The tax residence in Andorra is an increasingly popular option for entrepreneurs, investors, and professionals seeking to optimize their tax burden in a high-quality living environment. However, this growing interest has led the Spanish Tax Agency to intensify its surveillance, imposing multimillion-euro fines on those it considers to be simulating residence in the Principality to evade taxes. This article analyzes the current situation and provides key insights to make your relocation safely and legally, ensuring your tax residence is genuine and effective.
What is happening with tax residence in Andorra and the Spanish Tax Agency?
Recently, it has been reported that the Spanish Tax Agency has detected hundreds of taxpayers who, despite declaring their tax residence outside of Spain, actually maintained their center of life within Spanish territory. This situation, known as residence simulation, is considered serious tax evasion and is actively being pursued.
Fraud figures: 429 cases and 131 million euros
Since 2021, the Tax Authorities’ actions have led to the regularization of 131 million euros from 429 taxpayers who were simulating living abroad. Although the Spanish government has not broken down these data by country, it is well known that Andorra is one of the favored destinations for wealthy Spaniards, placing the Principality in the crosshairs of inspections.
The key to these inspections is not just verifying if the person has obtained residence in Andorra, but determining their true center of economic and personal interests. If the Tax Agency concludes that this center remains in Spain, it can demand the payment of the relevant taxes, along with high surcharges and fines.
Keys to establishing a real and effective tax residence in Andorra
To avoid problems and ensure that your change of residence is uncontestable, meeting just one requirement is not enough. You need to build a solid case demonstrating a genuine and continuous link with the Principality. Below, we outline the most important factors considered by the Tax Agency.
The 183-day criterion: is it enough for the Tax Authorities?
The most well-known rule for determining tax residence is staying more than 183 days in a country during the calendar year. While this is a fundamental requirement, it’s dangerous to think it’s the only criterion. The Tax Agency can consider that, even if you spend more than half a year in Andorra, your main economic interests are still in Spain, making you a Spanish tax resident in their view.
Therefore, physical presence is necessary but not sufficient. It must be complemented with other proofs demonstrating that your life has effectively moved to Andorra.
The center of economic interests: the real battleground
This is the most critical criterion and often the hardest to prove. The center of economic interests is defined as the place where a person derives most of their income or where they have the main basis of their economic activities or interests. If you run your businesses from Spain, have your main clients there, or hold most of your assets in Spain, the Tax Authorities will have solid grounds to claim otherwise.
It is vital that your professional and business activities are managed and developed from Andorra. This could involve having an office in the Principality, hiring local staff, or making strategic decisions from here.
How to demonstrate your life center in Andorra?
Proving that your personal and social life has moved to Andorra is as important as demonstrating your physical stay and economic activity. The Tax Agency uses big data tools, social media investigations, and cross-references consumption data to build a comprehensive profile of the taxpayer. Therefore, you must ensure a clear trace of your life in the Principality.
Documentary and daily life proofs
To strengthen your position, it is advisable to gather and maintain records demonstrating your roots. Here are some elements that can help:
- Basic consumption: Utility bills for electricity, water, internet, and phone in your name at a property in Andorra.
- Social and family life: If you have children, enrolling them in the Andorran education system is one of the most compelling proofs. Also helpful is being a member of sports clubs, gyms, or local associations.
- Everyday expenses: Purchase receipts from supermarkets, restaurants, gas stations, and other shops in Andorra. Using credit cards linked to an Andorran bank account is excellent proof.
- Healthcare services: Being registered with the CASS (Caixa Andorrana de Seguretat Social) and using the Andorran healthcare system for medical consultations.
- Assets in the country: Holding a bank account as your primary account, owning a property, or registering your vehicle in the Principality (importing your vehicle).
Consequences of false tax residence
The implications of being caught in a fake tax residence are severe and go beyond simply paying owed taxes. It is crucial to understand the risks to approach the relocation process with the seriousness it deserves.
Fines, surcharges, and criminal implications
If the Tax Agency determines your tax residence in Andorra is not genuine, the consequences can include:
- Income tax assessment: You will be required to pay all unpaid income taxes in Spain for non-prescribed years.
- Late payment interests: Interests will accrue on the owed amount.
- Tax penalties: Fines can range from 50% to 150% of the amount defrauded, depending on the case severity.
- Tax offense: If the defrauded amount exceeds 120,000 euros per year, the case may go to criminal court, with possible prison sentences.
The importance of expert advice for your relocation
Moving your tax residence to Andorra is a fully legal and beneficial process if done correctly. The advantages concerning taxes in Andorra are clear, but increasing fiscal pressure in neighboring countries necessitates extreme caution and meticulous planning.
Trusting experts familiar with both Andorran and Spanish legislation is the best guarantee for a successful and smooth move. At Andorraway, we assist you at every step—from obtaining residence permits to tax planning—ensuring each detail complies with current regulations and that your new life in the Principality starts on a solid and secure footing. If you are considering living in Andorra, do not hesitate to contact us for personalized advice.