Topics Covered Hide
- 1 A few words about Andorra
- 2 Andorra income tax and other taxes
- 3 In the best case, you will pay nothing.
- 4 Passive residency by investment explained
- 5 Passive residency by international recognition defined
- 6 Passive residency by international business in small details
- 7 Active residency by local businesses made easy
- 8 A few words about living in Andorra
- 9 Exploring Andorra’s financial system
- 10 Conclusion
Andorra is one of the smallest countries in Europe. Until you are into finances or offshore business, you might have heard about it around football qualifiers – it never manages to make it to a final tournament. Other than that, Andorra is a great choice for those who like tranquil tourism.
Less than a decade ago, Andorra became a popular choice for investors because it promoted a 0% income tax. Basically, this is one of everyone’s main dreams – keeping all the money that you work for so hard.
Unfortunately, big sharks from the EU had to get involved in order to control capital, so Andorra was forced into bringing in some sort of an income tax. But then, it was kept to a minimum – just 10%, so it was still one of the best countries in Europe.
Now, is the Andorra income tax still worth some attention? Here is what you have to know.
A few words about Andorra
Andorra is a tiny country located between Spain and France. Despite its size, it is well developed and boosts a stable economy. It is the type of place that looks great for retirement with its small quaint villages, but is also full of opportunities for those who want to invest.
It is mostly mountainous, and it may seem difficult to access. But whether you choose to drive from Spain or France, you will be there in less than two hours. Plus, you will be able to admire some of the most scenic landscapes in Europe.
After all, you have a great infrastructure connecting small villages in the Pyrenees. Whether you like hiking or other sports in the summertime or skiing in the wintertime, you cannot go wrong with Andorra. It is also close to beautiful beaches in France and Spain if you like the seaside.
With these thoughts in mind, Andorra is similar to Switzerland, yet not as fully developed.
Now, this tiny country is not all about tourism and attractions. It has a bunch of different residency programs, and each of them will deliver – they are attractive and easy to implement, and they allow access to a country with almost no income tax. What else can you ask for?
Those who choose to live in Andorra will benefit from high-quality education, a great healthcare system, and little to no crime. The Internet is extremely fast – ideal for self-employed professionals and freelancers.
Compared to other developed countries in Europe, the cost of living is also low. In fact, the quality of life is great in Andorra. Sure, the low population – less than 100,000 people – could also be a reason. The life expectancy is among the highest in the world too.
Should you choose to become a resident or even a citizen, the passport is powerful and provides access to most of the world. Even the residency will give you visa free access to nearby countries and not only. With these thoughts in mind, it makes perfect sense to consider Andorra for your business venture.
Andorra income tax and other taxes
Similar to Switzerland, Andorra has failed to follow the trend and join other countries. Instead, it has always followed its own path. It is among the oldest nations in the world and has always been neutral and politically stable.
Despite having low taxes, they actually follow modern trends. Instead of chasing its citizens and trying to control the capital, Andorra provides freedom. Things have dramatically improved since the 1990s to modernize the financial system, and the government has done a fairly nice job.
The 0% income tax has turned Andorra into an attractive jurisdiction for investors and entrepreneurs. Forced by its European neighbors, the government had to implement a tax. In 2015, the country introduced a 5% tax for those earning less than €40,000 and more than €24,000.
However, those who make less than €24,000 a year are still tax exempt.
People who earn more than €40,000 are still taxed accordingly, rather than being robbed – like in other European countries. They only have to pay 10% in income tax. It is worth noting that interest on bank savings is considered a form of income, but such things are relatively low.
How the VAT works
In Europe, most countries keep the VAT at around 20% – more or less, depending on the country. Andorra proves once again that you can manage a powerful society without robbing people – the VAT is set at 4.5% only.
The VAT is reduced for certain services. For example, culture, food, education, and health will ask for 1%.
How about corporate tax?
From many points of view, Andorra looks like the perfect scenario. There has to be a catch, though. Is it the corporate tax? Not at all. Just like other taxes, corporate tax is relatively low. It depends on what kind of business you run though – either way, you will never pay more than 10%.
In the best case, you will pay nothing.
For example, take holding companies registered in Andorra. If they have interests in other companies established abroad, they will be tax exempt in Andorra. Believe it or not, even if dividends are paid into the company established in Andorra, tax can still be avoided.
Now, an international company specialized in trading with international deals will only pay 2%. The same rule applies to financial management businesses established in Andorra. The same goes for products sourced in Andorra, as long as they are not sold locally.
To meet the 2% benefit, you should have one part time employee at least.
Plus, there is an office requirement too – 20 square meters within the country borders.
All the other companies are considered standard and will pay the 10% tax. However, if you incorporate in Andorra, there will be more requirements. You may need to pay social security, not to mention spending at least 90 days a year in Andorra.
Figuring out the real estate tax
Andorra seems perfect from many points of view – what happens if you decide to move there and invest in real estate? You could, for example, flip properties. If you sell properties for a profit, you will get a capital gains tax.
The system encourages people to stick to their properties and own them for long periods of time.
For instance, if you sell a property within the first year of ownership, you will pay 15% in tax. If you sell it in the second year of ownership, the rate will go to 13% only. The longer you keep the property, the lower the tax will get in the long run.
Within the third year, you will only pay 10%. Then, it goes down by about 1% on a yearly basis. Simple math tells us that you need to keep a property for 12 years in order to sell it for a huge profit and pay 0% in tax.
If this is your main residence, you can avoid this tax by buying another property within half a year of the sale. Property ownership comes with a tax, though – about €100 a year, which is not too much. Also, buyers must pay a tax ranging between 1.5% and 2.5% of the property price.
Other than these main taxes, there is nothing else to be concerned about. Forget about gift or inheritance taxes, wealth taxes, and so on. Obviously, pressure from European neighbors could change these things, but nothing is likely to happen too soon anyway.
Now that you know more about the Andorra income tax and other associated taxes, it is time to learn more about the residency programs. There are a few different options if you choose Andorra for your next financial venture.
The country has a tiny population, and there are some restrictions. Not everyone can apply, and even if you are eligible, there are a few available places only. In fact, every year, Andorra welcomes around 500 new residents.
On a side note, your success rate is a bit higher if you plan to bring money into the country. Just like other countries trying to draw investment, Andorra prioritizes those who plan to invest in the country and its future. Take this path, and you will have a higher chance to be accepted.
The program depends on what you plan to do. You could be an active resident, meaning you will need a permit to work as well. You can also be a passive resident – more options here, some for investors and others for business people.
Passive residency by investment explained
Passive residency by investment is easy to understand – you want to live in Andorra, but you do not want to work there. Once you get it, you will need to spend at least 90 days per year in Andorra. You will also face less rules than other residents.
You are tax exempt from income tax if you choose this path. The program is suitable for those over 18 years old. You need to show a certificate from the police that proves a clean criminal record. You must also sign a document regarding the necessity to spend 90 days a year in Andorra.
Get a private medical insurance because it is a requirement for the duration of your stay. Plus, you need to prove that you rent or own a property in Andorra. If you plan to buy a property, show proof that you are in the process, and you will become an owner within six months.
Proof of your income is another requirement. Your bank account must be 300% of the minimum salary in Andorra, which changes on a yearly basis – less than €15,000 anyway. If you have dependents, you will need to prove the yearly minimum salary in Andorra for each of them.
You must also make a deposit of €50,000 (and extra €10,000 for each dependent) to INAF. It is a no interest bond that will pay debt you may leave behind throughout your residency. The bond is refundable should you quit the residency.
Finally, you must prove an investment of €400,000 or more within the next seven months – you can also do it earlier. Property is the most common investment, but public bonds and shares or funds are also accepted.
Passive residency by international recognition defined
This type of residency is self-explanatory. You could be Bruce Willis, Nicole Kidman, or Cristiano Ronaldo. You are known all over the world – you are basically a celebrity. Everyone is aware of your net worth, so there is no need to prove it to Andorran authorities.
This international recognition residency applies to a small category of people. You do not necessarily need to be a singer or an actor. International recognition is also about art, culture, and science. For any of these options, you could easily get residency in Andorra.
Keep in mind that restrictions and rejections may still apply.
The Andorran government will decide whether or not an applicant is worth the residency.
You still need to meet some requirements. For example, you will need most of the documents required for the passive residency by investment, as well as the government bond deposit. The good news is you do not have to make a massive investment.
Instead, come up with a resume and documents that prove your qualifications and success.
This is like getting a job. Obviously, most of your activity must be outside Andorra.
Your awards, recognition, and success should have been achieved outside the country – at least 85%.
Passive residency by international business in small details
This residency is similar to the one acquired by investment – at least in terms of requirements. The idea is to start a business and run it from Andorra, yet it operates outside the country. At least 85% of the business operations must be handled outside of Andorra.
This type of residency is specifically made for the 2% corporate tax.
Again, you must spend 90 days a year in Andorra – more is better. All in all, compared to residency by investment, there are a few solid differences. The best part is you do not need to come up with a major investment – the €400,000 investment.
Instead, you need to incorporate a business in Andorra and have a detailed business plan.
Here are the other general requirements:
- 18 years old or older.
- Clean criminal record.
- 90 day residency signed document.
- Proof of private medical insurance.
- Proof of accommodation.
- Proof of self-sufficiency.
- Government bond payment for a potential debt.
- Local office of at least 20 square meters.
Some things can be done after you get the residency – such as company formation. Sure, you can try to do everything upfront, but there is no rush. You have seven months after submitting the application to incorporate the company.
Active residency by local businesses made easy
This type of residency is for those who want to establish themselves in a civilized society with numerous benefits. In other words, it is aimed at those who want to start a business in Andorra and live there permanently.
Permanent residency in the country or local company is vaguely defined. As a general rule of thumb, common sense prevails here. The more time you spend in Andorra, the better. On the same note, your company must be legit.
The authorities will check on your business and ensure it is authentic, as well as your residency.
Unlike other programs for residency, this one does not ask for a business plan. What you plan to do is entirely your business. Instead, you need to incorporate the business in Andorra before you even apply for the residency.
Registering a company in Andorra will take a few months – usually, up to 10 weeks, but it is less likely to take this long. Once the business is registered, the immigration office will move fairly fast – it will take days to get the residency.
Unlike other programs, this one will not ask for government bonds. However, you must prove that everything is set and in place within three months of the actual approval. Prove the licensing and actual formation.
Interested in bringing the spouse over? How about kids? They need to wait for up to a year before they can be brought over. However, you can skip the waiting time by including them as shareholders. For residency to be granted, they need 11% or more.
This residency will fall over a different category when it comes to the Andorra income tax. It is also the only program that implies making regular payments to social security. But then, since you will live there full time, this will probably become your one and only tax residence.
Think about the low taxes, and you will realize that this idea is fairly good.
A few words about living in Andorra
Living in Andorra is more than just applying for the right residency program and gaining in the Andorra income tax. You need to become familiar with the cost of living there, which may change the details in your plan.
For instance, if you choose the residency program by investment, you will pay the government bond deposit, and you will still have around €350,000 to invest, and that could mean the perfect property for yourself and your family.
This kind of money will buy you a modern and large apartment in the center of the capital. You could have two or three bedrooms. But then, if you do not like the hustle and bustle of a big city, you might as well opt for a large house in a nearby town or village.
The Andorran real estate industry is attractive, but it has a downside. Selling a large property could be difficult, especially with such a low population. However, you never know – since the country is so attractive to foreigners, someone else might be interested in your home tomorrow.
Now, most people would expect the cost of living to be quite high in Andorra – it is a tax haven in the middle of Europe, with a great society and little to no crime. Surprisingly enough, the cost is quite decent. If you choose to rent instead, you can find two or three bedroom apartments for just over €600.
The duty-free country means prices are low for pretty much everything – bars, nightclubs, restaurants, grocery stores, supermarkets, and clothes. Recreational activities – such as skiing – will also bring in affordable prices.
No matter how you are used to live, you will find excellent value for money in Andorra.
Exploring Andorra’s financial system
Andorra is similar to what Switzerland was like a few decades ago. In other words, private investments are top-notch. Banking privacy is an actual guarantee, and even these days, you can still find numbered accounts and deposit boxes.
From liquidity and stability to privacy and customer service, such high quality comes with a price, of course. Get ready to pay relatively high yearly fees, but, they are totally worth it. Based on your goal in the country, you will find numerous specialists in wealth management and superior e-banking.
In a world where most countries either break anti-money laundering standards or abuse their customers, Andorra has proven that you can find a middle solution. It is quite strict, but it offers extraordinary service to those who choose to follow the laws and rules.
Conclusion
As a short final conclusion, the Andorra income tax and the central location in Europe make this country an exceptional jurisdiction. It provides access to a perfect location, close to all the potential amenities from other countries too.
It brings in beautiful landscapes and great opportunities for those who like to travel, and the quality of life is higher than everywhere else in Europe. Taxes are insignificant, crime is almost nonexistent, and everything is affordable.
It is a civilized society that revolves around the average individual and not the other way around. Andorra has proven that it can be done by the book with a few basic rules, hence its growing popularity among foreign investors.
