Andorra is a small European country with an outsized reputation for favourable tax rates.
The highlights include a low value-added tax, no sales tax, and a low personal income tax, among others. The advantages also extend to the Andorra corporate tax rate.
As well as being lower than those in almost every other nearby jurisdiction, Andorra’s tax rates are also relatively straightforward.
That said, if you are thinking of relocating to Andorra it makes sense to base your decision on a complete understanding of the situation.
This is our primer on Andorra’s tax rates for individuals and corporations. We’ll cover sales tax, value-added tax, income tax and other tax rates.
Sales Tax Rates in Andorra
There is no sales tax charged at the register in Andorra. The cross-border shopping this attracts has built on Andorra’s notoriety as a tax-free jurisdiction.
Because taxes are already built into the price, it also means knowing for certain what you’ll pay.
Andorra has the Lowest VAT in Europe
Instead of sales tax, a value-added tax is applied to goods and services. In Andorra, the VAT is the lowest anywhere in Europe, with a general rate of 4.5%. It is known as “I.G.I.”, short for “impost general indirecte“. Exceptions include:
- 1% on certain media like books, magazines and newspapers,
- 1% for food and drink (except alcohol),
- 2.5% on works of art,
- 2.5% on fees charged by tourism operators,
- 9.5% on banking and financial services charges.
Education, healthcare and medicine are all exempt from the VAT in Andorra.
Income Tax Rates in Andorra for Residents
The basic personal income tax rate in Andorra is 10% for resident individuals. In Catalan, this income tax is called “Impost sobre la renda de les persones físiques” or IRPF for short.
The tax rate can change based on three tiers of tax brackets and a short list of deductions and credits. For individuals, the Andorra tax rate brackets are:
- €0 – €24,000: 0%
- €24,001 – €40,000: 5%
- €40,001 +: 10%
Married couples are liable for income tax on a slightly different bracket schedule:
- €0 – €40,000: 0%
- €40,001 +: 10%
All salaries, most foreign investment income, and pension income are liable for the same tax rate. Income from Andorran investments (e.g., returns on Andorran government bonds and dividends from Andorran companies) is exempt from this tax rate. There are further exemptions and inclusions for the income that is taxed — please refer to an official source for an exhaustive list.
The two main types of deductions are for dependents and mortgage interest. We cover more of the details of Andorra’s tax system in our post about the topic.
Income Tax Rates for Non-residents
Those who spend fewer than 183 days a year in Andorra, and otherwise meet the qualifications as a non-resident pay “Impost sobre la renda dels no-residents fiscals” or IRNR.
This is a 10% tax rate on the income non-residents earn from their economic activity within Andorra.
Andorra Tax Rates for Companies
If a company has its registered office in Andorra, is incorporated here or, effectively, is managed here then it must pay taxes on its profits.
This corporate income tax is called “Impost de societats” or just IS. The Andorran corporate tax rate is 10%. For now, holding companies that invest outside of Andorra only pay a 2% tax rate on profits.
Andorran companies are not responsible for withholding tax from dividends and interest paid to nonresidents. (Royalties are subject to a 5% withholding rate.)
Capital Gains Tax Rate in Andorra
For both individuals and companies, capital gains are treated like any other income from a tax perspective. That means that the nominal capital gains tax rate is 10%.
It is important to note that you do not pay tax on gains from selling shares if you own less than 25% of the company. That means that you can effectively buy and sell (or day trade) most stocks without paying tax on the profits.
Also, the Andorra tax rate is 0% on gains from selling an asset that you have owned for more than 10 years.
Tax Rate on Real Estate in Andorra
Gains from the sale of real estate are taxed on a sliding scale. This declining tax rate is covered in more detail in our post about capital gains taxes in Andorra.
Roughly, it goes from 15% for properties held for a year or less to 10% after three years and 0% after 13.
Obviously, this system is in place to discourage speculation and provide an incentive for Andorrans to invest in their homes because they plan to live in them for several years.
Summary of Andorra’s Tax Rates
Andorra’s tax system is equitable and straightforward. As with any country, there are some nuances and details, but in a nutshell, Andorra’s tax rates are:
- 10% on income for residents and companies,
- no sales tax, but there is a 4.5% VAT,
- there is no inheritance, estate or transfer tax and no tax is paid on Andorran investment income.
Explore all of our linked articles about taxes in Andorra, the rules of residency, and life here in general. And of course, remember to get in touch you have any questions.