Is Andorra popular just because of its taxes?

This small Principality, the heart of the Pyrenees, has always been an interesting place not only for celebrities and famous people of all kinds, but also for all kinds of entrepreneurs who do not depend on a particular physical location for the economic activity of their businesses.

The most typical cases were the many professional sportsmen and women who have moved their tax residence to Andorra, either during their sports career to avoid the confiscatory income taxes or, if they have not been able to do so because of work and travels, during their retirement to also avoid wealth taxes, etc.

However, recently, with modern technology and especially since the international economic opening that the country has carried out, a new type of case has dislocated from the ranking of the most typical cases to the athletes: youtubers.

In addition to these, many other entrepreneurs whose activities are partially or completely digital have also been establishing themselves in Andorra. For example, traders, programmers of all kinds, businesses related to cryptomonies and big data, designers, etc.

The question, then, is clear: what is special about Andorra for these people? And the short and simple answer, too, is quite obvious: a very attractive fiscal framework with low tax rates. However, let me explain the matter a little more, as the long answer is rather more consistent.

Andorran taxation

Starting with the main course, the current fiscal framework in Andorra stands out for having a standardized taxation adapted to international standards (greatly simplifying a universal and progressive income tax, a corporate tax without privileges or traps and an indirect tax on consumption that is general but also progressive) but with rates applicable that are much lower than those of the surrounding countries.

This is part of a process initiated almost two decades ago and mentioned above by which the Principality seeks to remove the annoying label of tax haven, attract foreign investment, open up economically and access global markets such as Europe or the United States. And it is succeeding. But how low is Andorran taxation? Well, let’s look at it tax by tax.

Income tax in Andorra

Personal income tax is the tax on all income of individuals who are tax residents in the Principality of Andorra, regardless of their place of origin. The general rate of this tax is 10%, but in the general base, there are allowances as follows:

• The first 24,000 euros of income are exempt from the tax.
• The following 16,000 euros are taxed at 5%.
• From 40,000 euros the following incomes are taxed at 10%.

As we see it is a universal and progressive tax but very low in tax rates, which is very attractive for large income digital businesses that usually tax around 40–50% in the surrounding countries.

Andorran Corporate Tax

Corporation tax is the tax on the income of Andorran legal entities (corporations, companies) regardless of where it was incurred and regardless of the tax residence of the payer (as long as the legal entity or company is resident for tax purposes in Andorra). The general rate of this tax is 10% as well, although for certain types of companies it can be as low as 2%.

There are also reductions during the first year of activity, although for new entrepreneurs who carry out an economic activity for the first time the reductions can be extended for up to three years, and the quota can be reduced by up to 50% (5% effective rate).

Andorran VAT, IGI or General Indirect Tax

IGI is the acronym used for Andorra’s VAT. It means General Indirect Tax, and it taxes in general and simplifies consumption, that is to say, the goods and services offered in the Principality. The general rate of this tax is only 4.5%, but there are also other rates applicable to certain types of goods:

• Super-reduced of 0%: applied in general to goods and services in the health and education sector
• Reduced by 1%: applied to food products, books and newspapers.
• Special 2.5%: is the general impact on goods with public cultural or artistic interest
• Increased by 9.5%: exclusively for banking and financial services

So it is an indirect tax very similar to the French VAT or the Spanish VAT, but with substantially lower rates and also a process of liquidation of the tax that makes it much more efficient and lighter for their taxable (sellers).

To sum up: taxes in Andorra or its tax system are such that together with all the taxes you can hardly pay an effective rate on the annual income of more than 10%. Furthermore, there is no such thing as a tax on wealth. This attracts like a magnet any entrepreneur fed up with confiscatory jurisdictions.

Other reasons?

But is this the only reason why such people choose Andorra to reside? At first glance, they could choose any other jurisdiction such as Malta, Cyprus, or Liechtenstein, etc. They do this for a number of reasons in addition to the prosecutor himself. To name a few:

• Andorra is close to their countries and regions of origin. About 200 km from Barcelonaa and less than 300 km from Toulouse, Andorra is the jurisdiction with fiscal appeal that is closest to their families and roots. With only a few hours of car they can visit their relatives without any problem and return, with total freedom.
• Andorra shares culture and language with them. Although the official language is Catalan, in the Principality the local population (less than half) speaks Spanish perfectly, and a quarter of the country’s inhabitants are Spanish nationals. In addition, languages such as Portuguese or French are also widely used in the country.
• 100% coverage of fibre optic households. For digital businesses it is essential to have high technology, fast and accurate Internet. With a fibre optic network covering the whole country and a mobile network covering 98% of the 469 km2 territory, the connection is assured.
• No crime. Despite being a demilitarized country with not too many police, Andorra is a very safe and quiet country. Crimes and acts of vandalism are rare, especially because of its orography and its tradition of political neutrality and stability.
• Local community. Many professional colleagues are already installed in the country, making community, collaboration and networking relatively easy. Moreover, because of their experiences they can know in advance what the situation is like there and whether it is really worthwhile for them.
• Mountainous country, sport and sport tourism. For all active and retired professional sportsmen and women, being able to continue their work is essential. Especially for skiing, cycling of all kinds, trail and running, etc. but also for all other branches of sport, Andorra offers very good facilities and 90% of its land is forest.
• Competent social security system. The Andorran social security system or CASS is a key part of the Andorran jurisdiction. The health system that it manages is one of the best in the world according to numerous rankings, and the retirement system is much more solvent than that of the surrounding countries.

Conclusion

Although Andorra is famous because of its great fiscal appeal, it also has other properties and characteristics that make it an option to be seriously considered by all those who establish their residence there. As we discussed at Andorra Insiders, having a competent jurisdiction is vital to attract foreign investment and progress as a country. And the truth is, for certain types of people, this Principality is in a very clear way.