An interesting tax framework
It should be pointed out that in Andorra there is no inheritance tax or wealth tax and bank interest is tax-free up to the sum of 3,000€ a year. For their part, the various taxes which do exist in Andorra involve a number of advantages for both natural persons (including residents as well as non-residents in the Principality) and Andorran enterprises.
Advantages of the Andorran tax system for Andorran companies
In Andorra companies are subject to two main taxes: the Corporation Tax (IS) and the Indirect General Tax (IGI), although the Personal Income Tax (IRPF) also indirectly affects the owners of companies.
Corporation Tax (IS)
Established in 2012 with a maximum rate of 10%, the Corporation Tax (IS) applies to the profit made by companies. The Andorran tax system offers special advantages during a company’s first three years of activity. This tax does not apply to holding companies possessing shares in other companies which are registered outside of Andorra.
It should be pointed out that Spain and Andorra have reached a bilateral agreement to prevent the double taxation of companies.
Indirect General Tax (IGI)
This tax was established in 2013 and it is the equivalent of VAT, but with a much lower rate: 4.5%. This rate is applied to the price of the services rendered or the goods sold. The IGI does not apply to the export of goods or services.
Personal Income Tax (IRPF)
Introduced in 2015, this tax is applied to the income of natural persons and consequently, from the legal standpoint, it does not apply directly to Andorran companies. However, the IRPF applies to the professional activity of individuals who own a company or who reside for over 183 days a year in Andorra.
Advantages of the Andorran tax system for natural persons
IRPF: who and what are subject to it
- Everyone who resides in Andorra for over 183 days per calendar year
- Everyone who exercises an economic activity in Andorra or who has economic interests which generate direct or indirect profits in our country.
The IRPF applies to the following:
- Income from a profession or an activity: remuneration, wages, bonuses;
- Income from the operation of real estate and especially leased or rented properties;
- Income from economic activities, such as commercial, professional and administration activities;
- Income from securities or security rights to movable properties, such as bank interests;
- Income from the change in the composition of active capital gains or capital losses.
The IRPF has a maximum rate of 10%. It does not apply when income does not exceed 24,000€ a year, and the rate is 5% for income between 24,000€ and 40,000€ a year.
Gratuitous acquisitions (inheritances and donations) are not subject to the Personal Income Tax.
Non-Resident Income Tax (IRNR)
Andorra is an attractive country and the Andorran authorities have had to take into consideration the non-residents who wish to benefit from the advantages which our country offers. Non-residents include, for example, cross-border workers who live in Spain or France and exercise their professional activity in Andorra, or people who work in Andorra for a very brief period of time. The following people are subject to the Andorran IRNR tax since they enjoy the advantages of our country:
- Service-provider companies (repairs. real estate rentals, etc.)
- Teachers, training professionals, technical assistants
- Cross-border workers affiliated to the CASS
The IRNR applies a rate of 10% to the income obtained.
An attractive tax system for foreign nationals investing in Andorra
A tax system that favours real estate investment
The Capital Gains Tax and the tourist accommodation regulations favour real estate investment in Andorra by foreign investors.
The Capital Gains Tax in Andorra
This tax was established in Andorra in 2006 and it applies to the sale of a property which has been purchased less than 10 years previously. It is payable at the time of the sale of the property. The Andorran government withholds 5% of the amount of the respective capital gain during a period of 3 to 6 months in order to verify that no administrative sanctions are currently being processed and to check the declared value of the property.
How is the capital gain calculated? The calculation is based on the number of years that the property has been owned by the seller: if the property has been owned by the same person for over 10 years, no capital gains tax is applicable. If it has been owned by the same person for less than 10 years, the calculation is based on a correction coefficient set by the Andorran government. The rate of the Capital Gains Tax ranges from 1% to 15%.
Tourist accommodation regulations in Andorra
If you wish to purchase an apartment in Andorra for the purpose of renting it out as a tourist apartment, you will be subject to Andorran tax and specifically in accordance with the updated Tourist Accommodation Law of 2017. This law requires that temporary rentals should be declared to the Ministry of Tourism and that a registration number should be obtained for each real estate unit. The registration number allows you to exercise this activity and assigns a classification based on the criteria established by the pertinent department of the Ministry.
In order to ensure the quality of the investment properties available for rental and to facilitate the rental process, Andorran law has established a star-based system identical to the hotel classification system in our country. Apartments are classified according to international criteria, taking into consideration aspects like kitchen equipment, bathroom amenities, etc.
Notaries are tax experts in the Principality of Andorra
With its 78,000 inhabitants, Andorra has only 5 notaries, that is to say, 1 notary for every 15,000 inhabitants. Here are the contact details of some of the notaries in our country:
- Bartumeu Martinez, Isidre
C. Prat de la Creu, 36, Andorra la Vella
- Rosa Ferrandiz Notary Office
Bda del Moli, 9, 1-5, Andorra la Vella
- Rodriguez Miñana, Joan Carles
Av. Carlemany, 105, 5-3, Escaldes-Engordany
The following are the expenses connected with the purchase of a property and they are payable at the time of the final signature of the deed of purchase and sale:
- 1% of the sales price, for the notary
- 4% of the value of the property for the Capital Transfer Tax (ITP). The notaries collect this tax on behalf of the Government.