While cryptocurrencies, DAOs, DeFi, and other blockchain related projects develop at a rapid rate, most governments are struggling to keep up. Combined with the extremely risk adverse attitudes of many banks around the world, bridging the gap between traditional finance, taxation and digital assets is a major challenge, if not a frustration to many.
Andorra is a hidden gem when it comes to working with cryptocurrencies such as BTC, ETH, SOL and so on. The country remains open for this kind of business while also providing several advantages for those looking to establish operations.
With minimal tax rates for cryptocurrency profits, Andorra can prove to be a great option if you choose to move and become a tax resident here.
There are several things you should be aware of when it comes to Bitcoin and other digital currencies in Andorra, including the tax rates, requirements, regulations, platforms, operations and more.
In this guide we will take you through each of these aspects so you can get a better idea of why becoming a tax resident in Andorra is so advantageous to cryptocurrency investors and business owners.
Crypto Tax Rates
In most scenarios, gains from digital currencies fall under the personal income tax since most kind of trading is done on an individual or personal level. The maximum rate of personal income tax for residents is 10%.
But while the headline rate is 10%, often times the reality is different to this. Similar to share traders who realise their gains via capital gain, most cryptocurrency wins come from HODLing over volatile periods to realise substantial upsides.
In the event that an investor owns less than 25% of a company and he or she sells those shares, they are not generally liable for capital gains tax in Andorra. This is an important point to note, where if a crypto investor is structured correctly, they may be able to significantly lower their tax burden.
Do be aware however, that the current tax code is ambiguous when it comes to crypto profits. It is expected that changes to the tax code will further clarify the government’s stance on digital assets within the coming year.
It is clear that Andorra has low tax rates and relatively simple ways to carry out cryptocurrency trading.
However, this does not mean that the process is completely independent, as you will still need to keep a few important requirements in mind to maintain legality and transparency. We will provide some insights below.
Proof of Source
It is extremely important to provide proof of the source of your funds. While banks in Andorra value privacy, they are also risk adverse, due to the challenges the banking system faced in 2015, as well as needing to work with the government to ensure the country is not branded as a tax haven.
Since crypto trading is relatively unregulated, the risks of illegal and morally ambiguous business sources is real.
For this reason, it is important for banks in Andorra and financial institutions to be able to verify the source of your funds to maintain legal transparency. They will also verify how you are using these funds to prevent any kind of money laundering liability on their behalf.
Since the value of Bitcoin, Ethereum, Solana and other coins are on the rise and gaining popularity at a rapid rate, financial institutions need to regulate the trading process even more.
The best way to think about this is, the banks need to protect themselves first and foremost. This is also important for the reputation of the financial authority and government as well. It is important for them to maintain transparency to ensure they can continue working within the wider global banking system, and providing services to people like you and I.
So, expect a request from your bank to show proof of where the initial capital came from. If you can do this, you will find these to be relatively basic compliance requirements on the bank’s behalf.
It is also important for you to maintain a record of your funds and transactions with Bitcoin or any other cryptocurrency. This is once again necessary to maintain the required amount of transparency so that no legal issues arise later on.
Due to the sensitivity involved in this kind of investment and trading, you should expect this kind of regulation. While it may seem frustrating at the time, remember that this requirement is ultimately quite simple, and in place to ensure the legal status of your activities.
These records should also clearly convey how you have established these funds and how and when you plan to re-establish them into fiat currencies.
It is important to keep in mind that most intermediate transactions or operations are likely to be taxed given that you are receiving a benefit in return for the trade in the form of some kind of currency.
As a result, investment in Bitcoin or any digital currencies constitutes your personal income or assets that are then taxed at the end of the financial year.
It is necessary to be transparent with this kind of transaction so that you can pay the necessary taxes by declaring it clearly. This kind of exchange generally applies to most kinds of transactions and assets to maintain their legal status.
By correctly declaring your profits, you can be sure that everything is taking place in a legal manner. This is especially important if you ever plan to return to your country of citizenship one day. You will be able to show the tax department in your home country that you have paid tax on any gains in Andorra.
There are some established platforms that can help you carry out this kind of investment and trading in Bitcoin and other cryptocurrencies. These platforms can make it easier for you to conduct your transactions in a safe and secure way.
While we do not advocate any platforms, it has become clear that banks within Andorra are familiar with both Binance and Coinbase. Familiarity brings with it lower compliance efforts.
These platforms are favoured due to their verification process, security features and transaction history.
Mining and Blockchain Operations
Andorra also makes it possible for you to carry out crypto mining and blockchain operations. This is largely due to the exceptional internet speed and low latency, but also the cheap electricity and internet costs.
With electricity as low as €0.0776/kWh, not to mention the cool climate, mining operations can still be profitable in the Principality.
Home internet connection speeds are available up to 700Mbps thanks to the presence of fibre optic cabling, which terminates to all homes in the country, including apartments. 1Gbps symmetrical connections with redundancy and static IP addresses are also available.
Several attempts to improve the technology for blockchain projects through other companies are also being made in Andorra. Generally the government is very supportive of these projects.
Current and Upcoming Regulations
Currently, all the regulations that exist in Andorra are aimed at protecting the legality of your funds and investments in Bitcoin and other cryptocurrencies. These regulations aimed to bring legitimacy to an otherwise unregulated field.
The Autoritat Financera Andorrana (AFA), Andorra’s financial regulatory body, seeks to track all aspects of cryptocurrencies while also developing these regulations with the government.
Recent amendments to law 35/2014 has better defined many terms relating to digital assets and business. This law clarifies simple concepts such as time stamps, certificates, online signatures and other elements, which helps the country to transition to an increasingly digital future.
It’s worth translating and reading the whole document, but the key take away is that this amendment supports the government’s appetite for digital assets. They see it is the future and are working to embrace in the best way that they know how.
We anticipate that the increased legitimacy this legislation brings will become a useful bridge for investors to cash out of crypto and back into fiat currencies, and vice versa.
This kind of legal support can be quite useful as it can make transactions more transparent and allows for crystal clear contract-level agreements.
Development in this space has been pushed along thanks in part to how COVID-19 affected Andorra. The government was forced to allow functions such as working from home, and they are now working to develop a digital signature system as well as allowing taxes and other government fees to be paid online.
This provides another great reason to become a tax resident in Andorra.
Investment and Residency
Andorra is a great country to consider if you are interested in legitimising your digital asset investments or business. Becoming a tax resident here doesn’t just give you access to low taxation of your crypto holdings, it gives you an incredible way of live.
But it is important for you to first go through all the residency requirements beforehand, so you know what to expect. Though we hope it will develop to become a hub for tech workers, today it is not, and this can leave some people disappointed. Understandably, this means they want to spend their time outside of the country, but this can also have tax implications.
For instance, you to maintain tax residency, you may need to reside in the country for up to 183 days each year. If you’re unsure of the specific requirements, please do reach out so I can help to clarify this for you.
Let’s not forget that there are several other benefits of becoming a tax resident of Andorra and enjoying the fruits of your digital assets though.
- if you do not already have an EU passport, Andorra gives you access to the Schengen Area,
- running on Central European Time, Andorra gives you home base with a great timezone, meaning you can take calls at a reasonable time of day with Asia, Europe, Middle East and the Americas,
- a healthy local environment means if you’re spending a lot of time in front of the screen, it’s easy to get away from it all and recharge,
- Andorra has a great lifestyle that sees all residents with a livable salary, accessible healthcare system, fast internet, and access to high-quality education.
Andorra Wants You!
Andorra could be the ideal place for you to become a tax resident due to a maximum personal income tax of 10% on your cryptocurrency profits.
With upcoming clarifications on both tax and industry regulations, you can expect Andorra to mature their stance on blockchain projects and digital asset investments, all aimed at protecting your investments and further digitalising the country.
Andorra has entered the competitive space for digital asset investors and tech workers, so it’s worth doing your home work to see if this may be the right country for you to call home.
If you still have questions or want the latest on this topic, don’t hesitate to reach out to me!