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IRPF in Andorra: income tax

One of the andorra's most important taxes is personal income tax. With an effective rate that never exceeds 10%The Andorran Tax on Individuals Income stands out for being one of the lowest in Europe despite maintaining the principle of progressivity like other countries. In this article we will deal in detail as one of the most controversial taxes, and one of the newest in Andorra as well, since entered into force on January 1, 2014 and, until then, there was no income tax of people.

What is personal income tax?

The income tax is a type of tax that jurisdictions use to tax the profits of individuals, companies, or other legal entities. So specifically the personal income tax (Personal income tax) taxes those income received by individuals, homo sapiens (not legal).

Simply and generally, income tax is generally calculated as the product of a tax rate multiplied by taxable income. The tax rate usually varies according to the type or characteristics of the taxpayer, and especially increases as taxable income increases (graduated or progressive rates) and this usually divide by sections or bands.

Further, the rate also usually varies according to the origin of the income (wage labor, capital gain, etc.), taking into account the overlap with other taxes. To modify the total amount stolen from the taxpayer, the jurisdictions can basically do two things:

  • Modify tax rates (applied on the tax base).
  • Modify the tax base (the total rental amount on which the rate is applied).

For this, they usually use a whole network of classifications and exceptions (measure of income, minimums, exemptions, bonuses, reductions, deductions, etc.) that change both as it sees fit. The tax law, like almost all laws, grows as legislators modify it to "try" to make it fairer, to stimulate a sector of the economy or simply to increase income.

In addition, various types of tax credits are also often given that reduce taxes. This tax was implemented in Andorra as an approval measure during his transformation and international opening with the sole objective of blacklisting, negotiating treaties and collaborating with other countries in the world, and that is why it is extremely light anyway. But before going into details let's look at a little history of the tax.

Income tax history

Although they try to convince you otherwise, taxes are always created because the state believes that it spends little and that its citizens earn too much. Formerly it was mainly about expenses in warfare and currently said spending is supposedly in social programs and to give moral justification (although it is still to finance warfare as well).

It is therefore not surprising that the modern income tax originates from the United Kingdom of 1799 to be able to pay and cope with spending on arms and army british for the French Revolutionary War. Specifically, this income tax was introduced by Prime Minister William Pitt the Younger at the suggestion of Henry Beeke, future dean of Bristol, in his December 1798 budget.

If we look at the United States, for example, we see that the cause was the same. The federal government of The United States imposed the first personal income tax in 1861 to pay for its war effort in the American Civil War.. However, it was not until 1913 that it was imposed as a permanent element of the tax system with the Sixteenth Amendment to the United States Constitution that made income tax a permanent element in the American tax system, although this tax had nothing to do with the monstrous tribute today.

Income tax in Andorra

The Andorran personal income tax is therefore the tribute that taxes the income of people who are tax residents in the Principality of Andorra. Through personal income tax, all income subject to tax is taxed regardless of where it was produced and the state where its payer is established. That is, the worldwide Income obtained by the Andorran resident taxpayer.

On the other hand, tax liability is any natural person who has his tax residence in Andorran territory. A tax resident is considered the natural person who, among others and in a simple way, fulfills one of the two:

  • Live more than 183 days in the Andorran territory during the calendar year.
  • Settle in Andorra on main core of their economic activities or their economic interests, directly or indirectly.

Thus, for example, border workers, whose incomes are subject to the income tax of non-tax residents (in special regime) are not considered tax residents in Andorra.

Income tax declaration and types of income

Tax resident physical persons in Andorran territory have the obligation to file the declaration of the tax, in the following cases:

  • If income is obtained from economic activities.
  • If the income from real estate capital and / or income from work obtained is a full 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.

Exempt income, whether they are income from work, income from movable capital or capital gains and losses (such as stock market operations) must not declare. The Andorran personal income tax is divided into two large taxable bases: the general base and the savings base. Thus, the following types of income are subject to personal income tax.

General basis

  • Income from work: all the consideration derived from an employment relationship. For example wages and salaries.
  • Real estate income: income derived from the exploitation of real estate or rights over these assets. For example real estate rental.
  • Income from economic activities: income derived from business or professional activities and the functions of their administrators (self-employed and businessmen, formerly under the IAE Economic Activities Tax).

Savings base

  • Income from movable capital: Income derived, among others, from the participation in the own funds of entities (for example dividends), the transfer to third parties of own capital (for example interest), capitalization operations and life or disability insurance.
  • Capital gains and losses: returns derived from the alteration of the equity composition. Free acquisitions (inheritances, donations), as well as the income derived from the transfers of real estate that are subject to capital gains tax in real estate property transfers (except when this income has the consideration of performance of economic activity).

Tax rates and reductions

Although the general tax rate for personal income tax is 10%, on the general basis there is a minimum personal taxation of € 24,000 for each taxpayer, and a bonus of 5% for incomes between € 24,000 and € 40,000 that are applied in the same amount for a maximum of € 800. So, for a single person the taxed income would result:

  • The first 24,000 € income are exempt in the tax
  • The next € 16,000 would pay the 5%
  • From € 40,000 the following incomes are taxed at 10%

This means, for example, that:

  • A person who enters € 23,900 in income does not pay any personal income tax
  • A person who enters € 39,000 pays € 750 as income tax (effective rate of 1.9%)
  • A person who enters, for example, €60,000 pays €2,800 for this tax (effective rate of 4.6%)

Instead, on the basis of savings (capital gains, dividends, interest, etc.) there is only an exempt minimum of € 3,000, although it should be noted that dividends obtained from Andorran companies are exempt from paying this tax, thus also maintaining the rule that the maximum effective rate (including tax overlap) is 10% (in this case for Corporation Tax). As we can see, despite the fact that the general tax rate is 10%, with the bonuses you never get to pay that general rate, approaching it more and more the more annual incomes are declared.

This is a very important advantage, because for example in Spain the personal income tax in 2022 for a single comparable single person is divided into 5 brackets that tax income from a rate of 19% for the first €12,450 to one of 47% for income greater than €300,000. In addition, the predictions and perspectives of the Spanish government is to continue increasing them, especially the highest sections. You can read more here.

Finally, it should be noted that additionally, there are certain deductions and bonuses that decrease effective taxation. From personal and family, habitual housing expenses, contributions to pension plans, etc. up to deductions to eliminate internal and international double taxation and those for new investments and job creation. So it is important to have tax experts who can provide international tax planning and optimize its performance with strict compliance with legislation.

Settlement and withholding period

The payment period for this tax is from April 1 to September 30. Thus, the taxpayer who has to do so must file the personal income tax return between the April 1 and September 30 of the financial year after which the declaration is made (in 2022 the declaration of 2021).

Regarding withholdings, payers of income from work and income from movable capital have the obligation to practice the corresponding withholding, and pay it to the ministry in charge of finances. According to the origin of the income and taking into account the reductions and discounts to which the obligor is entitled, some withholdings or others should be applied, ranging from 0% for wages less than € 27,000 to 7% for wages of more than € 150,000. In any case, we recommend treating it professionals who provide good fiscal, legal and accounting services.

Income tax for non-residents in Andorra or IRNR

Income tax of non-residents IRNR in Andorra, compared to IRPF

Although it is not part of the personal income tax, we will also dedicate a section to this tax that, as its name indicates, taxes the income obtained from Andorra by those who do not reside fiscally in the country (people who perform specific services in the Principality even without being tax residents). Examples of these incomes can be those obtained for repairs, maintenance or other professional work, advice, studies, projects, technical assistance, training, conferences and shows.

Also real estate rentals owned by non-residents, pensions paid by CASS to non-residents as well as the wages and salaries of its members, reinsurance operations or wages and salaries for temporary and / or border workers (under special regime ) are taxed on this tax.

The amount of the tax to pay in general is 10% of the amount of the invoice paid, although there are some reductions to take into account, as well as the withholdings to apply. Finally, it is clear that dividends, interest and other income from movable capital and the international sale of merchandise do not pay this tax.

Andorra Insiders, professionals and experts

In conclusion, andorran personal income tax is ideal: it is progressive according to the income obtained but being very far from becoming confiscatory (maximum effective rate of 10%). However, it has quite a few details to which attention must be paid to strictly comply with the legislation and optimize the performance of the rents, both nationally and internationally.

At Andorra Insiders we collaborate among others with the best advisory, consulting and management firm in the country, counting on authentic experts who will bring you these topics in the best possible way according to your own case and situation. So, you can come to live in Andorra o create your company in the Principality carefree and calm, with the assurance that everything has been done correctly. Can contact us and request a proposal here, and can read all advisory services we offer here. Thanks for reading.

10 thoughts on “IRPF en Andorra: el impuesto sobre la renta”

  1. In the income tax is there a limit of patrimony?
    For example, in my country, Colombia, those with a gross equity of $ 43,000 must declare income.
    That also in escrow in andorra? 0

    Reply
    • Hi Brayan, thanks for commenting. No: in general and for personal income tax in Andorra, you must always declare that you receive any income from economic activities, income from work or real estate activities for a value greater than € 24,000 or capital income of a value greater than € 3,000. That is, basically as long as taxation is applied.

      Reply
  2. Good afternoon. Thanks for the info. I would like to convey to you a doubt that arises when I read the part of the Non-Resident Tax.
    If I have paid the IRNR for the income of a rental property located in Andorra. Do I have to pay again for said income in the IRPF of Spain if I am a tax resident in that country?

    Do you offer this type of advice for investors residing in Spain with interests in Andorra?

    Thanks a lot.

    Reply
    • Hi Javier, thank you very much for commenting.

      As I understand it, you mean that you are a resident in Spain and have paid through the Andorran IRNR the income obtained from the property located there. Well, we would have to consult the double taxation agreement and see the case in greater detail, but surely you should pay the tax in Spain using tax credits to compensate for double taxation (difference in renter income obtained: 24% in Spain – 10% in Andorra = 14% in Spain).

      Reply
  3. Is capital as a beneficiary of an overseas trust taxed if you are passive resident in Andorra and how is income and any gains from that trust taxed is you are just a beneficiary

    Reply
    • Hi ken, thank you for your comment.
      It depends on so many things: there are different types of trusts, familiarity of people involved, etc. We would have to analyze your particular case individually.

      Reply
  4. Bon dia,

    Many thanks for the article.
    If you have paid the IRNR to Spain (24%), you are a tax resident in Andorra, is there any possibility that when you present the declaration to Andorra, the difference will not be returned?

    Thanks,

    Reply
    • Hi Joan, thank you very much for commenting.

      The Spanish IRNR is paid for income earned in this country as a resident of another country. However, you do not have to return: if you have to pay this tax, surely it is due to the fact that some type of Spanish income tax resident has rebutted Andorra, and therefore is subject to this tax. One other thing would be if you pay Spanish personal income tax.

      Reply

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IRPF in Andorra: income tax

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Andorra Insiders is an information platform about Andorra managed by Abast Global, an Andorran professional consultancy firm for legal, tax and accounting services specializing in the establishment of people and businesses in the Principality of Andorra. More information here.

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