Andorra is a small country located in the Pyrenees between Spain and France. It has a population of around 77,000 people, and it is known for being a tax haven with low taxation rates. In this article, we will explain how the taxation system works in Andorra, the main taxes expats need to be aware of, how and when to file a tax return, and the tax exit procedures for anyone leaving Andorra to move abroad.
The Taxation System in Andorra
Andorra has a territorial taxation system, which means that only income earned in Andorra is subject to taxation. This system is different from the worldwide taxation system used in many other countries, where income earned both domestically and internationally is subject to taxation. The tax system in Andorra is divided into two main types of taxes: direct taxes and indirect taxes.
Direct taxes are taxes paid on income and wealth, and they are paid by individuals and companies. The main direct taxes in Andorra are the personal income tax (PIT) and the corporate tax (CT). The personal income tax is based on a progressive scale that ranges from 0% to 10%, depending on the amount of income earned. The corporate tax, on the other hand, is a flat rate of 10% on profits.
Indirect taxes, on the other hand, are taxes paid on goods and services. These taxes are paid by consumers, and they include the value-added tax (VAT) and excise duties. The VAT in Andorra is currently set at 4.5%, which is one of the lowest in Europe.
Double Taxation Agreements
Andorra has signed several double taxation agreements with other countries to avoid double taxation for individuals and companies. These agreements ensure that income is not taxed twice in both countries, which can result in a significant tax burden for taxpayers. Some of the countries that have signed double taxation agreements with Andorra include France, Spain, Portugal, and the United Arab Emirates.
Main Taxes in Andorra
As an expat in Andorra, there are several taxes that you need to be aware of. The main taxes include the personal income tax, the corporate tax, and the value-added tax.
Personal income tax (PIT)
The personal income tax in Andorra is based on a progressive scale that ranges from 0% to 10%, depending on the amount of income earned. The tax year in Andorra runs from January 1st to December 31st. As an expat, you are required to pay personal income tax on any income earned in Andorra. This includes income from employment, self-employment, and any other source of income.
Corporate tax (CT)
The corporate tax in Andorra is a flat rate of 10% on profits. Companies are required to file their tax returns by the end of the sixth month following the end of the tax year. The tax year for companies in Andorra runs from January 1st to December 31st. As an expat, if you own a company in Andorra, you are required to pay corporate tax on any profits earned.
Value-added tax (VAT)
The value-added tax in Andorra is currently set at 4.5%, which is one of the lowest in Europe. The VAT is applied to the sale of goods and services in Andorra, and it is paid by consumers. As an expat, you will need to pay VAT on any goods and services that you purchase in Andorra.
Special Tax Breaks for Expats
Andorra offers several tax breaks for expats who live and work in the country. One of the main tax breaks is the non-resident tax regime, which allows non-resident individuals to pay a flat tax rate of 10% on their worldwide income up to a certain amount. This tax break is available to individuals who spend less than 183 days in Andorra each year and who have not been a tax resident in Andorra for the past 10 years. The non-resident tax regime can be a great benefit for expats who work remotely and earn income from other countries.
Additionally, Andorra also offers tax breaks for companies that invest in research and development. Companies that invest in R&D can receive tax credits of up to 40% of their R&D expenses. This tax break can be a great incentive for companies in the technology and innovation sectors to set up their businesses in Andorra.
Filing a Tax Return in Andorra
As an expat in Andorra, you are required to file a tax return if you have earned income in the country. The tax year in Andorra runs from January 1st to December 31st, and tax returns must be filed by the end of June of the following year. For example, the tax return for the year 2022 must be filed by June 30, 2023.
To file your tax return in Andorra, you will need to obtain a tax identification number (TIN) from the government. You will also need to gather all the necessary documentation, including income statements and receipts for any deductions. The tax return can be filed online through the government’s tax portal, or it can be filed in person at the tax office.
Tax Exit Procedures for Leaving Andorra
If you are an expat leaving Andorra to move abroad, you will need to follow certain tax exit procedures. The first step is to inform the government that you are leaving the country and that you are no longer a tax resident. You will need to provide a letter of departure to the tax authorities, which should include your personal details, the date of departure, and your new country of residence.
Once you have informed the tax authorities of your departure, you will need to file a tax return for the year up to the date of departure. This return must be filed within six months of leaving Andorra. If you have any outstanding tax liabilities, you will need to settle them before leaving the country.
Andorra is a tax haven with low taxation rates and several tax breaks for expats. The tax system in Andorra is based on a territorial taxation system, which means that only income earned in the country is subject to taxation. The main taxes that expats need to be aware of in Andorra include the personal income tax, the corporate tax, and the value-added tax. Expats can take advantage of several tax breaks, including the non-resident tax regime and tax credits for R&D. If you are leaving Andorra to move abroad, you will need to follow certain tax exit procedures, including informing the government of your departure and filing a tax return for the year up to the date of departure.