One of the most significant benefits of living in Andorra is the advantageous and simple tax system. It requires residents to pay a maximum of 10% personal income tax.
Minimizing the amount of tax you pay on your income will be an attractive goal for many, but what are the requirements to qualify for tax residency in Andorra?
That’s the main subject of this article. I’ll explain the concept of tax residency and how to apply to participate in the Andorran tax system.
What is Tax Residency?
The vast difference in tax rates between countries such as those in Scandinavia, the European Union and North America, and tax havens like Bermuda, Monaco and the Bahamas creates a certain amount of tension.
High-tax countries don’t want high net worth individuals using their tax-funded services while not paying for them. While tax havens are busy trying to attract these people to their country.
Andorra is not a tax haven but is instead a low-tax jurisdiction, like Montenegro and Singapore. This means it’s can be found partway in between tax havens and high tax OECD countries, attracting residents who want to lower their taxes but still staying compliant to keep it’s neighbouring countries happy.
Tax residency helps to fill this gap by establishing which country an individual will pay taxes in.
Today, few countries allow their citizens to be “perpetual travellers“, that is, maintain tax residency nowhere, by regularly travelling.
Nowadays, most jurisdictions require people to pay their taxes to the country where they spend most of their time or where most of their economic activity takes place. International treaties and other laws are the exceptions that sometimes allow people to apply to pay their taxes in different countries.
Requirements of Tax Residency in Andorra
According to Andorran law, there are two essential requirements to apply for tax residency in Andorra:
- Be either a passive or active resident, and
- Stay for at least 183 days in the country’s territory.
If you fulfill these two simple requirements, you’re good to go, and you can pay your taxes in Andorra.
Benefits of Andorran Tax Residency
A brief comparison of tax rates throughout the world shows that Andorra’s 10% personal income tax is one of the lowest.
Only countries like Monaco and the Bahamas have better tax rates since they are true tax havens, but nowadays this poses a problem for many as their country of citizenship often wants to see their proof of paying tax elsewhere.
Also, keep in mind that the 10% tax is the maximum rate applicable to any individual. There’s a bracket system that classifies the actual tax rate depending on your personal income:
- €0 – €24,000 pays 0%
- €24,001 – €40,000 pays 5%
- €40,001+ pays 10%
That’s for individuals. For married couples, their tax rate is 10% for any income over €40,000 and no taxes below that threshold.
Besides personal income tax, Andorra has a corporate tax rate of 10%. It also has reasonably low capital gains tax on property between 0% and 15%, which depends on the how long the property was held before selling it.
Summary of Andorra’s Tax Residency System
If you wish to qualify for the low rates that come with Andorran tax residency, you have to meet the requirements for residency and live here for more than 183 days. It’s as simple as that.
Living in Andorra, enjoying the incredible nature,and benefiting from its excellent programs like the social healthcare system while paying little to no taxes is a combination that can’t be found in any other country.
Still have questions about getting Andorran tax residency? Please reach out at any time.