The Principality of Andorra, located in the Pyrenees between Spain and France, has a number of special features that make it a unique country. Among other aspects, such as its history and Romanesque architecture, it usually stands out for its advantageous taxation. Not only does it have one of the lowest IGI (equivalent to VAT in Spain) on the European continent (4.5%), but it also stands out for having an extremely low corporate tax rate. For this reason, many companies expanding into the country have doubts about the requirements for taxation in Andorra.
Although the Principality of Andorra is no longer considered a tax haven (it was removed from the OECD’s blacklist of tax havens in 2018) and its taxes are comparable to those of other European countries, its current rates make it a country with one of the most interesting tax systems in the world.
At Delvy we have been working with Andorran individuals and companies for years. That is why we will tell you what the requirements for taxation in Andorra are and how to meet them.
Requirements for taxation in Andorra
In order to obtain tax residency in Andorra and pay taxes in the country, you must meet the two criteria detailed below: you must prove that you have been resident for at least half of the days of the year (i.e. 183 days) and you must also prove that your economic activities are based in the country.
We explain each of the requirements for taxation in Andorra in more detail:
● Residence criterion
It is not enough to buy a property in Andorra in order to benefit from its taxation, but it is necessary to prove that you reside most of the time in the country.
This regulation is implemented in order to avoid tax fraud, so it is possible that, if you decide to become an Andorran citizen while you are a Spanish citizen, you may be inspected by the competent authorities of both countries, before which you will have to prove (for example, by means of electricity bills) that you actually reside in the Principality of Andorra.
● Centre of economic interests criterion
In addition to residing in Andorra, in order to be taxed there, it is necessary to be able to prove that it is the country where the centre of your activities or economic interests is mainly located.
This means being able to prove that your income comes mainly from sources within the country or, in other words, that it does not come from your country of origin. For example, if a person living in Spain derives most of his income from German sources, he can move to Andorra meeting this criterion, and could be taxed there if he lived there most of the year.
Tips for obtaining tax residency in Andorra
Although the benefits of having tax residency in Andorra and being taxed in the country are many, it should be borne in mind that the above-mentioned requirements must be complied with. Not only should you not skip them, but the Inland Revenue will constantly check that you are complying with them.
This is why, as we have explained, if you wish to pay tax in Andorra you must reside in the country for more than half of the days of the year and you must also be able to prove a centre of economic interest in the country. One of the ways to do this is to set up a company in Andorra, something that the Andorran government has been facilitating for some years now by modifying the possibilities for foreign investment.
Another option is to obtain a significant source of income from international sources. However, it is important to make sure that it represents at least 50% of your income.
If you want to set up a new business or change your tax domicile to Andorra and need advice, Delvy can help you. We have been managing Andorran companies and individuals for years and we know in depth all the processes and procedures necessary to carry out the change of tax residence in Andorra.
Do you have any doubts about how and the requirements for taxation in Andorra, or do you need legal and financial advice? Contact our team of specialists!