ANDORRA: Is this the right place to stop paying taxes?
After pressure from several Western countries, Andorra which was once completely tax free has now introduced some taxes.
We will talk first about companies and then about individuals.
Companies are subject to a corporate tax of 10%.
In particular, from January 1 2015, Andorra collects both income tax and capital gains tax related to the company.
Income tax will be charged at a maximum rate of 10%.
On the other hand, on the earnings of individuals (including for example salary, retirement income, consultancy fees and rental income), whether the earnings are accrued in Andorra or abroad, no taxes are paid for the first 24,000 euros.
On subsequent earnings, between 24,000 euros and 40,000 euros, a tax of 5% is paid.
And on earnings exceeding the aforementioned 40,000 euros, a maximum tax of 10% is paid.
Dividend income and interest from bonds, bank deposits or loans, will generally be taxed at 10% for amounts exceeding 3,000 euros.
Dividends paid by resident companies to resident individuals are totally exempt from tax.
In Andorra, corporate capital gains tax also applies, at a rate of 10%, but if you own less than 25% of an entity's share capital, there is no capital gain tax liability.
Of course, these are manageable aspects in the context of tax planning.
There is also a general exemption on earnings made from foreign real estate held for more than 10 years.
In addition, you will be able to deduct any foreign taxes from any Andorran taxes, including as a rule the income taxes mentioned above.
Even with this new regulatory landscape, the vast majority of people who move to Andorra immediately accrue substantial tax savings compared to what they would pay in their country of origin.
In the next article of this series, we will see a fundamental aspect, that is when you are considered tax resident in Andorra, which allows you to access the tax regime described above.
In addition we will also see some special cases, asking ourselves if there are easier ways for those who manage consulting or other online activities, and have customers residing outside the territory of Andorra.
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Moving to Andorra. A European tax haven?
This small country, located in the Eastern Pyrenees, is famous for its low taxation, so much so that it is, in fact, notoriously considered a European tax haven that applies some of the lowest tax rates in the world.
Andorra, however, is no longer included in the OECD black list countries and has also joined the agreements on the exchange of tax information with numerous European countries.
Its economy is in a phase of continuous growth, especially in the banking, insurance and tourism sector (which constitutes 80% of GDP).
Andorra ensures a high lifestyle and at the same time an affordable cost of living. In addition, it boasts an efficient health system, managed by the Caixa Andorrana de Securetat Social (CASS).
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Andorra was initially a zero income tax country. European Union pressure pushed Andorra to implement its first income tax in 2015, but Andorra still remains a very low-tax country, a tax haven in many ways, conveniently nestled between high-tax Spain and France.
Andorra has long been known as a destination for duty-free shopping, Andorra is an idyllic, mountainous country that also offers residence permits to investors and entrepreneurs.
Fortunately, Andorra has positioned itself to attract those with more average means than other low-tax countries such as Monaco (the latter probably more suitable for those with assets exceeding 10 millions).
Andorra is perfect for those with significant income or generational wealth; it has no wealth tax, no gift tax, no inheritance tax and the one and only capital gains tax is subject to planning that reduces its amounts.
The only tax is an income tax, of which 24,000 euros are exempt, and the maximum rate of 10% comes into effect from 40,000 euros.
There are generally two ways to qualify for residency: making an investment or starting a business. In any case, you will have to commit to spending 90 days a year living in Andorra, renting or owning a property, holding a deposit and maintaining health insurance; many residents are exempt from the already low tax rates depending on how their income is earned.
To start a business, you will need to present your curriculum vitae and a business plan, as well as deposit a deposit of 50,000 euros for a single applicant. This route requires much less start-up capital, but you need to actually run a business, which means that living in Andorra should be part of your overall business and tax planning. If you prefer to be a passive resident, you can invest 400,000 euros in Andorra, which can include a real estate investment.
3 reasons why it can be profitable to start your business in Andorra
Andorra, located in the Pyrenees between two huge European countries (France and Spain), is an independent mountainous microstate of 181 square miles (468 sq km) operated as a co-principality by the President of France and the Bishop of Urgel, who bear the duty of govern this tax haven and residence.
The most populous of the European microstates, Andorra offers beautiful landscapes with a healthy and pristine environment. Catalan - the official language - is spoken alongside French, Spanish, Portuguese, Castilian and English in the diverse expat community.
As beautiful as Andorra may be, it certainly is no different when we consider the more exquisitely practical aspects of managing a business, which are important for investors and entrepreneurs.
Here are 3 advantages of Andorra in this regard:
Banking policies favorable in Andorra
Having no national bank of their own, Andorra-based banks continue to offer private numbered accounts, with the allure of banking privacy being its big draw.
Most Andorran banks don't require a minimum, but they may charge you a hefty annual fee. Privacy today has a price.
Compared to the Swiss model, safety deposit boxes are the norm.
Reasonable taxation in Andorra
Andorra had no personal income tax until 2015, when the country succumbed to pressure from the EU by demanding 10% income tax from its citizens.
Depending on your earnings, this can be a lot or a little. It is naturally a very low tax when compared with other western European countries, despite being a country that is easily accessible from them. On the other hand, it is not a low tax if we compare Andorra with countries that require zero income taxes such as AEU (United Arab Emirates).
However, a subsequently passed law allows for little or no personal income tax on your business if the same business primarily operates outside of Andorra. Therefore in certain cases it is possible to cancel the taxation in this regard.
In any case, on the European side it remains one of the countries with the lowest taxation.
Possibility of obtaining residency in Andorra
A temporary residence is highly sought after in this small and discreet microstate.
Once you have demonstrated that there are no particular problems (which can be for example, in cases where corrupt politicians or third-party criminals try to play with the rules of the system to obtain advantages) you can receive residences that can last up to a decade.
There are options that allow you to keep your residency by living in Andorra for only 3 months of the year.
But what is the procedure for moving to Andorra?
Once you have landed in Andorra, after your first period of stay, you will have to regularize your presence.
You can obtain tax residency through three ways:
- obtain a work permit: applying for and obtaining the issue of a work permit will allow you to have tax residence. It is not easy to get one, but it is possible, and if you are a European citizen you will certainly have greater chances.
- have a business plan and open a business: an advantageous way to obtain residency in Andorra is to start a business and start it up within 9 months in Andorra. But be careful: you will have to prove that you have 35,000 euros, and 12,000 euros for each family member.
- make a financial investment: have a capital and create a bank account in Andorra. This is an option that will allow you to obtain residency without working or setting up a business (the so-called Passive Residence) in Andorra. However, consider that this is an important investment: equal to at least 400,000 euros as well as demonstrating that you have 300% of the minimum wage plus 100% for each family member.
Taxation in Andorra
- Regarding the personal income tax: the ordinary tax rate is 10%.
In addition, there is a capital gain tax of 15% which decreases by 1% after each year of residence.
- If you are thinking of opening a business in Andorra you must know that even for business income, the tax is always 10%, but if you carry out international transactions you can request a reduction of up to 80%, an interesting scenario if you decide to continue your business, even remotely, abroad.
- VAT, on the other hand, is 4%: convenient, right?
Retirees in Andorra
Life as a retiree in Andorra is good, and moving can be really beneficial.
In addition to ensuring significant savings on the cost of taxes, the country offers a really efficient and fast health service, it is in fact famous for its Healthcare.
Disclaimer: Always speak directly to an attorney; blog posts are not a sufficient source of information to make decisions, may not be appropriate for your situation, may not be well researched, and may not be current at the time you read them, always speak directly with an attorney.
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