Taxes in Andorra vs Spain: personal income tax, VAT and others

¿How are the taxes in Andorra vs Spain in percentage? 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 businesses that decide moving to Andorra.

Are taxes paid in Andorra?

Yes, taxes are paid in AndorraAlthough many people think not. Your tributes are homologated with those of any European country, but with substantially lower and more attractive nominal and effective applicable percentages. Although Andorra it is no longer a tax havenIt has much lower taxes than its surrounding countries and the European average: it is one of the lowest taxes in the world.

It must also be borne in mind that not even due to the current situation in the world and for 2023 the Principality does not plan any tax increase, since that would harm its attractiveness for investment. In fact, a Association Agreement with the European Union in which they maintain the current rates (perhaps except some special ones such as tobacco). The idea is to bring positions closer to the European Union and at the same time keep taxes low to attract capital from abroad and avoid undermining the Andorran economic model.

Taxation in Andorra

Let's see then now: what taxes are paid in Andorra and what is their percentage? In Andorra there are three large taxes, as we can see in the government website:

• Personal income tax (IRPF). In Andorra the IRPF has a maximum percentage of 10%. In addition, the first €24,000 of income is not taxed and the following €16,000 are taxed at 5%. From €40,000 the 10% is already taxed, which is the maximum. This makes the Andorran personal income tax one of the lowest in Europe. Here you can read the law of this tax.
• Corporation Tax (IS). The corporate tax in Andorra is a percentage on the benefits of the 10%. In addition, if they invoice less than €100,000 during the first 3 years, new entrepreneurs pay 5% of the first €50,000. can read more in your legislation.
• Indirect General Tax (IGI), is basically the Andorran VAT. VAT in Andorra is a 4.5% percentage although there is also a reduced rate of the 1% and a super reduced rate of the 0%. A VAT of 2.5% is also applied to cultural, artistic and scientific events and 9.5% to banking and financial services. Here's the law that regulates it.

Apart from these taxes, there are other more specific ones such as the Real Estate Transfer Tax (ITP) or municipal taxes (of the Comuns), which can apply to both individuals and businesses and specific activities. The most famous of the latter is the "fire and place" tax, a traditional Andorran tax that is made by reason of the house as a place of residence. You can read more about the Andorran tax system here.

Tax comparison between Andorra and Spain

Now we are going to compare the taxes in Andorra and in Spain to see the difference between them and that they can clearly see the advantages of Andorra regarding taxation. So, we are going to structure this guide in seven big blocks:

• Personal income taxes
• corporate taxes
• Taxes on consumer goods and services (VAT and special)
• Wealth taxes
• Municipal taxes (and fees)
• Social security contributions
• Other taxes

Personal income tax in Andorra vs Spain

The applicable personal income tax depends on the type of income obtained, so we must classify the personal income tax, 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 continues to be more than abusive and, furthermore, in Andorra there are not so many extras because directly the tax percentage is negligible and already there is nowhere to cut. Andorran is simpler.

Income from work

When considering here the taxes in Andorra vs. Spain, we will take into account that, 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 company administrators and autonomous).

Income tax in Spain on work

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 income tax table for the year 2023 applicable to income from work due to the increase in taxes by the Spanish government (and if they do not make another raise, which cannot be ruled out) is the following:

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%
From €60,000 to €300,000	45%
More than €300,000	47%

It should be noted, however, that this table is indicative, because in addition to the deductions, bonuses and other extras that can be added, these types depend on the autonomous communities. The tax Spanish personal income tax is divided into the state section and the regional section, and the latter depends on the region considered. Nevertheless this approximation is more than enough, since the tax 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%.

Income tax in Andorra on work

In Andorra, due to the international economic opening that they are carrying out, the almost recently created Andorran personal income tax It is also progressive by sections to be able to adjust to European standards, but their percentages are much lower. This is the personal income tax table on work for Andorra in 2023 (and the following ones), 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 wins €40,000 per year, the amount of this tax is only €800, which is a total percentage of 2%. As if that were not enough, there are also bonuses and reductions of various kinds, as well as the option of joint rent in couples and marriages, although more limited than the Spanish ones.

Savings income

To establish the taxes in Andorra vs. Spain in terms of capital income, we will include in this classification, in general, all income derived from movable capital, either returns (dividends, royalties and intangible rights, interest, etc.) or capital gains (purchase-sale of shares, funds, bonds, etc.). They are computed by offsetting capital gains and losses and capital gains within the same year.

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, called ITPI.

Income tax in Spain on savings

It is also a tax progressive, but much more lax since in general capital income tends to have already been taxed before to receive such income as individuals (for example, a corporate tax of 25%). Here you can see more information for the Spanish case. In any case, the table looks like this for the year 2023 after the increase in government taxes:

Savings income tranche	Type to apply
From € 0 to € 6,000	19%
from € 6,001 to € 50,000	21%
Between €50,000 and €200,000	23%
More than €200,000	27%

Thus, as we see and despite the double taxation of income it's a pretty high tribute. There are also certain extras, such as non-taxation of income when it goes from one fund to another or bonuses for private pension plans, but in general these are the applicable percentages.

Personal income tax in Andorra on savings

In Andorra it is a "flat tax" or flat tax with a percentage of the 10%. However, the first €3,000 of income are exempt. Thus, and since Andorran taxes do not usually change, 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 as advantageous compared to Spanish, since the difference is really less than that between personal income tax from work. 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 by personal income tax in Andorra. 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.
• The corporate tax in Andorra, as we will now see, is much lower than the Spanish 25%.

Regarding withholdings Personal Income Tax, these exist both in Andorra and in Spain. Payers have the obligation to withhold personal income tax and pay it to the ministry in charge of finance. According to the origin of the income and taking into account the reductions and discounts, some withholdings or others must be applied. The percentage of income tax withholdings in Andorra ranges from 0% for salaries of less than €27,000 up to 7% for salaries of more than €150,000.

Corporate tax

The Impost de Societats (Corporate tax) It is the basic tax that applies to companies, also called companies or legal entities and is called that way both in Andorra and in Spain. This tax, although it can be complex in terms of reductions and allowances, the normal thing is that the general type prevails or a guy very close to it. That is why we go directly to the point with the comparison Andorra vs Spain:

Country	Andorra	Spain
General Type	10%	25%

As we see, the applicable percentage is substantially lower in Andorra, but it is that as we have mentioned, in addition the dividends of Andorran companies are exempt from paying personal income tax in Andorra. Thus, a maximum of 10% of direct taxes is paid in Andorra. but above the first year all companies pay a 5%. here you go more information about the Andorran Corporation Tax.

Although in Spain there are bonuses for newly created companies, of the 15% for corporate tax, accessing these is difficult, and on the other hand, the new global minimum rate of 15% that the government has imposed on the tax base is an aberration that will destroy more capital and employment of the little that remains in Spain.

Consumption taxes: VAT and specials

Taxes on consumer goods and services can in turn be divided into general and special taxes. As for general taxes, it is usually a single tribute with different percentages depending on the product or service: the famous VAT (Value Added Tax). Excise taxes apply mainly to fuel and energy, alcohol and tobacco.

VAT in Andorra vs Spain: general taxes

For compare the VAT in Andorra with that of Spain, it is necessary to compare the two great general taxes on consumption. In Spain as we know it is called VAT, and it is a tax that is internationally known as VAT (Value Added Tax). However, VAT in Andorra is called Indirect General Tax (IGI). VAT It is collected and settled by the sellers or suppliers, and it is calculated by subtracting the VAT paid from the VAT charged on the products. (VAT on goods sold – VAT on goods purchased). The same happens with the Andorran IGI: the two taxes work the same.

In addition, VAT in many countries works in installments, and this is the case of Andorra and Spain. Specifically, there are at least three types of VAT:

• The super small, applied to the most essential goods such as basic food, health and education services such as nurseries and private classes, subsidized housing, NGO services, basic medicines, etc.
• The reduced, applied to the rest of food products and water, books, newspapers and products and services for animals (food, health, etc.), other medicines, public transport and hospitality.
• The general, applied to the rest of the products, which are the majority of goods and services

As we can see, what determines the VAT rate is how essential the product is. Although in Andorra and Spain the definitions change slightly, in general the same principles are maintained and are very similar. Let's go now with the VAT rates in Andorra and Spain for the different types:

Type / Country	Andorra (IGI)	Spain (VAT)
General type	4.5%	21%
Reduced rate	1%	10%
Super reduced type	0%	4%

As we can see, in addition to being simpler in Andorra, this tax is much more attractive. But also, 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 true tangle of regimes, applications, exceptions, models and immense and difficult regulations. Not to mention the regulation on invoices, deadlines and declarations. The Andorran IGI, however, does not have different regimes and is simpler and easier to settle, pay and declare.

As the maximum percentage is only 4.5%, quarterly settlements do not require a huge capital advance from the self-employed and businesses, and administrations usually pay on time. But without a doubt, an advantage of VAT in Andorra is its simplified regime. And it is that for a turnover of less than €100,000, VAT can be calculated as the amount charged less an estimate of between 1.5% and 3% of the annual income, depending on the commercial activity carried out.

Thus, instead of making a quarterly statement, they make a single annual statement that is much simpler and avoids putting red tape on small businesses.

Special taxes

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, We are going to focus on the three main ones that Spain and Andorra have in common: taxes in Andorra vs Spain on fuel, tobacco and alcohol. Indeed, In Andorra there is no special tax on light and electricity. You can read more about the electricity in Andorra hereYo.

Fuel: gasoline and diesel (diesel)

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 (diesel)	€ 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 see do not vary too much. This is due to the fact that these taxes are not only considered by the people as one more source of income for the state, but also have a plus of supposedly good for the environment, with which the states have a greater justification and are also more demanding for part of 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 miss Tobacco, Andorra's star product for many. The special tax on Spanish tobacco (Tax on manufactured snuff) is quite difficult to calculate, since it is made up of three sections that are calculated differently. In any case, this example serves as an approximation since the type is usually almost the same.

Country	Andorra	Spain
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.

Alcohol

Finally we have the taxes on alcoholic beverages. This tax in both countries is divided into three blocks: tax on the 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 in taxes in Andorra vs. Spain is with higher-grade alcoholic beverages. Now you will understand why some types of Vodka generally have a degree lower than 22% and why they are so cheap in Spain compared to other types of drinks: because taxes are lower for this alcoholic gradation.

We must also highlight, as in the previous section, that the 21% of VAT of the product is reduced to 4.5% in Andorra.

Wealth taxes

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 annual assets, discounting up to €300,000 for your own home and €700,000 of assets per se. It is a tax delegated to the autonomous communities, with which it depends on each one of them. Madrid, for example, has a discount of 99% with which the tax is non-existent in the region.

Municipal taxes

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 fire and place tax.
• 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 one it is usually around €25-40 per year) and the Tax on gaming and chance activities, one of the most absurdities of Andorra. In general, together the rates are also usually lower in Andorra than in Spain.

Social contributions in Andorra vs Spain

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% by the employee. For employed workers (self-employed and company administrators) it is 22% of the average monthly salary of the previous year. This is how one comes out fee of autonomous 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 percentage of 36,25% of the worker's gross salary.

Regarding the quota of self-employed in Spanisha, for 2023 the tax has been changed and is applied based on actual income earned. By 2023, the minimum self-employed fee is €230 and the maximum is €1,267, but will increase in the coming years. In addition, however, the minimum base for self-employed companies is in 2023 of 1,000 euros which implies a minimum monthly fee of 310 euros, which increases again according to the income earned.

As if that were not enough, prices in Spain represent less rights against Social Security than those referring to Andorra. For You can find out more about Andorran social security here. You can also read about the social security agreement between Spain and Andorra here.

Other taxes

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 (ITPI). As we said before, the capital gains derived from the sale of real estate properties such as homes are not taxed through the personal income tax on savings, but have their own tax. Well, this is the tax exactly. they can also see other taxes in Andorra here.

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 percentage of this tax 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 2% on the capital gain of said property. The goal is to favor the homebuyer who wants to hold real estate ownership for the long term.

Lastly, perhaps mention should be made of the tourist tax, a kind of tax on stays in tourist accommodation which is both in Andorra and in many capitals and autonomous communities of Spain.

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And so far the article comparing at the tax level the jurisdictions of Spain and Andorra. We hope you liked it. Do not forget that if you want moving to Andorra, create a company in the country moving your business or some type of international tax planning you can contact us. At Abast we are specialized in establishing people and businesses in Andorra and we will help you throughout the process.