individuals rate for the general base is as follows:

• From €0 to €24,000 of income: personal minimum exemption.
• From €24,000 to €40,000 of income: the tax rate is 5% after the application of an allowance.

• Beyond €40,000 of income: the tax rate is 10%.

Savings income base

Income falling within the savings income base of the income tax for individuals includes income from movable capital (dividends, interest) and gains and losses on movable capital. In principle, they are taxed at a maximum rate of 10% after considering an annual exemption of €3,000 for savings income. However, specific exemptions exist, such as dividends from companies established in Andorra or, under conditions, capital gains from the sale of shares in an Andorran or foreign company.

Corporate Tax 

• Entities subject to corporate tax

Entities subject to corporate tax are legal entities considered Andorran tax residents, i.e., those that meet one of the following conditions: (i) established under Andorran law; (ii) having their registered office in Andorra; (iii) having their effective management office in Andorra; (iv) having transferred their residence to Andorra in accordance with commercial law.

• Tax base and corporate tax rate

The tax base for corporate tax is calculated considering profits minus deductible expenses established in the tax regulations. Andorran companies are taxed on worldwide income, meaning they will be taxed on all income obtained, without prejudice to the possibility of eliminating double taxation following national legislation and the DTAs signed by Andorra.

The general corporate tax rate is 10%. Andorran collective investment entities are subject to a 0% tax rate.

• Specific regimes for determining the corporate tax base

Legal entities can, under conditions, benefit from certain favourable tax regimes for corporate tax, for example, the special regime for the exploitation of certain intangible assets called “Patent Box,” allowing an 80% reduction in the corporate tax base, or the “Holding” company regime, allowing exemption of dividends received from subsidiaries and capital gains realised on the sale of shares.

• Specific corporate tax exemptions

Dividends received from an Andorran or non-Andorran company are exempt from tax when certain requirements established in the tax regulations are met. Additionally, capital gains from the sale of qualified participations could also be exempt.

Real Estate Transfer Tax 

Regarding real estate transactions, the transfer, constitution or assignment of real rights over real estate is, in principle, subject to real estate transfer tax at a tax rate of 4%.

Concerning capital gains from the sale of real estate, and following the reform effective January 2024, real estate capital gains are now taxed under corporate tax, income tax for individuals, and non-resident income tax depending on the case (no longer under the Real Estate Transfer Gains Tax (“know as IPTPI”), which has been repealed).

Non-Resident Income Tax 

Non-resident individuals and legal entities are subject to non-resident income tax only on their Andorran-sourced income at a general maximum rate of 10%.

Additionally, certain categories of income received by non-residents are exempt from tax in Andorra, such as dividends received from an Andorran company or, under certain conditions, capital gains from the sale of shares in an Andorran company.

General Indirect Tax 

The general indirect tax is a consumption tax levied on the supply of goods and services provided by businesses or professionals, as well as the importation of goods. Compared to neighbouring countries, the Andorran general indirect tax corresponds to the Spanish IVA and the French TVA.

The general indirect tax rate is 4.5%. However, there are other specific rates ranging from 0% to 9.5% applicable to certain categories of goods and services: (i) super reduced rate: 0% (hospital services, healthcare, education, etc.); (ii) reduced rate: 1% (food products, books, etc.); (iii) special rate: 2.5% (art objects, antiques, visits to fairs, museums, etc.); (iv) specific rate: 3.5% applicable to a specific type of real estate transaction; (v) increased rate: 9.5% applicable to banking and financial services. 

This information is provided for informational purposes only and does not constitute any form of recommendation or legal advice. It is based on regulations in force at the time of writing. 

At Carlota Pastora Advocats, we are available to answer any questions regarding the Andorran tax system. Our team of tax law experts will be pleased to offer personalised and detailed advice to meet your specific needs. Please feel free to contact us to schedule an appointment.