The Personal Income Tax (IRPF) is a tax on the income earned by residents of a country. In this article, we're going to zero in on the IRPF in Andorra, a place known for its tax policies that are cool for citizens and encouraging for foreign investment. Here, you'll learn about how this tax works in the Principality of Andorra and what perks it offers compared to other countries.
Mar 7, 2024
The Andorran tax system is characterized by having a low tax pressure compared to other European countries. The majority of the country's fiscal revenue comes from indirect taxes, such as the General Indirect Tax (IGI). This has made Andorra a very attractive destination for businesses and individuals looking to take advantage of this economically favorable environment.
As for income tax, this tax was implemented in Andorra in January 2015, following the enactment of Law 5/2014 on Personal Income Tax. Non-active residents (with income primarily from passive activities) are exempt from paying this tax, provided that their main source of income does not come from Andorra or from any economic activity within the country.
Andorran income tax applies to fiscal residents of the country and is calculated based on the income earned. The tax rate has a moderate progressivity, structured on the basis of three brackets defined by annual income ranges:
Up to 24,000 euros: 0% tax rate.
Between 24,001 and 40,000 euros: 5% tax rate.
From 40,001 euros onwards: 10% tax rate.
These rates are quite low when compared with countries like Spain or France, where the maximum income tax rates are around 50%. This constitutes one of the main competitive advantages of the Andorran tax system over other European countries.
To understand how income tax filing and management works in Andorra, it is necessary to know some peculiarities about this process and the way it is organized in the country.
In Andorra, the campaign for income tax filing generally begins in April of each year. The deadline for this process usually extends until the end of September, although it is possible to request an extension in justified cases. During this period, taxpayers must fulfill their fiscal obligations and declare their income according to the specifications and requirements established by current legislation.
In the calculation of Andorran income tax, certain deductions can be applied that reduce the taxable amount. Among the most common are the following:
Deduction for personal minimum: all taxpayers can apply a deduction of 24,000 euros on their global income.
Deduction for family minimum: an additional deduction of 6,000 euros is applied for each dependent living with the taxpayer and directly depending on them.
Deduction for child support payments: the amount paid for compensatory pensions or child support in favor of the ex-spouse or children can be deducted, up to a limit of 6,000 euros annually per beneficiary.
Deduction for primary residence: there is a deduction related to the payment of mortgage interest for the purchase of the main residence.
These deductions benefit taxpayers by reducing the fiscal burden derived from income tax. Therefore, before filing and settling the tax, it is important to be aware of and consider all applicable deductions based on the personal and family situation of the individual.
Andorra has various features that make its tax system attractive from the perspective of income tax. Among the main tax benefits the country offers, we can mention:
Low Tax Rates: as mentioned earlier, the rates applicable to income tax in Andorra are considerably lower than those of other European countries.
No Additional Taxes: unlike other countries, Andorra does not apply an additional or complementary tax on income nor on personal wealth.
Agreements to Avoid Double Taxation: Andorra has signed agreements with several countries to avoid international double taxation, providing greater legal and fiscal security to residents and investors.
Easy Access to Information and Administrative Procedures: the Andorran tax system is known for its simplicity and agility in terms of consultations and procedures related to fiscal affairs.
In conclusion, income tax in Andorra is an example of the favorable approach this small country has towards tax matters. The low rates, along with other competitive advantages, make the Principality an interesting place to consider if you are thinking about moving to another country, investing abroad, or simply expanding your financial knowledge.
