Business in Andorra: Overview

Andorra’s tax advantages continue to attract foreign investment and stimulate economic growth. It has evolved into a jurisdiction in compliance with global standards and is an interesting option for those seeking tax optimization without the ethical and legal complications of a traditional tax haven.

arrow_back Faq

Introduction

The tiny principality of Andorra is located in the high mountains of the Pyrenees between France and Spain. It consists of a cluster of mountain valleys and is characterized by glacial landscapes, steep valleys, and open pastures. The valley was designated a UNESCO World Heritage site in 2004. Andorra is known for its breathtaking landscapes, winter sport resorts and rich history.

Andorra has traditionally had a strong affinity with the region of Catalonia in northern Spain. Andorra’s official language is Catalan (Spanish and French are also spoken); its institutions are based in Catalonian law, and a large proportion of the Spanish immigrants (or their descendants) in Andorra are Catalan.

Almost half of residents are foreign nationals, mainly from Spain, France, and Portugal. Andorra in not an EU Member state but is uses the Euro as its currency and has no foreign exchange regulations.

Is Andorra a Tax Paradise?

In addition to the tourist highlights, Andorra is often labelled a fiscal paradise. Historically, Andorra has always had low tax rates, making it attractive for individuals and businesses looking to minimize tax burden. In fact, until 2015, there was no income tax. This tax-free status forged Andorra’s reputation as a tax haven.

In recent years, however, Andorra has undertaken significant reforms under pressure from international bodies such as the European Union and the Organization for Economic Cooperation and Development (OECD). These reforms are aimed at improving tax transparency and combating tax evasion.

In 2015, Andorra introduced an income tax for the first time, with a maximum rate of 10%, which is still relatively low compared to other European countries. In addition, Andorra has signed tax treaties that allow automatic exchange of financial information with other countries. These measures ensure that tax avoidance has become significantly more difficult.

Although tax rates in Andorra are still low, the term “Tax Paradise” is no longer applicable in the light of current transparency. Income tax is a maximum of 10%, and corporate tax varies between 2% and 10%. These low rates still make Andorra fiscally attractive, but the country also meets international standards for transparency and information exchange.

In addition to fiscal reforms, Andorra is actively working to diversify its economy. The government is investing in sectors such as tourism, retail, financial services, and technological innovation startups. These initiatives are designed to make the economy less dependent and create a broader economic base.

Fiscal Climate

In general, the fiscal climate in Andorra is very attractive in comparison to other European countries, while being fully integrated in the international financial system and conventions. Here is os short overview of the main taxes in the country:

Value Added Tax:

Super Reduced Rate: 0%
Reduced Rate: 1%
Special Rate: 2,5%
Standard Rate: 4,5%
High Rate: 9,5%

Corporate Tax:

Income Tax: Between 2% and 10%
Capital Gain Tax: Between 0% and 15%
Tax over Received Dividends: 0%
Employer Social Security Costs: 15,5% over Gross Salary.

Personal Tax:

Income Tax below €24.000: 0%
Income Tax between €24.000 and €40.000: 5%
Income Tax over €40.000: 10%
Capital Gain Tax: Between 0% and 15%
Tax over Received Dividends: 0%
Employee Social Security Costs: 6,5% over Gross Salary.
Wealth Tax Real Estate: 0%
Inheritance Tax: 0%

These tax rates are indicative and can vary according to personal circumstances, tax residency, or tax treaties. Our fiscal specialists can advise on your particular situation. You can learn more about general tax considerations in Spain on our Taxes in Spain page or compare with other options like the Beckham Law.

Setting up a Business Structure

There are a number of options available to develop local businesses or to manage international corporate structures.

Holding Companies

A holding company makes it easier to manage your business. This structure allows you to centralize the various issues in your business and manage different aspects of your business. Above all, it reduces the risk of conflicts of interest and centralizes expenses.

One of the biggest benefits of a holding company is tax optimization, which can legally reduce certain tax levels for your companies. There are different types of holding companies possible that serve different purposes. We are happy to discuss this with you during an initial appointment.

Offshore Companies

An offshore company is a subsidiary established in another country. An offshore company is often established in a country with an attractive tax system like Andorra and is a popular way to improve the group’s tax situation.

An offshore company can offer a number of benefits, but they depend mainly on the country where the headquarters are located, so it is important to pay close attention to the tax laws of that particular country.

The most important criteria for choosing the location of a company’s holding and subsidiary companies are the details of the local fiscal regulations and tax treaties between the two countries.

Local Companies

You can also set up an independent local company in Andorra, there are there are several forms:

S.L.U. (Private limited company with one shareholder).
S.L. (Private limited company with multiple shareholders). (Compare with SL Sociedad Limitada vs Freelance Autonomo in Spain)
S.A.U. (Public limited company with one shareholder).
S.A. (Public limited company with multiple shareholders).

A local company can be used to start an economic activity or to manage financial assets or properties like shares or real estate. The advantages of an asset management company in Andorra are:

Reduce real estate-related expenses.
No wealth tax on real estate
Tax-free transfer of assets to heirs.

For setting up a local company, you have to apply for a so- called active residency. This means that you become a fiscal resident and are allowed to reside and work in Andorra.

Becoming a Resident

Depending on your intentions and needs, there are several options available, including a recently approved digital nomad visa:

Active Residency

For an active residency, it is mandatory to establish yourself and live in Andorra for more than 183 days a year. Active residency is required to work as an employee, to establish a local company and to live permanently in Andorra.

Passive Residency

This is a residence permit that does not allow any economic activity and it is obligatory to stay in Andorra for at least 90 days a year. This form of residency is mainly used by retirees and by managers of multinational corporations.

A group for which this form of residency is particularly appealing are professionals in the field of sports, culture and science. For those who travel extensively for professional reasons, a passive residency is a great option.

Non-Residency

Non-residents who carry out their professional activity in Andorra are subject to Andorran taxation via IRNR exclusively for income generated in the country at a rate of 10%. Income generated abroad is not taxed.

To take advantage of the tax regime in Andorra through a company, the company has to be incorporated in Andorra and its management and control centre has to be located in the country.

Exit Tax

Before transferring the tax domicile to Andorra, it is advisable to consider any possible Exit Tax that may exist in the country of origin.

Our Services

If you would like to explore the possibilities that Andorra can offer for you or your company, our fiscal lawyers will be happy to analyse your particular situation and advise you accordingly.

At ACCOMPANY, we’re dedicated to being your strategic partner, empowering your success in Andorra. Explore our services on the Business Services page.

info

The information contained herein is of a general nature, and subject to changes. Applicability to your specific situation should be determined through consultation with our tax or legal advisors.