This question could apply to the UK, Spain, Portugal, Italy, or any other European country where the level of corporate and personal tax is much higher than that of our Principality. Without a doubt, this is one of the questions most frequently posed by businesspeople and entrepreneurs who are intrigued by Andorra’s attractive tax policy but who want to remain in their customary place of residence.
Table of contents:
- Creating a company in Andorra and living abroad is perfectly legal
Should I move to Andorra?
Comparison of taxes in Andorra with those in Spain
Double taxation conventions (DTCs)
Andorra residency requirements
A country where the living is good
Is this why so many elite sportsmen and women move to Andorra with their families?
Creating a company in Andorra and living abroad is perfectly legal
That answers that :). But you probably have other questions. Just read on….
As we mentioned, creating your company in Andorra (or anywhere else in the world) and continuing to live in your country of residence is perfectly legal. You would continue to pay taxes as an individual in your country of residence, and your company would pay taxes in the country where it is based (in this case, in Andorra).
You only need consider that:
- Whether or not you are a resident of Andorra, you must apply for a foreign investment authorisation.
- You will need to open a bank account in one of the country’s financial institutions.
- Your company or corporation must have a physical address in Andorra and hire at least one employee registered with the Andorran Social Security system in case the director of the company is not a resident.
Should I move to Andorra?
This is an excellent question. If you also want to pay less personal tax, the answer is undoubtedly YES.
In Andorra, persons with net income below 24,000 euros have no personal tax liability. For net incomes from 24,001 to 40,000 euros, the rate of personal income tax is only 5%. And for net incomes above 40,000 euros, the tax rate is 10% (much lower than in your country of residence).
Regarding income from savings, the applicable tax rate is 10% with an exemption for the first 3,000 euros of such gains.
Moreover, given that any dividends paid to you by your Andorran corporation have a 0% tax liability, and that there is no wealth tax and no inheritance tax, Andorra is undoubtedly a good option to reduce the tax burden on any individual.
Comparison of taxes in Andorra with those in Spain
In personal income tax (IRPF) and in all other taxes, Andorra has significant tax advantages over Spain.
Here is a comparison of the main taxes:
• IRPF (Personal Income Tax):
In Spain it is applied progressively, the rate increasing as the taxable income increases. In 2023 the brackets were:
– From €0 to €12,450 >> 19%
– From €12,450 to €20,199 >> 24%
– From €20,200 to €35,199 >> 30%
– From €35,200 to €59,999 >> 37%
– From €60,000 to €299,999 >> 45%
– More than €300,000 >> 47%
In Andorra, as we have seen, it is divided into three brackets:
– From €0 to €24,000: not taxed
– From €24,001 to €40,000: the tax is 5%
– From €40,000 upwards it is 10%
• IS (Corporation Tax):
• Companies in Andorra also benefit from favourable tax rates: while the general tax rate in Spain is 25%, in Andorra it is 10%.
• IVA (Value Added Tax):
In Andorra, VAT is called IGI (General Indirect Tax) and is levied on consumption, being imposed on transactions of goods and on the provision of services by entrepreneurs or professionals, as well as on imports of goods.
In Spain, VAT is divided into:
– A general rate of 21%, which covers all goods and services not covered by other categories.
– A reduced rate of 10%, which applies to certain foodstuffs not covered by the previous category, to passenger transport and to non-professional sporting events, among others.
– A “super-reduced” rate of 4%, which applies to basic necessities.
In Andorra, the IGI is a four-tier tax:
– A general rate of 4.5%, which applies to all products and services not covered by the other tranches.
– A special rate of 2.5%, which applies to passenger transport, marketing, educational, cultural or social services not provided by public administrations or non-profit organisations, and to the sale of works of art.
– A reduced rate of 1%, which applies to food, drinking water, books, newspapers and magazines, among others.
– A “super-reduced” rate of 0%, which applies to health products and services, education and training, rental of dwellings or public cultural services, among others.
– Finally, an increased IGI of 9.5%, for banking and financial services.
ITP (Property Transfer Tax)
– In Andorra the tax base is 4%, divided into 3% for the Comú (town council of each parish) and 1% for the Government.
– In Spain, by contrast, between 6% and 11% is paid entirely to the Autonomous Community, which is the body that applies the tax base.
Double taxation conventions (DTCs)
The main purpose of international double taxation conventions is to prevent the same event from being taxed in two different tax jurisdictions. These treaties set out the rules by which two countries agree to divide the revenue from tax on income earned by their residents in order to prevent double taxation.
The importance of these treaties is that they provide greater legal and fiscal security for investors and companies operating in both territories. The DTCs define key concepts such as fiscal residence, types of income and the manner in which the tax is applied.
Andorra is renowned for its favourable fiscal regime. It has signed several double taxation treaties with the aim of better integrating into the global economy, complying with international standards of fiscal transparency and combating tax evasion. These treaties are part of a wider effort to modernise Andorra’s fiscal framework. They also improve relations with other countries in terms of tax information exchange and tax co-operation. Andorra currently has various DTCs with countries such as Spain, France and Portugal. Find out more in the article double taxation treaties.
Andorra residency requirements
All persons interested in applying for Residency and self-employment authorisation in Andorra must:
- Live in Andorra on a permanent basis during 183 days.
- Provide proof of foreign investment authorisation to form a company in the country (in which the person applying for residency has an ownership share of greater than 34%).
- Hold a position in the governing body of said company.
- Deposit €50,000 non-interest-bearing at the Andorran Financial Authority (AFA), which is returned in full when the person decides to cease residing in Andorra (provided there are no outstanding debts).
This type of active residency authorises you to live and work as a self-employed individual or businessperson. But there are other types of residency in Andorra that might be of interest to you.
A country where the living is good
Make no mistake about it: Living in Andorra doesn’t just make sense in terms of tax. As a matter of fact, our little Principality enjoys one of the highest levels of quality of life of any country in the world.
- Strategically located in the Pyrenees, it is less than 3 hours from the airports of Barcelona and Toulouse, and only 2 hours from the AVE train station in Lleida.
- There are just a few of us, that’s true. Andorra has roughly 85,000 inhabitants, half of which are foreigners, made up from over 100 different nationalities.
- Only 5% of our territory is urbanised. Furthermore, 36% of our 468 km2 (181 sq. miles) are protected natural areas.
- We enjoy clean air, low levels of noise pollution and pure rivers and lakes.
- Our public health system is world-class. In fact, statistics show us to be the fourth healthiest country in the world.
- Life hums here year-round. With more than 2,000 hours of sunshine each year and an economy focused on services and tourism, life in Andorra goes on throughout the year.
- Quality public education: You can choose from three public systems (Andorran, Spanish or French) in addition to private schools in English.
- We live in absolute serenity, as the crime rate is practically zero.
Is this why so many elite sportsmen and women move to Andorra with their families?
In 2022, 1251 foreign investment applications were processed, of which 1160 were formalised with a total investment volume of more than 350 million euros (figures from the Servei d’Estudis, Departament d’estadística del M.I. Govern d’Andorra).
If you think that Andorra might be a good option for reducing your tax burden, do not hesitate to contact us without any commitment.