Andorra is a country that isn’t well known by many nomads. Let alone that they know the benefits of tax residence in Andorra.
The reason is obvious: Andorra is a small state nestled in the Pyrenees on the border of France and Spain. Some people might have never even heard of it. And the people who do know it, mostly just know it from a ski holiday.
Tax Considerations about Andorra
The country offers one of the lowest taxes in Europe which attracts many people to get tax residence in Andorra. What this exactly means, we’ll share further down in the article. However, you should consider the fact that the cost of living and doing business isn’t low.
Therefore, tax residence in Andorra is rather an option for people who have significant income and/or wealth or people who really want to live in Andorra not purely for the tax savings.
Nevertheless, you could potentially also benefit from the low taxes in Andorra by just setting up your company there. This can be a valid option for you but you always want to take the rules about permanent establishments if you don’t plan to actually do a lot of business in Andorra.
Taxes in Andorra
Andorra mainly attracts people for its low taxes. Let’s have a closer look at these.
Personal Income Tax in Andorra
First, there are the personal income taxes which you pay as a private individuals.
In order to get tax residence in Andorra you need to spend 183 days in the country or have your centre of vital interest in Andorra.
Andorra has three tax brackets for professional income:
- Under 24.000: exempt
- EUR 24.000 – 40.000: 5%
- Above EUR 40.000: 10%
For capital gains, the basic tax rate is 10%. However, there are specific provisions that apply depending on the nature of the asset.
For capital gains on shares, there is an exemption for capital gains if your shareholding is smaller than 25%. If your shareholding is at least 25%, you still get an exemption on the condition you held the shares for at least 10 years.
For capital gains on real estate, separate brackets apply depending on how long you held on to the property.
For dividends, particular rules apply depending on the source of the dividend. We’ll discuss this more in detail later on.
Tax Residence in Andorra: Social Contributions
If you receive professional income, you will also need to pay social contributions.
This obligation is split between the employer and the employee. Employers pay 15,5% and employees 6,5% of the gross wage, totaling 22%.
Self-employed individuals and directors need to pay the same percentage. Furthermore, they need to pay a minimum contribution based on the average salary for the previous year. This brings the minimum monthly contribution to around EUR 550.
Corporate Income Tax in Andorra
The corporate income tax rate in Andorra is a fixed at 10%.
Andorra Dividend Tax
If you are a tax resident of Andorra and receive dividends from a company, you might be liable to dividend tax.
In case you receive dividends from a foreign company, the tax rate is 10%. However, if you receive a dividend from an Andorran company, the dividend is exempt from tax.
Moreover, Andorra provides in mechanisms to avoid double taxation. So, if you already paid withholding tax in a foreign jurisdiction, you can potentially deduct this from your tax burden in Andorra.
In addition, Andorran companies also don’t need to apply a withholding tax to dividend payouts. Therefore, the 10% corporate tax is the only tax you pay. Nevertheless, if you are a tax resident in another country, you also need to assess the tax consequences there.
Types of Residence in Andorra
If you want to get tax residence in Andorra, you will first need to get a residence permit to spend time in Andorra. In this respect, you have different options available to you.
Active Residence
You can qualify for the active residency permit mainly in two cases:
- Employee:
- Work for an employer in Andorra
- Have a local rental agreement or own a property
- Various other conditions apply (e.g. clean criminal record)
- Company incorporation:
- Be a shareholder for at least 34% of an Andorran company
- Hold a management position in the company
- Pay Andorran social contributions
- Deposit EUR 50.000 with the Andorran Financial Authority (AFA).
In both cases, you’ll need to spend at least 183 days in Andorra in order to keep your residence permit active.
Passive Residence
If you don’t plan to engage in any work in Andorra, you can also apply for a passive residence. This is available for:
- Investor – also called golden visa:
- Invest EUR 600.000 in Andorran assets like real estate or local financial assets. In case you invest in the Andorran Government Housing Fund the threshold is EUR 400.000
- Have savings equal to at least three times the minimum annual salary (~EUR 17.500)
- Own or rent a property in Andorra
- Deposit EUR 47.500 with the AFA plus EUR 9.500 per dependent
- Various other conditions apply (e.g. health insurance)
- International entrepreneurs:
- Generate 85% of your revenue from foreign customers
- The economic activities should be mainly performed in Andorra
- Own or rent a property in Andorra
- Deposit EUR 47.500 with the AFA
In these cases, you only need to spend 90 days in Andorra to keep your residency permit.
Digital Nomad Visa
Andorra also has a digital nomad visa.
In order to apply for the DNV, you need to meet certain conditions:
- Work for a foreign company (employee) or foreign clients (business owner)
- Have sufficient financial means, around ~EUR 4.200 per month
- Own or lease a property in Andorra
- Have valid medical insurance
The visa is valid for two years but you do need to spend at least 90 days per year in Andorra.
Furthermore, you need to know that Andorra only issues 50 digital nomad visas per year.
Starting a Company in Andorra
One way to take advantage of the low taxes in Andorra is to set up a company in the country. Let’s have a look at the different options and the process.
Andorra Company Types
First you need to decide on which kind of company you want to create. In Andorra you basically have who options:
- Sociedad Limitada (SL) or a Limited Liability Company. The minimal capital requirement for a SL is EUR 3.000.
- Sociedad Limitada Unico (SLU) which is basically the same as the SL but with just one shareholder.
- Sociedad Anonima (SA) or a Public Limited Company with a minimal capital is set at EUR 60.000.
Furthermore, you could also register your business as a sole proprietorship or freelancer and as a general partnership (Societat Collectiva). We won’t discuss these options here as these are registrations in your personal name which don’t limited your liability. In addition, different tax rules can apply in this case.
Administrative Identification Number
As a foreigner, the first step for setting up a company is to apply for an Administrative Identification Number (NIA) for yourself.
Company Name Reservation
One you know which type of company you want to start, you need to decide on a name for your company.
During the registration process you’ll be able to give up three company names in the order of your preference.
Furthermore, you’ll have to specify your business activity and the legal structure in your application.
The Andorran authorities will then reserve the name of your company. However, this doesn’t equal the actual incorporation yet.
This process generally takes around ten days.
Foreign Investment Authorization
If you’re a foreigner incorporating and owning (+10%) a company in Andorra, you’ll need special authorization from the authorities.
For this, you’ll need to following documents:
- Reservation documents for your company (cfr. supra)
- Passport copy (legalized)
- Clean criminal record (apostilled in the country of origin)
- Proof of tax compliance: proof that you are tax compliant in your home country
- Proof of funds: you need to prove what the origin of the funds are which you intent to use to start your business
- Proof of professional background: extensive CV setting out your experience relevant to the business you want to start
- Business plan: the business plan needs to forecast and describe the activities of the business
Getting the approval generally takes around one-and-a-half months.
Incorporation Andorra Company
After obtaining the foreign investment authorization is time for the next step.
You can now draft your articles of organization and incorporate your company in front of a notary in Andorra.
Registration Various Government Authorities
Your obligations don’t end upon the incorporation, you’ll still need to take care of various registrations.
First, you will need to register your company with the Registro Mercantil Andorra or the Commercial Registry and apply for a commercial license for the specific activities of your business.
Furthermore, you can’t forget to apply for a Tax Identification Number (NRT) for your company.
In addition, you need to register your company and its employees with the Social Authorities (Caixa Andorrana de Seguretat Social).
Open Bank Account
To be fully operational, your company will also need a bank account.
So, that’s kind of the last step before you can start operating your business.
Cost of Setting Up a Company in Andorra
If you want to incorporate a company in Andorra, you should also be aware of the costs.
You will need to pay all kind of registration and government fees. For this you need to budget at least EUR 2.000.
Furthermore, don’t forget about the minimal capital you need to put into your company.
On top of this, it is also recommended to get help from a professional advisor who can assist you and guide you through the whole incorporation process.
Apart from the cost of setting up the company, you also need to account for yearly recurring fees and costs.
On the one hand you’ll have to pay different government fees which in total will set you back more than EUR 1.000.
In addition, you will also need an accountant to assist your company with the different compliance requirements.
Finally, you can of course not forget about the actual different taxes that will be due depending on your situation.
How is Andorra for Nomads?
Andorra is interesting for digital nomads who like mountains and skiing or if you want to set up your base there and enjoy the tax benefits that come with it.
However, the cost of living – definitely rent – can be rather high compared to some other countries so this is an element to take into account.
Work With Me
Are you considering moving your tax residency to Andorra? Or maybe you just want to open a company there?
In this guide you read about the important things you need to think about. However, whether or not Andorra is right for you really depends on your situation. For some people Andorra is great, while for others there are better alternatives.
Reach out to get a personalized plan to optimize your taxes so can finally start creating wealth and stop worrying.
