Andorra has one of the worlds lowest capital gains tax rates, averaging around 10%. This is considerably lower than other European countries like France, which has a rate of 33%.
Before a recent change, capital gains tax in Andorra didn’t exist at all.
If you’re the shareholder of a company or an overseas property investor, you may be curious as of how you will be affected, too.
In this article we’ll run you through everything you need to know about capital gains tax in Andorra. We’ll assume you know what capital gains are, as there are plenty of great resources available on the topic already.
Andorra Capital Gains Tax on Real Estate
The Andorran government instated capital gains tax to help combat inflation within the property market. While the country welcomes property investors, they want to keep the no-value practice of “flipping” to a minimum.
For this reason, the rate is mostly dependent on the holding period of the property.
If you sell property within Andorra, you are subject a capital gains tax rate of up to 15% on the profit you earn. This is presuming that the property has been held for only a single year or less. After the second year, the rate decreases to 13%. Then, after the third year, the capital gains tax rate is lowered to 10%.
From here, the rate goes down by 1% each year until it’s 0%. This entices real estate owners to keep their property for longer periods instead of selling it for quick profit. It’s easier to understand in visual form:
If the property being sold is the main residence of the seller, they are not subject to capital gains tax if another property is purchased within 6 months.
Andorra Capital Gains Tax on Company Shares
Forming an Andorran company or making investments into one are common approaches to gaining residency. It’s worth noting that in the event of a sale of these shares, a capital gains tax of 10% may apply.
If however, these shares have been owned for more than 10 years, this no longer applies.
Similarly, if you own less than 25% of an entity, you aren’t liable for capital gains tax. Consider this in the scenario of a stock market trader, who buys and sells equity far below 25% of the total equity in that company. As a result, this trader’s capital gains (but in reality, income) are exempt.
Residents, business owners, and investors can all benefit from Andorra’s capital gains tax system. While it’s higher than the non-existent rate from a few years ago, the current rates ranging between 15-0% are still some of the lowest in the world.
Property owners and real estate investors can lower or completely eliminate capital gains tax by holding their properties for a longer duration.
Minority shareholders of companies will pay no capital gains tax on their shares, making investing much more lucrative. Majority shareholders in it for more than quick wins can also see their capital gains obligations drop to 0%.
The low capital gains tax in Andorra makes it an ideal country to conduct business, from real estate to corporate investing.
If you have questions either on the tax system in Andorra or anything else related to our country, don’t hesitate to get in touch.