Last updated on 3 de April de 2023
Andorra is one of the most fiscally attractive countries in Europe. It also has plenty to offer. In this post, we do an in-depth analyses of taxes in Andorra.
- Andorra’s economy
- Taxes on earned income
- Capital income taxes
- VAT (IGI)
- Taxes on the purchase of a home
- Corporation Tax
Andorra is a very small country, with a population of less than 80,000 inhabitants. Its geographical location, between Spain and France in the Pyrenees, ski slopes and attractive taxes, make Andorra a unique place in the world.
The financial and tourism sectors are the most important for the Andorran economy. Financial services, skiing, and shopping lock in over 10 million visitors each and every year.
Because Andorra overhauled its tax system a few years ago, it is no longer officially considered a tax haven by the OECD. However, that designation tends to be subjective. And, as we will see below, there is no doubt that Andorra is, compared to most other countries in Europe, a tax paradise.
Taxes on earned income
Earned income in Andorra is subject to Social Security payments and personal income tax. This is what most workers in Andorra pay:
Like most Western countries, Andorra has a social security system, managed by the Andorran Social Security Fund, known as CASS.
The CASS is responsible for a number of social benefits. These include retirement pensions, health insurance for residents of the country, as well as benefits associated with sick leave and unemployment.
Social Security contributions to the CASS are made by both the employer and the employee. And the self-employed contribute to it as well.
Companies that employ workers in Andorra must pay 15.5% of their gross salary to the social security. Of this percentage, 8.5% goes to the pension system, while the other 7% is for the rest of benefits.
As for employees, they must pay 6.5% of their gross salary to the CASS. 3.5% will go to the pension system, and 3% to other benefits.
Finally, let us look at what the self-employed pay to the social security in Andorra. In this category we would find the famous Youtubers who have decided to leave their country of origin to reduce their tax bill.
Youtubers, as well as other self-employed people, must pay 22% of the average monthly salary in Andorra to the CASS. The average monthly salary is always that of the previous year, which is around €2,100. Thus, the monthly contributions of the self-employed will be about €460.
In certain circumstances, it is possible for the self-employed to pay a lower social security contribution. This is the case only if they have recently started their economic activity or have incomes below the average salary in the country.
Personal Income Tax
Employees and self-employed people in Andorra also pay personal income taxes. The personal income tax in Andorra is known as IRPF and has three applicable rates, which depend on the individual’s income level:
- 0 to €24,000: 0%
- €24,000 to €40,000: 5%
- More than €40,000: 10%
As you can see, both low and high incomes pay very little tax. This is why Andorra is such an attractive place when it comes to taxes. This is especially true for those who earn a lot of money and can choose where they want to live.
In addition, the Andorran income tax has several deductions that allow to reduce the tax bill even further. Thus, those who have children, are paying a mortgage or contributing to a private pension plan, will have to pay less taxes.
In fact, income taxes in Andorra are so low that, apparently, it is very common for workers to negotiate with their company what their net salary will be. The company will take care of any income taxes.
Capital income taxes
Capital income is also treated very favourably in Andorra. The first €3,000 per year that residents in Andorra receive are exempt from taxes. Everything that exceeds that figure will be taxed at a rate of 10%.
The tax rate applicable to capital income is not only low, but also easy to calculate. This contrasts with other countries, where taxes are much higher and their calculation is more cumbersome.
VAT in Andorra is known as IGI, which stands for General Indirect Tax, and taxes the consumption of goods and services in the country.
Although the general VAT rate in Andorra is 4.5%, reduced rates exist for certain categories. The following table lists all VAT rates, and the main products and services to which they are applied:
As you can see, the IGI rates are very attractive, especially when compared to those of other countries. In fact, Andorra is one of the European countries with the lowest VAT.
Taxes on the purchase of a home
The purchase of a home in Andorra is also accompanied by the payment of taxes. In this case we would have to pay 4% of the value of the purchase, regardless of the amount.
Although this tax is not low, it is lower than what is paid in the two neighboring countries, Spain and France.
Corporation Tax in Andorra is 10%, applicable to both small and large companies. Thus, it is one of the most attractive rates in Europe.
To put it in perspective, the corporate tax in Spain is 25%, in France between 28-31%, depending on the size of the company, in Germany nearly 30% and, in Ireland, considered by many as a tax haven for companies, 12.5%.
Additionally, dividends distributed by companies domiciled in Andorra are not subject to any withholding taxes. This prevents double taxation.
Dividends are a good means for the self-employed to get paid, as there is no difference between receiving a salary, or getting paid through dividends. In both cases a tax rate of 10% will apply.
Andorra is a country with low taxes for everyone. It is for this reason that it is such an attractive place for those who can freely decide where they want to live.
Something remarkable, in addition to the low tax rates, is that the Andorran tax code is extremely simple. There are very few tax figures, making it possible for everyone to know how much they are paying.
This is in contrast with the tax codes of most European countries which are both expensive and difficult to follow.
If you would like to learn how much taxes are paid in other countries, check out this section:
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