Income tax return in Andorra: how to do it

The IRPF (personal income tax) declaration is a procedure that must be carried out every year, and not only in Andorra. In this article we teach you who should make the declaration, how and where to do it.

Income tax in Andorra

Yes, in Andorra there are taxes, although many people believe otherwise. And there is also personal income tax, although as we said in our article on taxes in Andorra, is quite recent and a few years ago this tax did not exist in the Principality. It is a tax that taxes all income obtained by an Andorran tax resident (not to be confused with the Andorran administrative residence), and is divided according to the origin and type of income obtained (from Economic Activities, Capital, Work, etc.).

However, Andorran personal income tax is much more lax than that of its neighboring countries, such as Spain, France and Portugal. In this tax comparison between Spain and Andorra We can see that, indeed, the difference is more than substantial. Although there is personal income tax in Andorra and it also goes in sections like in most countries, Its nominal and effective rates are much lower than in countries like Spain.

In general and for the basis of work (which includes economic activities), The Andorran income tax has only three sections:

• The first €24,000 of income is taxed at 0% (they are exempt from taxation)
• The following €16,000 (that is, between €24,000 and €40,000) are taxed at 5% (50% bonus of the quota)
• From €40,000 of income, 10% is taxed

You can obtain more information in our articles on taxes and tributes in Andorra. They also have more information in the Andorran Government page on personal income tax.

Who has to file the income tax return?

As we have said, personal income tax taxes the income obtained by Andorran tax residents. However, Not all Andorran tax residents are required to file an income tax return.. According to the Government of Andorra itself, in its citizens' electronic headquarters portal, natural persons tax residents in Andorran territory have the obligation to submit the tax return, in the following cases:

• If income is obtained from economic activities.
• If the income from real estate capital and/or work income obtained is for a total amount equal to or greater than 24,000 euros.
• If the income obtained from the movable capital has not been withheld and exceeds 3,000 euros.
• If capital gains and losses are obtained.

Furthermore, they indicate that exempt income should not be declared, whether income from work, income from movable capital or capital gains and losses.

On the other hand, Temporary and border workers should not file personal income tax returns in Andorra, since they are not considered Andorran tax residents. Although they travel daily to Andorran territory from Spain and France and have been hired by companies that are tax residents in the Principality.

The income obtained by border workers and seasonal workers will be subject to the income tax of tax non-residents, although they can choose to apply the special regime of the same tax. This special regime allows them to pay taxes in accordance with the general rules provided for by the Personal Income Tax Law.

Where to process the personal income tax return in Andorra

There are two ways to file your personal income tax return:

• In-person processing: it is the traditional way to do it. You have to go to Department of Taxes and Borders of Andorra located at Baixada del Molí, 26 Andorra la Vella. It is presented during business hours (from 8 a.m. to 3 p.m. except Friday, which is from 8 a.m. to 2:30 p.m.) with the necessary documentation in physical format. It is not recommended to do it this way, since it is very archaic. Besides, You must make an appointment to process it..
• Online and digital processing: carried out online through the internet using the citizen's tax portal, also called electronic headquarters, which is made available by the Government of Andorra, through virtual office. It is the most recommended way to file your income tax return for convenience and speed. Username and password for the Online Identification Module (MIL) or the electronic certificate from the Administration in the DTF Virtual Office.
• https://www.e-tramits.ad/tramits/ca/impostos

How to file the Andorran personal income tax declaration

The income tax return is formed by forms 300. To make the declaration correctly, a series of factors must be taken into account. In addition to deductible expenses such as contributions to the CASS, among them are the type of income received, the withholdings applied and the applicable reductions:

Type of income to take into account in the declaration

The form to fill out is divided into types of sheets according to the type of income received to be declared. Sheet 300 is the basis of the form, and contains the personal and identification data, tax data and the forms to fill out of the person who declares. Additionally, Sheet 300-A contains economic and family data. From there, the rest of the sheets to fill out depend on the nature of said income received:

• Income from work: Sheet 300-B. All compensation derived from an employment relationship (e.g. salaries and wages). The special regime for frontier and temporary workers is also included here.
• Income from real estate capital: Sheet 300-B also. Income derived from the exploitation of real estate or rights over these assets (e.g. rental of real estate).
• Income from economic activities: Sheet 300-C. Income derived from business or professional activities and from the functions of administrators. The installment payment on account of the current tax period is included, in which there is the option of providing the bank details so that an automatic direct debit can be carried out.
• Income from movable capital: Sheet 300-D. Income derived, among others, from participation in the own funds of entities (e.g. dividends), from the transfer of own capital to third parties (e.g. interest), capitalization operations and life or disability insurance. Included here are deductions to eliminate international double taxation, given by the CDI that Andorra has signed, on income obtained from other external countries.
• Capital gains and losses: Sheet 300-E. Income derived from the alteration of its asset composition. It should be noted that free acquisitions (such as inheritances and donations), capital gains on real estate (which are taxed by another tax: the ITP) unless they constitute professional activity.

We must emphasize at this point some Andorran personal income tax benefits, as the dividends extracted from Andorran companies They do not pay this tax. And neither do the capital gains and losses of stocks and funds, as we indicated in our article about being a trader in Andorra.

Deductible expenses

Yes they can deduct some expenses too, to take into account. For example:

• Social security contributions. In the case of employed workers, only the worker's part.
• A 3% general expenses for certain full returns, with a maximum of €400.
• Administration and custody expenses, intermediary commissions, as well as other expenses of a similar nature.

Reductions of the Andorran declaration

The following reductions can be taken into account:

• General minimum: it is the reduction that makes the first €24,000 of income not taxable
• Family minimum: it is a reduction of €750 per year per dependent, whether descendant, ascendant or ward. The amount amounts to €1,125 in the case of a disabled person.
• Habitual housing: 25% expenses can be reduced, up to a maximum of €1,000 per year.
• Contributions to pension plans: reduces a 30% in income from work and economic activities up to €5,000.
• Compensatory pensions or annuities for food: amount recognized according to applicable civil legislation, judicial resolutions or regulatory agreements.
• Savings minimum: represents an exempt minimum of €3,000 on income based on savings.
• Other reductions: Apart from those marked by international double taxation, there are deductions for new investments and for the creation of jobs in income from economic activities.

Withholdings to consider

Payers of labor income and income from movable capital have the obligation to make the corresponding withholding, and enter it in the Ministry in charge of finances.

• Income from work: The aforementioned Department of Taxes and Borders determines the withholding percentage that corresponds to earned income. This percentage is computed taking into consideration the reductions and bonuses to which the taxpayer is entitled.
• Income from movable capital: A fixed 10% withholding percentage is applied as a general rule. There is the possibility of requesting the application of the reduction for obtaining income from movable capital, identifying the account to which it is applicable, when these are less than 3,000 euros.

Furthermore, they must consider installment payments on account previously mentioned in income from economic activities. The installment payments are made during the month of September of the year prior to the one to which they apply (September 2023 for the year 2024) and in the declaration a balance between the fractional payment on account and the final amount to be taxed. The amount of the installment payment can be calculated in two different ways:

• For the settlement fee of the previous year: the amount is the 50% of the fee.
• For the net income from economic activities of the previous year: in this case it is the 5% of the net income.

When to file your income tax return

In Andorra, natural persons must file the personal income tax return between April 1 and September 30 of the year following the fiscal year that is the subject of the declaration (that is, for example the 2023 declaration between April 1 and September 30, 2024).

Required documentation

The documentation to be provided will depend on the type of income received and its amount. But in general, having the following documents also helps to make the declaration.

• Payrolls if you are employed as an employee, and withholding certificate.
• Certificates and bank statements of the operations carried out, and other evidence of sales and purchases.
• Annual accounts and accounting results in the case of economic activities.
• Pension certificate if applicable.
• Documents that support the reductions in the tax rate that you are going to request.
• Other documents related to obtaining income.
• The settlement proposal provided by the tax department.

Other links of interest:

• Tax information page
• Personal income tax simulator
• Information page on tax processing
• Personal income tax legislation
• PRACTICAL GUIDE TO IRPF PROVIDED BY THE GOVERNMENT
• FAQ (questions and answers)

If you have any further questions, At Abast we can process your personal income tax return in the most correct and beneficial way given your case. Feel free to contact us, you can do so here.