Dated back to 1278, since its formation, Andorra has never been involved in a war or never been invaded by any country. It is a small enclave situated between Spain and France over the past 700 years. The official language of Andorra is Catalan. Other minor languages used in Andorra are Spanish, French, and Portuguese.
What is a Tax Haven?
A tax haven is a country or territory that offers foreign businesses or individuals little or no tax in a politically and economically static environment. In other words, a Tax Haven is a place which is popular among individuals and businesses because its tax laws allow them to legally reduce their tax liabilities. How is this even done? Typically, this is done by assigning assets to offshore bank accounts or shell companies, or by taking up residency to benefit from lower tax rates. Limited or no financial information is shared with foreign tax authorities.
Andorra Tax Laws
Andorra has had absolutely no income, zero capital gains, no sales, gift or inheritance tax, and gaining residency was fairly simple. Currently, the personal income tax rate in Andorra is a maximum of 10%. The Andorran government implemented a 4.5% value-added tax (VAT). Andorra Tax includes the bracket approach for its income tax system. The income tax bracket for individuals includes 3 brackets- €0 – €24,000 which is 0%, €24,001 – €40,000 which is 5%, and €40,001+ which is 10%. The income tax bracket for married couples includes 2 brackets- €0 – €40,000 which is 0% and €40,001+ which is 10%.
|S.No.||What type of income is exempted from taxes in Andorra?|
|1||Income from Andorran government bonds|
|2||Dividends from holdings in entities registered in Andorra|
|3||Dividends holdings in entities resident in Andorra|
|4||Capital gains and losses|
|5||Income from funds deposited with an Andorran bank, up to €3,000|
Is Andorra really a Tax Haven?
Well, the answer is straight ‘no’ if we consider it from a legal point of view. But, many people would still consider it as a Tax Haven. As long as we talk about a place where you can legally reside and pay a fair tax, then probably yes.
So, the question arises that if it’s not a Tax Haven, then why is the tax rate so low? Andorra is a small and efficient country with limited government personnel. According to a parliament official of Andorra, the sales tax of goods and services is quite enough to finance Andorra’s budget. So, if you are planning to move to a country with low tax and ease to do business, Andorra is certainly a country to consider.
Income Tax in Andorra
On the 1st of January 2015, Andorra introduced a new personal income tax command. Under this law, those whose income is below €24,000 are exempted from tax. 5% Tax is valid for those who earn between €24,001 and €40,000. And, for those whose income is more than €40,000 is liable to pay the 10% tax.
Corporate Tax in Andorra
Now, what if you choose to set up your business in Andorra? Corporate Tax in Andorra ranges from zero to a maximum of 10%. The rules are really simple. If you are starting an international trading company that buys and sells goods abroad, or if you own a special financial management company from Andorra, you are eligible to pay tax up to 2%. This tax rate is even applied to the products manufactured in Andorra, as far as they are not exported or imported within the country’s borders. If you hire at least 1 part-time employee and possess an office space measuring 20 square meters, then you can completely qualify for the lower tax rate. Rest other companies will be subjected to the 10% tax rate. This type of business also needs that you acquire a residence in Andorra, which facilitates more requirements in comparison with other residences. This includes paying social security and spending more than 90 days a year in the country.
Real Estate Tax
If you sell a property for profit, you’ll be subject to a capital gains tax on you Andorra Real Estate. Let’s say that the initial tax rate is 15%. So, if you sell a property in the 2nd year of your ownership, the rate moves down by 13%. If sold in the 3rd year, it goes down to 10%. Further, it decreases by 1% per year and will reach 0% after 12 years. So, the good thing is that if you plan to sell your property after 12 years, you will not be taxed on the profit. Another way to avoid capital gain tax is by buying another property within 6 months of the sale of your previous residence. However, property ownership tax of €100 per year is compulsory for all residents. If you are the one who is buying a new property, you must pay a property acquisition tax ranging from 1.5% to 2.5% of the purchase cost of the home.
How to become a resident of Andorra?
If you love trekking and hiking in the mountains, then Andorra is just the right place for you. Andorra has a population of 80,000 people of which 35% are locals. Moving to Andorra is quite easy and hassle-free. There are 4 categories to acquire Andorra Residency: Category A (the former passive residency), Category B (an international business permit), Category C (a cultural permit), and Category D (Local Business). These programs are based on your active or passive residence in the nation. A work permit is compulsory for active residents. Let’s have a detail clarification of each category-
1. Category A: Passive Residence
This is valid for those who only wish to live in Andorra without working or starting a business. A stay of 90 days a year is compulsory for these residents. They are also exempted from paying any personal income tax.
2. Category B: International Business
This is valid for international businessmen who can form and run a company that operates largely outside Andorra, which is, 85% to 100% of the business should be outside Andorra. This residency also requires the same 90 days a year stay condition in the nation as the previous one.
3. Category C: Cultural Permit
If a person is known globally for scientific, cultural, athletic, or artistic ability, then he/she can apply for such a category. If the person qualifies the category, he/she still needs to meet many of the same requirements that come with the other residencies.
4. Category D: Local Business
This is valid for those who form a local company in Andorra and plan to live and work there permanently. This is the only program in Andorra that requires the person to make payments to social security or pay income tax in the country.
You can check out the detailed requirements on the official website of Andorra Immigration portal.
If you wish to apply for Andorra Citizenship, you must fulfill the following criteria:
- You must possess a residency in Andorra for 20 years, be it passive or active.
- You must complete your studies in Andorra’s schooling system and reside in the country for 10 years.
- You should have a clean criminal record
- You must renounce your current nationality as double citizenship is not permitted by Andorra’s legislation.
In any case, if you didn’t complete your studies in Andorra, you’ll have to undergo a written and verbal test in the Catalan language about the country.
In the end, Andorra’s tax law continues to evolve and the system remains straightforward. If you plan to invest in Andorra, you will enjoy some of the lowest tax rates in this European country. Not to forget the bonus of living in Andorra – the beautiful scenic view, diverse outdoor activates and world-class banks.