In today's globalized world, it's increasingly common for people to seek opportunities in other countries, whether to reside or to establish their businesses. One of the key aspects to consider when making this decision is the tax regime applicable in each country. In this regard, Spain and Andorra are two destinations with significant differences in terms of tax burden for companies and individuals.
Feb 27, 2024
In this article, we'll look at some of the key differences between the tax systems of Andorra and Spain, paying close attention to the most significant taxes such as personal income tax (IRPF), VAT, and Corporate Tax.
Personal Income Tax (IRPF) is a personal and direct tax that taxes the income received by individuals residing in a territory. This tax is usually one of the most relevant, especially for those looking to move their residence to another country.
In Spain, IRPF has a progressive nature and is calculated based on the taxpayer's taxable base. Therefore, as income increases, so does the tax rate. For 2021, the minimum IRPF rate in Spain is 19% for incomes under €12,450, while the maximum is 45% for those exceeding €60,000.
Unlike Spain, Andorra has a much lower and simpler IRPF. Firstly, all Andorran tax residents are exempt from this tax up to a taxable base of €24,000. From that amount, a single tax rate of 10% is applied. Hence, the maximum IRPF rate in Andorra is just 10%, in contrast with Spain's 45%.
The Value Added Tax (VAT) is an indirect tax that taxes the consumption of goods and services. This levy has a major impact on the daily life of people, as it is usually included in every commercial transaction made.
In Spain, VAT is applied in three different types: general, reduced, and super-reduced. The general rate is 21%, while the reduced rate is 10% and the super-reduced rate is 4%. These last two rates apply to certain specific goods and services, such as basic food products or medicines.
Andorra, on the other hand, has a tax called General Indirect Tax (IGI), similar to the Spanish VAT. The general IGI rate is significantly lower than in Spain, at 4.5%. In addition, Andorra has a reduced rate of 1% for certain goods and services, as well as a super-reduced rate of 0%.
The Corporate Tax is a levy that applies to the profits made by companies. This tax can have a significant impact on the profitability of a business and therefore influences the decision on where to establish it.
In Spain, the general rate of Corporate Tax is 25%, although there are some exceptions for small and medium-sized enterprises (SMEs), which may be taxed at 15%. Additionally, there are numerous deductions and exemptions applicable according to the type of business activity.
On the other hand, the Corporate Tax rate in Andorra is 10%. This percentage, lower than the general rate in Spain, may be attractive to those entrepreneurs looking to move their businesses to another country. However, it's also important to consider the facilities and resources available in each territory, as well as other tax-related aspects.
Although we've looked at some of the main taxes and their respective maximum rates in both countries, it's crucial to keep in mind that each particular situation may imply different tax obligations. For instance, individuals residing in Spain who decide to move their tax residence to Andorra must meet certain requirements and consider aspects such as the double taxation treaties between both countries.
Furthermore, it's also necessary to analyze other taxes and social contributions in each country, as well as consider the advantages and disadvantages not only from a tax point of view, but also bearing in mind aspects related to quality of life, public services, and business opportunities.
In summary, comparing taxes between Andorra and Spain shows that the tax burden in Andorra is generally lower in terms of IRPF, VAT, and Corporate Tax. However, to make an informed decision, it is necessary to thoroughly analyze all relevant aspects and, if necessary, rely on the support of specialized professionals.
