Taxes in Andorra: understanding Andorran taxation in the simplest way possible

Andorran taxation is often summed up by its relatively low tax rates. However, moving to Andorra, investing there, or setting up a business is not simply a matter of comparing a 10% tax rate with that of another country. Residency status, the source of income, the nature of the activity, international tax treaties, and even family circumstances can significantly affect how a taxpayer is treated for tax purposes. Over the past few years, the Principality has significantly modernized its tax system. It now has personal income tax, corporate income tax, and an indirect tax comparable to VAT. It also participates in international mechanisms for tax cooperation and the exchange of tax information.

In other words, Andorra still offers an attractive tax environment, but it now operates within a regulated framework. For anyone genuinely considering living there or developing a business there, understanding the applicable rules is more important than simply relying on the image of a “tax haven.”

How does taxation work in Andorra?

The Andorran tax system is mainly based on two broad categories of taxes. Direct taxes concern, among other things, individual income and corporate profits. This category includes IRPF, personal income tax, as well as corporate income tax. Indirect taxes are primarily represented by IGI, the Impost General Indirecte. In principle, it operates similarly to VAT in France or Spain.

This tax structure is relatively recent. A significant part of the current system was introduced during the 2010s to bring the Principality closer to international tax standards and to develop treaties designed, among other things, to limit cases of double taxation. For taxpayers, this development has a practical consequence: living in Andorra does not exempt them from declaring their income or providing evidence of its origin. Taxation may be advantageous, but it remains subject to accounting, reporting, and documentation requirements.

As tax information may change, the official texts published by the Govern d’Andorra and the tax authorities should remain the reference whenever a financial, professional, or wealth-related decision needs to be made.

IRPF: how are individuals taxed in Andorra?

IRPF, or Impost sobre la Renda de les Persones Físiques, is Andorra’s personal income tax. It applies to individuals considered tax residents of Andorra and covers, among other things, employment income, certain investment income, property income, and various categories of income received during the year.

The system is based on relatively straightforward progressive taxation. Under the tax scale presented here, the first €24,000 of income are exempt. The portion between €24,000 and €40,000 is effectively taxed at 5%, while income above €40,000 may be taxed at 10%. However, a common misunderstanding should be avoided: someone earning more than €40,000 does not necessarily pay 10% on their entire income. The calculation is made progressively by tax brackets.

Take the example of an employee earning €32,000 in income falling within this calculation. The first €24,000 are not taxed, while the following €8,000 are taxed at 5%. In this simplified example, the resulting tax would therefore be €400. For a self-employed person declaring €48,000 after taking allowable expenses into account, the calculation is different. The first €24,000 are not taxed. The next €16,000 are taxed at 5%, resulting in €800, while the €8,000 above the €40,000 threshold are taxed at 10%, resulting in an additional €800. In this deliberately simplified example, the IRPF would therefore amount to €1,600.

These calculations are primarily intended to explain how the tax brackets work. They do not constitute a personalized tax simulation, as tax reductions, deductions, exemptions, or special rules may affect the amount actually payable.

Which types of income are subject to IRPF?

Employment income naturally represents a significant part of the taxable base. This includes salaries as well as income generated from self-employment. Certain investment and property income may also be included in the tax calculation. Interest, dividends, rental income, and pensions should therefore not automatically be considered exempt.

Income originating abroad requires particular attention. This is especially relevant for retirement pensions, foreign dividends, income from a company located in another country, or property income received outside Andorra.

A tax treaty between Andorra and the country from which the income originates may determine which country has the right to tax that income or provide a mechanism for avoiding double taxation.

It would therefore be risky to conclude that foreign income is automatically taxable, or conversely automatically exempt, simply because its recipient lives in Andorra. The nature of the income and the applicable treaty must be examined.

When do you need to file an IRPF return?

Filing an IRPF return requires taxpayers to be able to substantiate the income they declare. Depending on the circumstances, this may involve keeping employer certificates, bank statements, accounting documents, property income records, or pension certificates.

The filing period generally extends over several months during the year following the year in which the income was received. However, the exact dates should be checked for each tax year with the Andorran tax authorities.

Tax residency: the 183-day rule is not the only criterion to consider

The 183-day rule is frequently mentioned when discussing tax residency in Andorra. It is important, but it does not by itself cover every situation.

An individual may, in particular, be considered a tax resident if they spend more than 183 days in the country during a calendar year. They may also qualify when their main center of business or economic interests is located in Andorra. This second concept is particularly important for entrepreneurs, company directors, international consultants, and people who maintain significant business activities in several countries.

It is also important to distinguish administrative residency, which allows an individual to live in Andorra under certain conditions, from tax residency. Obtaining a residence permit does not necessarily mean that all foreign tax authorities will automatically consider the individual an Andorran tax resident.

When someone maintains a home, family, company, or significant income in another country, the situation therefore requires a more thorough assessment.

What about non-residents?

An individual who is not a tax resident of Andorra may nevertheless be subject to tax in the Principality when receiving certain types of income there. This is the purpose of IRNR, the income tax for non-tax residents. It may apply, in particular, to remuneration related to activities carried out in Andorra, certain services, or other income sourced within Andorra. A 10% rate is frequently encountered for certain categories of income, but the actual tax treatment depends on the nature of the income, the recipient’s circumstances, and whether a double tax treaty exists between Andorra and their country of residence.

This is an essential distinction. Two people receiving the same amount from Andorra may face different tax treatment if the nature of the income or their country of residence differs. Filing obligations may also vary. Before issuing an invoice, providing a service in Andorra, or receiving significant income there, it is preferable to identify the applicable tax regime precisely rather than relying solely on the nominal IRNR rate.

Corporate income tax in andorra

The general corporate income tax rate in Andorra is commonly stated as 10%. This is one of the factors that makes the Principality attractive to certain entrepreneurs and investors.

An Andorran company must carry out genuine business activity, maintain proper accounting records, comply with its filing obligations, and be able to substantiate its transactions. A company created solely to artificially shift profits without genuine local activity may raise tax issues, both in Andorra and in the country where its directors or actual business activities are located.

For an international business, the concept of economic substance remains central. Factors such as where decisions are made, the presence of employees, premises, material resources, customers, and the reality of the business activity can be highly significant. Setting up a company in Andorra is therefore not simply a matter of obtaining a tax number and benefiting from a 10% rate. The legal structure must correspond to a coherent economic activity.

How corporate income tax filing works

A company must be able to trace its financial position and taxable profit through proper accounting records. In practical terms, this means keeping supporting documents, correctly recording transactions, preparing annual accounts, determining the taxable result, and submitting the relevant tax return within the required deadlines.

Turnover is not the same as taxable profit. This distinction may seem obvious, but it is fundamental to understanding corporate income tax. A company generating €200,000 in turnover does not necessarily pay 10% of €200,000. Tax is applied to the taxable profit determined after taking into account deductible expenses and adjustments permitted under the regulations.

Certain structures or activities may be subject to specific provisions. Their application should be checked on a case-by-case basis rather than assumed based on general information found online.

IGI: the equivalent of VAT in Andorra

IGI, or Impost General Indirecte, is one of Andorra’s main indirect taxes. Its basic operation is comparable to VAT: a business collects the tax on certain sales or services and may, where the conditions are met, deduct the IGI paid on certain business expenses. The standard rate is 4.5%. Different rates also apply to certain categories of goods and services.

For a business, however, the main point is not simply knowing the rate. It must determine whether the transaction is actually subject to IGI, which rate applies, when the tax becomes due, and in which tax return the transaction must be reported.

Take the simple example of a clothing retailer. When its sales are subject to the standard rate, the retailer charges IGI to its customers. At the same time, it may have paid IGI on certain business purchases. The tax return can then be used to calculate the difference between the tax collected and the deductible tax, in accordance with the applicable rules.

A consultant may face a different situation depending on the nature of their services and where their client is located. For international or digital activities, territoriality rules are particularly important.

Can andorran igi be directly compared with French or Spanish VAT?

The 4.5% standard rate is significantly lower than the standard rates applied in France or Spain. This comparison helps illustrate the apparent attractiveness of IGI.

However, it is not enough to calculate the profitability of a business. Indirect taxation also depends on the type of activity, the client’s location, the possibility of recovering the tax paid, import and export rules, and accounting obligations.

An entrepreneur working with several countries should therefore assess each transaction individually rather than systematically applying 4.5% to every invoice.

How does property taxation work in Andorra?

Real estate is another area where the headline rate alone is not enough to determine the actual cost of a transaction.

When purchasing a property, various duties, taxes, and fees may form part of the overall budget. The initial text refers in particular to a transfer tax of around 4% in the general case presented.

For an apartment purchased for €400,000, a 4% tax would, for example, amount to €16,000. However, this amount does not necessarily represent all the costs associated with the purchase. Notary fees, administrative procedures, potential financing costs, and specific rules applicable to the type of buyer must also be taken into account.

This approach is much more useful than looking solely at the advertised property price: before purchasing real estate, it is preferable to establish a budget that includes the total cost of the transaction.

Property capital gains: be careful with older rules

When a property is resold for more than its purchase price, the difference may have tax implications.

The reference text describes an older mechanism in which capital gains taxation decreased depending on how long the property was held, with a rate that could reach 15% for a quick resale and gradually decrease over the years.

However, this point requires particular caution because Andorran property taxation has undergone several changes. It is also important to correctly determine the taxable capital gain. The simple difference between the purchase price and the sale price may not be sufficient if certain expenses, improvements, or other elements can be taken into account under the applicable regulations.

Before a significant resale, it is therefore preferable to have a calculation based on the current rules rather than relying on an approximate estimate.

Rental income: renting out a property also creates tax obligations

A property owner who rents out a property should not only consider the taxation of a future resale. Rental income may also be taxable. The treatment depends in particular on the owner’s status, their tax residence, and how the activity is carried out. An investor residing in Andorra, a property owner living abroad, and a company holding several properties will not necessarily be in the same situation.

To accurately assess the profitability of a rental investment, the calculation should include the purchase price, acquisition costs, expenses, tax on rental income, any renovation work, and the tax applicable upon resale. A return calculated solely on the basis of gross rental income can provide an overly optimistic view of the investment.

How do you become a resident of Andorra?

There are several forms of residency in Andorra. The requirements vary depending, among other things, on whether the individual intends to carry out professional activity in the Principality or has income primarily originating from abroad.

Active residency generally applies to people who work in Andorra or carry out entrepreneurial activities there. The applicant must meet the conditions corresponding to their activity and demonstrate the reality of their professional situation.

Other forms of residency are more geared toward people who do not intend to carry out local professional activity under the same conditions. The financial and administrative requirements may therefore be different.

In all cases, the residency application may require several supporting documents, particularly regarding identity, housing, financial circumstances, and criminal records. The financial amounts required for certain categories of residency have changed over time.