Taxation in Andorra: Understanding the Low-Tax Haven in Europe

Considering Moving to Andorra for Tax Purposes

Moving to Andorra could be the solution for those who feel they are paying too many taxes in Italy.
This European microstate, located between Spain and France, is known for its extremely low taxation on incomes compared to Italy.
How much taxes are paid in Andorra? Let’s explore who should consider the option of moving to Andorra and who could actually do so, as the independent principality located in the Pyrenees has strict requirements.

Taxes in Andorra

Tax rates in Andorra are indeed very low, although until a few years ago, there was no income tax at all.
Currently, there is a large tax-free area and two flat tax rates, one at 5% and one at 10%.

While Andorra is famous among winter sports enthusiasts for its stunning ski slopes, the principality has also gained prominence for its particularly advantageous tax policy aimed at attracting foreign capital.

The country’s tax system is attractive for both businesses and individuals, whether residents (taxed on all incomes earned, even abroad) or non-residents (taxed only on incomes earned locally).

In general, businesses are taxed at a flat rate of 10%.
Dividends and capital gains (from the sale of qualified stakes) received by residents and non-residents are exempt from tax.
For real estate capital gains, taxation ranges from 1% to 15%, depending on the length of property ownership: after at least 10 years of ownership, capital gains become tax-free.

Andorra also incentivizes start-ups by providing a 5% flat tax rate on the first 50,000 euros of income for the first 3 years (if the income does not exceed 100,000 euros).
For individual activities, the same taxation that applies to individuals is foreseen.

Income Tax for Individuals

Andorra has a very generous tax-free area.
For residents:
– The first 24,000 euros of income are tax-free (which increases to 40,000 for married individuals).
– A 5% flat tax rate applies to incomes between 24,000 and 40,000 euros.
– A 10% flat tax rate applies to incomes above 40,000 euros.

For non-residents, dividends, interests, returns on movable capital, and international sales of goods are tax-exempt.

Value Added Tax (VAT) in Andorra

Andorra also has a tax similar to Italy’s VAT, known as the general indirect tax, with a rate of 4.5%.
Similar to Italy, there are reductions in tax rates for:
– 0% for healthcare, culture, and education.
– 1% for food items, water, and editorial products.
– 2.5% for museum tickets, shows, and transportation.

For banking and financial services, a higher rate of 9.5% applies.

Becoming a Resident of Andorra

As mentioned earlier, the requirements for obtaining residency in Andorra are quite stringent.
To be considered a resident, one must have the base of their activities and economic interests in the principality and reside in the national territory for at least 183 days a year.

Residency can be acquired in three different ways: through a work permit (only granted to European citizens in specific cases), by starting a company in Andorra, or through investments for those not interested in working or founding a company.

For residents without a lucrative activity (those with income solely from abroad), requirements include staying in the principality for at least 90 days per year, investing a minimum of 400,000 euros in Andorra in shares or real estate, and depositing at least 50,000 euros (increased by 10,000 euros for each family member) in a non-interest-bearing account at the Andorran National Finance Institute.