Taxation, taxes, and tax residency requirements in Andorra

Andorra is a country where real estate investment is encouraged by its leaders, the opportunities are many and very interesting. Before embarking on a tax purchase or tax residence project in Andorra, you should know all the rules governing the sector, all administrative documents being written in Catalan. Here are listed the essential elements relating to taxation and taxes in Andorra.

The different taxes in Andorra

In Andorra, the main taxes related to residence and housing that must be paid by both individuals and companies are as follows.

Personal income tax (IRPF)

The IRPF, the income tax for individuals living in Andorra, was introduced in the Andorran tax system in 2015 and is one of the main taxes in Andorra. It is calculated on the income that any natural person is likely to release, and in particular:

• income from a trade or activity corresponding to the sum of salaries, wages and bonuses;
• income related to the operation of real estate, including rental properties;
• income from certain activities such as commercial, professional or administrative activities;
• income from property or movable property as well as bank interest.

“Gratuitous” acquisitions (inheritance, donations) and income from the sale of real estate are not part of the IRPF:

According to Andorran taxation, this tax is capped at 10%. It is zero below the accumulation of € 24,000 in revenue per year, and its applied rate is 5% for income between € 24,000 and € 40,000 per year.

Finally, the persons subject to the IRPF are the following:

• those living in Andorra for more than 183 days during the calendar year;
• those carrying out an economic activity in the Principality, or having economic interests that allow them to make profits, direct or indirect.

Tax on built real estate property and “Foc i lloc”

The amount of property tax in Andorra is calculated according to the place of residence and its area. This tax applies to real estate built or the real right of use on the property.

As for the tax Foc i lloc, it is levied during the tax residence in Andorra in one of the 7 parishes of the Principality, in individuals aged 18 to 65 years. Its amount is fixed by each parish.

Andorran taxation for companies

First thing to know: the taxation in Andorra is largely favorable to companies or the establishment of an activity (low social charges). For example, the tax on profits is capped at 10%.

On the other hand, there are 3 large taxes in Andorra to which companies are subject.

Corporate tax (IS)

Initiated in 2012, the Andorran corporate tax (IS) is levied, according to a certain percentage, on the profits made by an organization. The applicable general rate is 10% maximum, a company having particular advantages during the first 3 years of its existence.

Special case: holdings with shares of other companies based abroad, outside the Principality of Andorra, and therefore non-resident tax in Andorra.

In addition, through bilateral agreements, the French and Andorran governments are behind the signing of a double taxation agreement.

Andorran taxation and indirect general tax (IGI)

In the tax system in Andorra, the IGI (indirect general tax) is the equivalent of the French VAT. It was introduced in 2013, with its rate remaining particularly low at 4.5%

Other taxes in Andorra

Directly levied by the parishes of the Principality of Andorra, the municipal tax is part of local taxes in Andorra.

As for the government tax, it ranges from € 200 to more than € 800 per year and is intended for companies that do not benefit from a commercial register.

Tax for non-tax residents in Andorra

The border workers coming from Spain or France, exercising an activity in the country are considered as non-tax residents in Andorra.

IRNR: income tax for non-resident tax residents in Andorra

The status of non-tax residents in Andorra is special. Those are submitted to the IRNR if they perform one of the following activities:

• employed in a service-provider company (repair, rental of real estate, etc.);
• teacher, training professional, technical assistant, etc.
• artist;
• employee affiliated to the CASS (Social Security System).

The average amount of the IRNR is 10% of the received wages.

Plus-Value and the law of tourist accommodation

In Andorra, capital gains realized on the transfer of real estate are taxed from 1% to 15%.

The Value Tax

Addressed to tax residents in Andorra, it is a fairly recent tax, introduced in 2006, which is applied in the case of a sale of a property whose acquisition is less than 10 years.

Specifically, an average levy of 5% of the amount of the capital gain realized during a real estate sale is operated for a period ranging from 3 to 6 months, before repayment. During this time, the Andorran authorities intend to verify compliance with the administrative regulations during the transaction and also aim to control the value of the property declared, subject to capital gains tax on the sale of a property immovable.

The calculation of the Capital Gains is done using a correction coefficient, which is determined each year by the Government of the Principality.

If the property has remained the property of the same person for 10 years or more, this Andorran tax measure does not apply.

The law of tourist accommodation

If you are considering the purchase of real estate in the Principality for rental purposes, know that Andorran taxation controls your investments by the so-called law of tourist accommodation.

In Andorra, buying an apartment for rental purposes is governed by the law of tourist accommodation. Updated in 2017, this law mentions the obligation to declare to the Ministry of Tourism if renting your property. A registered number is assigned to you (one for each property), so you can start your rental activity.

This measure corresponds in practice to guarantee a good use of the rental practice in the Principality.

All properties are also classified according to qualitative criteria. A number of stars is attributed to them according to the standing of the property (equipment, amenities, etc.)

Tax residence, taxation in Andorra: the main rules and the main advantages

Overview

Taxation in Andorra is peculiar and unique, it relies primarily on a solid and efficient financial system, recognized for its reliability and safety. It is supported by 5 main banking groups that participate in a capitalization policy consistent with a high solvency.

Whether or not you are a tax resident in Andorra, the Principality offers very competitive tax rates. While the bases of the current tax system are substantially equivalent to those of European countries, there are still great disparities in the tax rates applied.

Thus, VAT (IGI) is applied at 4.5%, while the income tax in Andorra is 10% maximum. Some deductions are possible up to a 80% threshold, they concern strategic investments. Do not hesitate to contact the Private Concierge Set Up for more information on these measures.

Agreements also stipulate that residents and tax residents of Andorra are not subject to double taxation when they decide to take up residence in the Principality.

Benefits for individuals

The Andorran tax system has certain advantages for natural persons having decided to settle in the country, among which:

• a very low VAT rate (4.5%), as explained above, is simply the lowest in Europe;
• the non-taxation of bank interest up to 3,000 euros per year;
• the absence of wealth tax (ISF);
• the inexistence of inheritance rights.

Do not hesitate to contact the Conciergerie Set Up to support your real estate investments and know all the taxes in Andorra. An exclusive network of the best partners allows us to advise and guide you on these topics, and why not, to carry out most of the administrative procedures on your behalf, in the respect of all the texts of law in force in the country.