Andorra is globally known for being a country with attractive tax conditions for companies and entrepreneurs. But, how much tax do you really pay in Andorra? Below, we explain the key points to consider when discussing taxes in this small European country.
Jan 10, 2024
The Personal Income Tax, or IRPF, is one of the most notable taxes when we talk about how much tax is paid in Andorra. This tax applies to people who have their usual residence in Andorra and earn income. Unlike other countries, Andorran IRPF features relatively low progressive rates, which makes Andorra particularly interesting for those with high incomes.
Up to €24,000: 0%;
From €24,001 to €40,000: 5%;
More than €40,001: 10%.
It is important to highlight that these brackets are applicable on the general base, that is, after certain deductions stipulated in the country's tax legislation are made.
Taxpayers can enjoy certain exemptions and deductions in IRPF in Andorra. Among them, noteworthy are exemptions for employment income, such as:
Severance payments;
Maternity or paternity benefits.
Additionally, taxpayers can apply certain deductions on the general taxable base, such as:
Donations to non-profit entities;
Union dues;
Main home reduction, as long as it is not a passive residence.
Although Andorra does not have a Value Added Tax (VAT), there is a similar tax called General Indirect Tax (IGI) that taxes goods and services in this country. The general rate of this tax is 4.5%, which is significantly lower compared to other European countries where the rate varies between 15% and 27%.
Just as there are different types of VAT in the European Union, Andorra has several rates of IGI to adjust to different products and services.
Super-reduced rate (0%): mainly reserved for basic necessities, medicines, and health and educational services.
Reduced rate (1%): applies to products such as food, energy, and some investment goods.
General rate (4.5%): applies to the rest of the products and services not included in the reduced or super-reduced rate.
The corporate tax applies to companies resident in Andorra. The tax rate applied is 10%, which is advantageous compared to other European countries.
Andorra also offers specific tax advantages for companies that carry out certain activities. For example, there is an 85% deduction in the full amount of corporate tax for companies whose main activity is the management of patents or technical advice, which reduces the effective rate to 1.5%.
Individuals who earn income in Andorra without being fiscal residents must pay a tax of 10% on their income generated in the country.
As in other countries, in Andorra, one must comply with various municipal taxes that vary according to the locality where we live. Among these, the property tax and various fees for public services such as waste collection, sanitation, etc., stand out.
Although it will depend on each personal and business situation, we can say that Andorra is a country with low tax pressure, especially compared to other European countries. Its friendly tax system, along with its strategic geographical location, makes this small country one of the favorite destinations for those looking to optimize their tax burden.
