Andorra’s tax residents are required to pay taxes on all of their income globally, but the country does not have taxes on wealth, gifts, inheritance, or capital gains, with the exception of capital gains from buying and selling real estate within Andorra. A progressive personal income tax system was established in 2015 with one of the lowest tax rates in Europe.
For example, income up to EUR 24,000 is taxed at 0%, income between EUR 24,001 and 40,000 is taxed at 5%, and income above EUR 40,001 is taxed at 10%. Married couples are subject to a 10% tax on income above EUR 40,000. Additionally, bank deposit interest is taxed, but only on amounts exceeding EUR 3,000. The capital gains tax on real estate sales is 15%, but the rate decreases each year, and the property can be sold after 13 years of ownership. Becoming a tax resident of Andorra involves meeting certain criteria and following specific steps. Here is an overview of the process.
The Benefits of Andorra’s Tax Residency
Having a business in Andorra can have several benefits, such as the country’s low tax burden, pro-business regulations and a stable economy. It has a well-developed infrastructure, with good transport links to other countries in Europe, which can make it a good location for businesses that need to import or export goods. Andorra also has a good reputation for privacy and banking secrecy. However, remember that Andorra is a small country, so the domestic market may be limited, and businesses may need to rely more on foreign customers.
Besides that, Andorra is not a member of the European Union, so businesses may need to consider the potential impact of that on trade and access to EU markets. Andorra has a strict policy of not allowing companies with only fiscal purposes, and your application could be rejected if it is suspected that your main goal is to set up a company for tax avoidance.
Getting Your Tax Residency
In general, there are two ways to gain tax residence in Andorra. Firstly, Project promoters, company owners, and anybody else operating in Andorra may apply for permits for active residency (also known as a “work residence”). Investors in the Principality may apply for a passive residence, often known as a “unproductive, non-profit-making property” (real estate, finance, etc.).
Secondly, Individuals with particular qualities or skills, as well as a specific level of prestige (cultural, scientific, etc.), such as professionals, artists, or elite sports, may be given supplementary tax resident permits in Andorra. Let us see more details below.
Establish a Presence in Andorra
To become a tax resident of Andorra, you must establish a physical presence in the country. This can be done by purchasing property, renting a residence, or opening a business in Andorra.
Spend a Certain Amount of Time in Andorra
To be considered a tax resident, you must spend at least 183 days per calendar year in Andorra. This can be done by living in the country full-time or by spending significant periods of time in Andorra each year.
Register with the Local Authorities
Once you have established a physical presence and spent the required amount of time in Andorra, you will need to register with the local authorities, such as the town hall or the police station. You will need to provide proof of residence, such as a lease or purchase agreement, as well as your passport or ID card.
Obtain a NIE Number
Registering with the local authorities will also help you to obtain a NIE number, which is a unique identification number that every tax resident in Andorra must have.
File Andorran Tax Return
Once you have become a tax resident of Andorra, you will be required to file an Andorran tax return each year and pay taxes on your worldwide income.
You can also read benefits of saving money for your information purpose. Note that, even if you meet all of the above criteria, Andorra has a strict policy of not allowing tax residents with only fiscal purposes and could reject your application if it is suspected that your main goal is to avoid paying taxes in your home country. Consult with a tax advisor or lawyer to ensure that you are fully compliant with the local laws and regulations of Andorra.
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