Taxation – PPI: personal income tax
When you want to invest or expatriate in a foreign country, taxation is one of the first areas of interest. The Principality of Andorra offers many advantages in this area. Compared to France, taxation is actually lower. For this reason, many French people do not hesitate to settle down in Andorra. The personal income tax is what interests us in particular. It is one of the most important taxes in Andorra. As its name indicates, it applies to any person having an Andorran fiscal residence.
What is personal income tax?
To better understand this type of tax applied in Andorra, let's take a closer look at how it is defined. Personal income tax or PPI (called IRPF in Andorra) is imposed on all persons with Andorran resident status. It affects all taxable income, regardless of its nature or source.
Income tax rates in Andorra
The Andorran tax system imposes a tax rate of no more than 10% for individuals, legal entities, and companies.
Here are the details to get an idea of what an Andorran resident must pay:
- Below 24,000 euros net, the income of individuals is not taxable. If the sources of income do not exceed this amount, they will be exempt from taxes.
- For income between 24,000 and 40,000 euros, the tax rate is 5%. As soon as the amount of income exceeds 24,000 euros, the IRPF is applied to the entire remuneration of individuals.
- From 40,000 euros and more, the tax rate will be 10%. This is the maximum rate.
A few examples to get a better idea
Assuming that a person with an active residence in Andorra enjoys an income of about 70,000 net euros per year. For the taxes to be paid, here is how it will be distributed:
- For the first 24,000 euros, they will be exempt from tax.
- The range from 24,000 euros to 40,000 will be taxed at 5%, which is around 800 euros.
- The last range, from 40,000 to 70,000, will be taxed at 10%, or 3,000 euros.
In total, for this income, the person will pay only 3,800 euros in taxes. Compared to what he would have to pay in Spain for the same income, there is quite a big difference. In this country, with this monthly income, he would have to pay more than €20,000 in taxes.
The French tax rate to be compared to
It is not surprising that Andorra's tax system is one of the lowest in Europe. More and more project owners are moving there for this simple reason. Largely lower than in France, the tax in Andorra is only imposed on income above 24,000 euros per year. In France, the tax applies to annual earnings from 10,225 euros.
Still concerning this French taxation, for the bracket going from 26 071 to 74 545 of annual income, the tax rate applied will be 30%. For an income of more than 160,336 euros, it will be 45%. As is the case in all countries, the higher the income, the more tax the taxpayer will have to pay through the established tax brackets.
Another notable difference between the taxes to be paid in France and in the Principality of Andorra is that the rate does not exceed 10% for the latter, whereas it can go up to more than 41% as soon as the income is equivalent to and exceeds 74,546 euros.
All about income liable to IRPF
Only people who are tax residents in Andorra pay income tax. This is a fairly recent tax since it was only effective in 2015. This does not mean that the income concerned was not taxable before that date. In simpler terms, the PPI or IRPF tax is the type of tax that Andorran jurisdictions impose on individuals.
Since then, company directors are also actively involved in the requirements imposed by the Andorran tax system. In essence, they must adopt the retention corresponding to the income tax of employees. The following are some ideas for the application of the withholding tax rate, depending on the remuneration received by the latter:
- No retention for a salary between 0 and 27,000 euros,
- About 0.5% for a salary between 27,000 and 30,000 euros
- 2% for 40,000 to 50,000 euros,
- 4% from 60,000 to 70,000 euros,
- Up to 7% for an income of 150 000 and more.
Who has to pay income tax?
The Andorran income tax is subject to all persons with tax residence in the country where it is predisposed to declare it. In the case of Andorra, these are the conditions to be met:
- Live in Andorra at least 90 or 183 days per year (depending on your type of residence),
- Choose the Principality to be the center of your economic activities.
What is not covered by the PPI
Border workers who go to Andorra on a daily basis to work are not affected by this tax. They are those who come essentially from France or Spain. They are recruited by Andorran companies. In their case, they will be subject to non-resident tax. On the total income they generate in the Principality, they will have to pay taxes that will not exceed 10%.
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When to pay this personal income tax?
Individuals must pay their taxes from April 1 to September 30. Their tax return will be filed in the following year. Withholding taxes must be paid to the Ministry of Finance. Depending on the amount of wages, they can range from 0 to 7%.
In any case, it would be wise to use the services of a tax expert, especially since in Andorra Catalan is the official language used in the administration. This expert will be better able to accompany you and advise you at the same time. You can also turn to legal and accounting services.
Income subject to personal income tax
Each taxpayer will have to pay a tax according to the nature of their income and their origin. The taxes are quantified as follows.
Taxes on General Basic Income
This tax will be deducted from the general basic income. This can be the salary and all kinds of wages, but also remunerations from commercial activities. It includes income from real estate.
Income taxes based on savings
This tax applies to real estate capital income, capital gains and losses. They can be derived from participation in equity funds, changes in assets (inheritance, gifts, free acquisition…), insurance, transfers of real estate, etc. Both interest and dividends are included.
Abatements and exemptions from PPI
There are cases where personal income tax is reduced or exempted. These include the elimination of double taxation, whether domestic or international.
New investments and the creation of new jobs also benefit from tax deductions. It is advisable to ask the competent authorities or a tax expert for more information on this subject.
The double taxation agreement
It would be right to take a closer look at the double taxation agreement or permanent contract as it also applies to personal income tax. The Principality has effectively signed international agreements to avoid taxpayers paying the same tax in two or more different countries. The first agreement was signed in 2013 with France. Other countries have followed, such as Portugal and Spain.
How to explain the tax advantages of the Principality of Andorra?
An independent state located between France and Spain, Andorra is known for its favorable taxation, both for individuals and investors. It is one of the European countries that applies a very low tax rate of no more than 4.5%. This is the equivalent of the VAT in France. This advantage would undoubtedly result from the efforts of its authorities.
Its government has not hesitated to strengthen its commitment to effectively combat tax evasion and international fraud. The adoption of a multilateral convention helps it to be more in line with the OECD requirements. This is also part of a strengthening of existing law and to better protect the rights of taxpayers. It also goes into the optimization of tax audits abroad, assistance in tax collection and exchange in all its forms.
Apart from its tax privileges and the double taxation agreement with certain countries, Andorra remains a privileged choice for expatriation, whether for work or to create companies and make investments. It is not only the project to create a company that remains interesting. The quality of life is so high that it would be the ideal place to retire, study or move with your family.