To the indirect taxes they are usually called painless basically because the amounts are divided into multiple small payments (each time we consume) and for ending these dissolved payments in the price system, having the perception that the cost of the product is really the total amount. The truth is that while they are painless for the consumer, for the producer they are usually a real headache.
However, in Andorra indirect taxation is quite light, although due to tax homologation process that has taken the country since the beginning of the century the fiscal framework is similar to that of the main neighboring countries and respects international standards, but with much lower rates. Well, in this article we will go into detail about the andorran indirect taxation, or taxes equivalent to VAT and others.
What is an indirect tax?
A indirect tax it is a kind of tax collected by an economic agent who is generally a company (who pays the tax to the collecting agent) and who nevertheless all or a large part of the amount of that tax passes on who is the final consumer (for example, increasing the effective sale price). This type of taxation is quite common and was one of the first to emerge historically, as it has its advantages:
- It is easier and more comfortable to collect (in theory and in principle), since there are fewer tax collection and payment centers than in the case of direct taxes (intermediaries concentrate the tax amounts collected from many taxpayers).
- The actual taxpayers, who are the final consumers, generally have less resistance to paying the tax than with the direct system, since the amounts to be paid are divided into a series of small or medium amounts.
Usually, indirect taxes are those taxes that a person must pay for consuming or using something. They usually affect all citizens equally (same percentage, no rate escalation) regardless of the level of income or purchasing power, since the consumption & use is taxed. This is the big difference with direct taxes.
The international standards of the hegemonic countries divide these taxes into two categories different, in a very simplified way and for explanatory purposes:
- Consumption taxes: Like VAT (value added tax) or VAT (value-added tax), it is usually a single tax applicable to all final consumer goods. In some jurisdictions it is divided into sections according to the category and need of the property and in others it is kept as a single type.
- Special taxes: they are taxes implanted under different excuses supposedly of social benefit. For example to "discourage" pollution, public and private health, etc. The excuse is also often given that it is a "strategic sector or asset". Taxes related to alcohol, tobacco, registration of cars, fuel, electricity, etc.) usually belong to this and in general these taxes are not They replace consumption taxes, but overlap with it.
Indirect taxes or VAT in Andorra
The Principality of Andorra, a novice and young man on the subject of taxes, until 2006 it had no indirect general tax as such, but indirect taxation was separated into numerous different taxes:
- Indirect merchandise tax (IMI)
- The charge for electricity and telephone consumption
- The fee for public notarial faith service
- The indirect tax on the provision of banking services and financial services (banking and financial ISI)
- The indirect tax on the provision of business and professional services (ISI)
- The indirect tax on domestic production (IPI)
- The indirect tax on commercial activities (IAC)
As of January 1 of the aforementioned year, the new tax came into force, replacing all of the previous list: the IGI. However, all of Andorra's indirect taxes were not replaced, as we will see later. For example, the indirect tax on the provision of insurance services remained in force and was not absorbed by this tax.
What is the IGI?
IGI is the acronym used to name the Andorra VAT. Means Indirect General Tax, and taxes the deliveries of goods and services carried out in Andorran territory by businessmen or professionals for consideration, on a regular or occasional basis, in the course of their economic activity, as well as imports. That is, and in general: consumption. For this it is understood by:
- Economic activity: those involving the self-management of material and human factors of production or of any of these factors of production, in order to intervene in the production or distribution of goods or in the provision of services. The activity of leasing assets is considered an economic activity.
- Professional entrepreneurs: Individuals or legal entities that carry out economic activities are not considered to be businessmen with respect to this tax (unless they expressly express their wish to be so). This translates into situations of making deliveries of goods and services that exceed the annual figure of 40,000 euros or doing agricultural and livestock activities that exceed the annual figure of 150,000 euros.
Tax structure and tax rates
As for the structure of this tribute, it is given by sections, led by the general rate which is 4.5%. In addition to these, there are the following types:
- 0% super-reduced rate: it is applied to certain health services in Andorra such as health or hospital care provided by public entities, reimbursable by CASS or in agreement by CASS, ambulances and reimbursable medicines, educational services such as teaching, nursery schools and private classes (agenda school or university), sport or culture by public bodies or NGOs, leases and certain transfers of housing, delivery of stamps and stamped bills of legal tender and investment gold.
- Reduced rate of 1%: it is applicable to food for human consumption (except alcoholic beverages) or animal, live animals, seeds, plants, water suitable for human or animal food or for irrigation, books, newspapers and magazines that do not contain unique and mainly advertising.
- 2.5% special rate: This tax is subject to the transportation of people and their commercialization and the provision of services listed below when they are not carried out by public or parapublic administrations, entities governed by public law or cultural or social non-profit entities:
- Those of libraries, archives and documentation centers.
- Visits to fairs, museums, art galleries, art galleries, monuments, historical places, botanical gardens, zoos and natural parks and other protected natural spaces of similar characteristics.
- Theatrical, musical, choreographic, audiovisual and cinematographic representations.
- The organization of exhibitions and similar manifestations of educational, cultural or social field.
- The goods of art objects, of collection or of antiquity, according to the General Nomenclature of products and in accordance with the regulations.
- Increased rate of 9.5%: applied only to banking and financial services.
Tax Settlement and simplified regime
The taxpayer of this tax and the one who performs the settlement is the seller who exercises the economic activity. For tax settlement, as the employer or professional supports an IGI when he purchases goods or services and then passes it on at the time of the sale of goods or when he provides services, simply both amounts are subtracted thus resulting the IGI that the professional must pay (IGI of goods sold - IGI of goods purchased).
This is done through a periodic declaration before the Andorran Tax Administration, so that the result obtained is the amount of IGI that must be paid and paid to the Tax Administration or the amount of IGI that it will return. The frequency of this declaration depends on the annual turnover of the immediately preceding year, and on imports of goods, the tax is settled in the manner provided by the corresponding customs legislation.
An interesting thing to note about the IGI in Andorra is the special simplified settlement scheme. It can be voluntarily accepted by employers or professionals when the amount of deliveries of goods and services made does not exceed the annual figure of 100,000 euros and once this scheme has been chosen, it will be maintained for a minimum period of three years.
Under this regime, the settlement fee is determined by subtracting from the IGI passed on in the settlement period an estimated supported IGI. This estimated IGI is based on percentages applied to the annual income figure, and they vary according to the type of economic activity; commercial activities 3% and the rest 1.5%. The rest of the procedure is the same, that is, periodically a declaration is made and the amount resulting from the subtraction is paid (or collected).
Who pays the IGI? Impact and transfer of the tax
Given that the tax must be applied to consumer goods but it is liquidated by the suppliers of that good or service (businessmen, freelancers, etc.), the taxpayers must transfer or fully pass on the tax on users for those who carry out the taxed operation, although basically it is the same since it supposes a cost more for the offeror and a surcharge for the plaintiff. The latter is obliged to bear it as long as the transfer of the tax complies with the provisions of the Andorran Law.
The transfer of the tax is carried out by invoice or substitute document, and the passed fee is recorded separately from the tax base, even in the case of administratively fixed prices, indicating the type of tax applied. In the importation of goods, the transfer of the tax occurs through the corresponding document issued by Customs.
Other indirect taxes
As we mentioned at the beginning of the article, Andorra does not only have the indirect general tax as consumption or final tax. In addition, it has the following:
- Property transfer tax (ITP) (2000). Transmissions of all kinds of real estate are taxed as well as the constitution and assignment of real rights over real estate, although there are many exemptions. A 4% is applied, of which 1% is imposed by the government and 3% by the common ones on the real value of the goods transferred or the right that is established or assigned.
- Tax on the provision of insurance services (2002). Applied to insurance entities when they carry out the operations taxed by the tax. A rate of 4% is applied to the total amount of the premium or fee that the policyholder must satisfy.
- Special taxes (2008). Tax that applies to certain products: alcohols, tobacco and hydrocarbons. These taxes are applied to the import and manufacture (internal market) of these products, and therefore are paid by people who import or manufacture alcohols, tobacco or hydrocarbons. As an example, the tax is € 0.02 per pack of tobacco, € 25 per hectoliter of pure alcohol (neither beer nor wine) and € 0.285 per liter of diesel.
As we see, unlike VAT or others, andorran IGI is not only light and progressive, but also quite simple. As the amounts to be paid to the Tax Administration also result from subtracting the input tax from the tax passed, the procedures and bureaucracy are greatly simplified, as well as the margin of liquidity that the professional or taxpayer must maintain to face the different payments . The simplified regimen for small professionals is one more extra that makes Andorra a country not only with little tax burden, but with procedures and regulations designed to favor the obligated tributary and remove administrative duplications from the institutions.
However, as we have seen, the IGI has quite a few details to take into account both for its impact and for its settlement, and it is mandatory and strict compliance. That is why we recommend, as always, dealing with good professionals in the field who ensure that the operation is done based on the law and that they can optimize the tax burden and the necessary procedures for each business.
At Abast global we are experts in establishing people and businesses in the Principality of Andorra, especially in tax and accounting matters and both nationally and internationally, and we offer advisory services, consulting and total management for all those who want opening a business in Andorra or live in the country by obtaining a residence permit. You can read part of the services we offer at this link, and can contact us on this other. We will be happy to help you.