Since the origin of most of the residents in Andorra are Spanish, it was necessary to make a guide to compare taxes between Andorra and Spain, in order for them to understand why this small country in the Pyrenees is so attractive and why it is a destination chosen by different youtubers, celebrities, athletes and other entrepreneurs of digital business.
So, we are going to structure this guide in seven big blocks: taxes on personal income, taxes on companies, taxes on consumer goods and services, taxes on wealth, municipal taxes, social contributions and other taxes. In each of them, of course, we will also highlight the most outstanding points so that you can clearly see the advantages of Andorra in terms of taxation.
Personal income taxes
Regarding taxes on income received by individuals, we must classify them in their different bases according to the type of said income. Although at this point there are many details and both taxes (Spanish income tax and Andorran personal income tax) are different, in general terms this simplification is correct. Thus, we can differentiate the earned income or wages from savings income or capital gains.
In addition to this, it must be taken into account that there are bonuses and reductions for different reasons. In general, in greater quantity in Spain than in Andorra. But despite this, the tax is still more than abusive and, in addition, in Andorra there are not so many extras because the tax that already is very small is directly there is nowhere to cut. Andorran is simpler.
Income from work
In general, all the income from work (wages), of the return on real estate capital (rental of homes and properties) and economic activities (such as corporate and autonomous administrators).
It's about a progressive tax for income brackets, so that depending on the tranche that corresponds to the income received, one rate or another is applied. The IRPF table for the year 2020 applicable to earned income, if a new tax increase is not approved is the next:
|Income segment||Applicable rate|
|From € 0 to € 12,450||19%|
|From € 12,451 to € 20,200||24%|
|From € 20,201 to € 35,200||30%|
|From € 35,201 to € 60,000||37%|
|More than € 60,000||45%|
It should be noted, however, that this table is merely indicative, because in addition to the deductions, bonuses and other extras that can be added, these types depend on the autonomous communities, since the tax is divided into the state section and the regional section, and the latter depends on the region considered. However this approximation is more than enough, since the rates do not vary much. For example, the lowest maximum rate is that of Madrid with 43% and the highest Barcelona with 48%, and the lowest minimum rate is Extremadura with 18%, and the highest again Barcelona with 21.5%.
In Andorra, due to the international economic opening they are carrying out, the almost newly created personal income tax It is also progressive to be able to conform to European standards, but their rates are much lower, as we will see. This is the IRPF table on work for Andorra in 2020, with only three sections:
|Income segment||Applicable rate|
|From € 0 to € 24,000||0%|
|from € 24,000 to € 40,000||5%|
|More than € 40,000||10%|
So, for example, for a person who earns € 40,000 per year, the amount of this tax is only € 800. As if that were not enough, there are also bonuses and reductions of various kinds, as well as the option of joint income in couples and marriages, although more limited than the Spanish ones.
We will include in this classification, in general, all income derived from movable capital, either yields (dividends, royalties and intangible rights, interests, etc.) or capital gains (purchase and sale of shares, funds, bonds, etc.). They are computed through compensation within the same financial year, capital gains and losses and work income.
An important point to note is that in Spain the capital gain generated by the sale of real estate is considered capital gain (or loss), and therefore taxed in personal income tax for this savings base. In Andorra, however these capital gains are taxed by another tax that we will see later.
It is also a tax progressive, but much more lax since in general capital income tends to have already been taxed before to receive said income as natural persons (for example a corporation tax of 25%). Here you can see more information for the Spanish case. In any case, the table looks like this:
|Savings income tranche||Type to apply|
|From € 0 to € 6,000||19%|
|from € 6,001 to € 50,000||21%|
|More than € 50,000||23%|
Thus, as we see and despite the double taxation of income it's a pretty high tribute. There are certain extras as well, such as the non-taxation of income when they go from one fund to another or bonuses for private pension plans, but in general these are the applicable rates.
In Andorra it is a "flat tax" or flat tax of the 10%. However, the first € 3,000 of rent are exempt. Thus, the Andorran savings tax table would be:
|Income segment||Applicable rate|
|From € 0 to € 3,000||0%|
|More than € 3,000||10%|
A priori, it may seem that it is not so advantageous compared to Spanish, since the difference is actually less than that between personal income tax on work income. The fact that makes it so are the following points:
- Dividends in Andorra and other income from the capital of Andorran companies they are exempt from paying for this IRPF. Therefore, it only taxes income and gains on foreign capital.
- But it is that in addition, they are also exempt capital gains derived from the sale of shares listed on the stock exchange, and instruments that imitate this same sale.
Finally, tell them that they can get more information about Andorran personal income tax in our article made for this purpose.
The basic tax that applies to companies or legal entities is the Impost de Societats (Corporate tax), so called in both jurisdictions (Andorra and Spain). This tax, although it is quite complex in terms of reductions and bonuses, especially in Spain, the normal thing is that the general type prevails or a guy very close to this. You can read more about Andorran corporate tax here. So we get straight to the point with the comparison:
As we can see, the applicable rate is substantially lower, but as we have mentioned, in addition the dividends of Andorran companies are exempt from personal income tax in Andorra, with which a maximum of 10% of direct taxes is paid.
Taxes on consumer goods and services can in turn be divided into general and special taxes.
The general tax on consumption in Spain is the Value Added Tax or VAT, while in Andorra there is a very similar one called General Indirect Tax. This tax is levied on practically all consumer products and is known internationally as VAT (Value Added Tax).
First of all, and this is the most important thing, it must be said that The greatest advantage of Andorra compared to Spain in VAT is the regulation and simplicity of the tax. The Spanish VAT is a veritable tangle of regimes, applications, exceptions, models and regulations, immense and difficult to surf. Not to mention the regulation on invoices, deadlines and declarations. The Andorran IGI, however, does not have different regimes and it is very easy to settle and pay and declare. In any case, we go with the types:
|Type / Country||Andorra (IGI)||Spain (VAT)|
|Super reduced type||0%||4%|
As we can see, being simpler is also much more attractive. As for the different goods and services to which each type is applied, they are quite similar. They can read more about the IGI here.
In Spain there is also a huge list of excise duties Y environmental, most of them absurd and that prevent any entrepreneur from progressing. However, let's focus on the only three that Spain and Andorra have in common (In fact Andorra only has these three): on hydrocarbons, tobacco and alcohol.
|Hydrocarbon / Country||Andorra||Spain|
|Gasoline (leaded)||€ 0.5 / liter||€ 0.505 / liter|
|Unleaded gasoline <98 octane||€ 0.44 / liter||€ 0.473 / liter|
|Unleaded Gasoline 98 Octane||€ 0.47 / liter||€ 0.504 / liter|
|Diesel oil||€ 0.28 / liter||€ 0.379 / liter|
In addition to these four, there are more for other hydrocarbons (one in Andorra, many more in Spain) but these are the most used. As we can see, they do not vary too much. This is because these taxes are not only considered by people another source of income for the state, but also have a plus of supposedly good for the environment, with which the states have greater justification and are also more demanding for part of the international standards.
At this point, it might be asked, then, if taxes on hydrocarbons are so similar, how can it be that in Andorra they are much cheaper than in Spain. Well, it is quite easy: as we have analyzed before, the VAT in Andorra is 4.5%, while in Spain it is 21%. This difference of almost 17 points is mainly responsible for the price difference.
Tobacco could not be absent, the star product of Andorra for many. The Spanish special tax on tobacco (tax on tobacco products) is quite difficult to calculate, since it is made up of three sections that are calculated differently. In any case, this example is approximate as the type is usually almost the same.
|Tax per pack of 20 cigarettes||0,02 €||€ 3 - € 4|
And it is that in Spain, almost 80% of the price paid for tobacco are taxes: VAT and special tax. In Andorra, the tax on tobacco is minimal.
Lastly, we have taxes on alcoholic beverages. This tax in both countries is divided into three blocks: beer (percentage of alcohol greater than 0.5%), the tax on wine and other fermented beverages (percentage greater than 1.2%) and the tax on pure alcohol / rest of alcoholic beverages (percentage greater than 22%).
|Drink / Country||Andorra||Spain|
|Beer||€ 0.0136 / liter||€ 0.0275 - € 0.0996 / liter|
|Wine and others||€ 0.0312 / liter||€ 0 / liter (for being strategic)|
|Alcoholic drinks||€ 0.25 / liter||7 - 9 € / liter|
As we see, the big difference is with higher-grade alcoholic beverages. Now you will understand why some types of Vodka in general have a lower grade than 22% and why they are so cheap in Spain compared to other types of drinks.
We must also highlight, as in the previous section, that the 21% of VAT of the product is reduced to 4.5% in Andorra.
In Andorra, as is obvious, there is no wealth tax. In Spain, however, it does exist since was restored due to the economic crisis of 2008, and its rate is approximately between 0.2 and 3% of the annual equity, discounting up to € 300,000 for the own home and € 700,000 of equity itself. It is a tax delegated to the autonomous communities, which depends on each one of them. Madrid, for example, has a 100% discount, so the tax is non-existent in the region.
Regarding municipal taxes, as you all may know, in Spain are:
- The Real Estate Tax (IBI)
- The Tax on Economic Activities (IAE)
- The Tax on Mechanical Traction Vehicles (IVTM)
- The Tax on Constructions, Installations and Works
- The Tax on the Increase in Value of Urban Land
As is obvious the tax burden of these taxes depends on the municipality in question, as well as the economic activity, the real estate that is owned and the vehicle that is owned among others.
Similarly, in Andorra there are the following, although each municipality chooses not only the applicable amount, but also the combination of taxes within this list to apply.
- The traditional tax of fire and place.
- The property tax.
- The tax on rental income.
- The tax on the establishment of commercial, business and professional activities.
- Fee on the Register of Holders of Economic Activities
- Vehicle Ownership Tax
- The construction tax.
It should be noted, however, that these taxes and those of Government and Commerce for a company in Andorra average are usually less than € 1,000 per year in total, and for an individual less than € 200 per year (in general).
On the other hand, there are also other minor taxes such as the Vehicle Tax (it depends on the vehicle and its characteristics, but for an average it is usually around € 25-40 per year) and the Tax on gambling and chance activities, one of the most absurdities of Andorra.
Regarding social contributions, the comparison is somewhat difficult due to the complexity of the Spanish system, but in general in Andorra a total of the 22% of salary. For employed persons, the 15.5% falls at the expense of the employer and the 6.5% at the expense of the employee. For employed persons, (autonomous and corporate administrators) is the 22% of the average monthly salary of the previous year. This is how one comes out Freelance fee between € 450 and € 500 per month.
In Spain, as we said, it is more difficult to say since the system is more complex, but in general, 28.3% (23.6% "paid by the employer" and 4.7% "paid by the employee") is quoted for contingencies, plus 7.05% for unemployment insurance, plus 0.7% for training plus 0.20% in concept of FOGASA in charge of the company, adding a spectacular total of 36,25% of gross salary of the worker. Regarding the self-employed quota, for 2020 the 30.3% of the general type of contribution is applied on a basis of between € 944.35 and € 4,070.10 per month, resulting in a fees between € 286.15 and € 1,233.2.
However, the minimum base for self-employed companies is 1,214.08 euros, which implies a monthly fee of 367.84 euros. In addition, these quotes suppose less rights against Social Security than those referring to Andorra.
As to other taxes in Spain, we could talk about many of them and we would check where the fiscal voracity of that country reaches. To name a few: the IAE, the Tax on property transfers and documented legal acts, the Tax on donations and inheritance, the Tax on Insurance Premiums and other administrative fees of the many that there are, but it is not worth going into those lares.
We have done this section basically for the Tax on capital gains on transfer of property assets in Andorra. As we said before, the capital gains derived from the sale of real estate properties such as homes are not taxed through personal income tax on savings, but have their own tax. Well, this is exactly the tax.
It is a tax that falls on the natural or legal persons who transfer the real estate or real rights over the same assets and whose tax base is the difference between the value of the property at the time of sale and its acquisition value. Obviously there are many exemptions (institutional, family and partner, donations, habitual residence, etc.) which make that in the end, practically this tax only applies to those who do this as a business.
The tax rate is located between 1 and 15%, depending on the years that the real estate has been the property of the taxpayer (promoting long-term investment), in this way:
- 15% rate up to one year.
- Type 14% between one year and one day and up to 2 years.
- Type of the 13% between 2 years and one day and up to 3 years.
- 12% type between 3 years and one day and up to 4 years.
- Type of the 10% between 4 years and one day and up to 5 years.
- Type of the 8% between 5 years and one day and up to 6 years.
- Type of the 6% between 6 years and one day and up to 7 years.
- Type of the 4% between 7 years and one day and up to 8 years.
- Type of the 2% between 8 years and one day and up to 9 years.
- A type of the 1% between 9 years and 1 day and up to 10 years.
As we can see, despite starting worse than income tax on savings, it can be done much lighter over the years. A person who invests for eight years in a property, would only pay a 2% on the capital gain of said property.
And so far the article comparing at the tax level the jurisdictions of Spain and Andorra. We hope it has been to your liking. Do not forget that if you want to move to Andorra, create a company in the country by moving your business or some type of international tax planning you can contact us. We collaborate with the best law firm in Andorra and we will help you throughout the process.