The tax differences between Andorra and Spain have become a recurring topic of conversation for entrepreneurs, investors, and professionals seeking to optimize their tax burden and improve their quality of life. It is no secret that the Principality of Andorra offers a significantly more attractive fiscal framework than its neighboring countries, leading to growing interest in relocating residence to this small country in the Pyrenees. In this article, we will clearly and thoroughly break down the figures that highlight this fiscal gap, so you can understand why Andorra is such a valued option.
Income Taxes: An Obvious Contrast
Perhaps the most well-known and discussed difference concerns the direct taxes levying income from individuals. This is where the Andorran system shows one of its greatest competitive advantages.
Individual Income Tax (IRPF) in Andorra
The IRPF system in Andorra is simple and features very low tax rates. It is structured into three brackets:
- From €0 to €24,000: 0% tax rate. Income up to this amount is completely exempt.
- From €24,001 to €40,000: A rate of 5% applies.
- Over €40,001: The tax rate is 10%.
This means that the maximum rate a person might pay on employment income is 10%. Additionally, there are allowances and exemptions, such as the exemption of the first €3,000 earned from capital gains. This simplicity and low fiscal pressure make living in Andorra a very attractive option from a financial standpoint.
IRPF in Spain: A Progressive and High Burden
Contrarily, the IRPF in Spain is a progressive tax with much higher rates. The brackets vary by autonomous community, but at the national level, rates can reach up to 47% for high incomes. The difference is staggering: while in Andorra the maximum rate is 10%, in Spain, nearly half of the income can be paid in taxes. This high fiscal load is one of the main reasons many professionals and entrepreneurs explore the option of obtaining residence in Andorra.
Business Taxation: The Corporate Tax
For companies and entrepreneurs, fiscal differences between Andorra and Spain are equally decisive. The Andorran business environment is designed to attract investment and stimulate economic growth through competitive taxation.
Corporate Taxation in the Principality
The Corporate Income Tax in Andorra has a general rate of 10% on profits. This percentage is already one of the lowest in Europe. However, Andorran legislation includes special regimes for certain types of companies, such as those managing intangible assets, engaged in international trade, or financial investment, which can see this rate reduced to 2% or even 0% in very specific cases. This competitive advantage attracts business creation in the country.
The Landscape of Corporate Tax in Spain
In Spain, the general Corporate Tax rate is 25%. Although there are reduced rates for startups (15% during the first two profitable years), the standard rate is more than double that of Andorra. This difference in corporate tax directly impacts a company’s reinvestment and growth capacity.
VAT vs. IGI: The Consumption Tax
Indirect taxes also significantly differ in daily life and cost of living. While in Spain we are familiar with VAT, Andorra has its own tax, the IGI.
The Impost General Indirecte (IGI) in Andorra has a general rate of 4.5%. This is the equivalent of Spanish VAT and, again, the lowest in Europe. Additionally, there are reduced and super-reduced rates for essential goods and services:
- Super-reduced rate (0%): Applicable to healthcare, education, and rental housing services.
- Reduced rate (1%): For food, water, books, and press.
- Special rate (2.5%): For transportation and cultural services.
- Increased rate (9.5%): Reserved for banking and financial services.
In comparison, the VAT in Spain has a general rate of 21%, with reduced rates of 10% and super-reduced rates of 4%. The difference in the general rate (4.5% vs. 21%) directly affects the cost of living and residents’ purchasing power.
Dividends, Wealth, and Inheritance: The Major Advantages of Andorra
Beyond the main taxes, there are other tax considerations in Spain that simply do not exist in Andorra. These absences represent one of the biggest fiscal differences and a significant incentive for high-net-worth individuals and investors.
Treatment of Dividends
In Andorra, dividends distributed by an Andorran company to an Andorran resident are taxed at 0%. This encourages reinvestment and profit distribution without onerous double taxation. In Spain, dividends are included in the savings base of IRPF and taxed at rates from 19% to 28%.
No Wealth Tax
Andorra does not have a wealth tax on net assets. In Spain, this tax exists and, although ceded to autonomous communities (some offering exemptions), it can pose a substantial annual burden for high-net-worth individuals regardless of the income generated.
Inheritance and Gift Tax
Another significant absence in the Andorran fiscal system is the Inheritance and Gift Tax. Transferring assets by inheritance or gift is not subject to tax in the Principality. In Spain, this tax can reach very high rates, exceeding 80% in some regions for inheritances to non-direct relatives, which can severely impact family patrimony.
Comparative Table: Key Fiscal Differences
To better visualize the contrast, here is a summary of the main tax differences between Andorra and Spain:
- IRPF (Maximum Rate): Andorra 10% / Spain ~47%.
- Corporate Tax (General Rate): Andorra 10% / Spain 25%.
- VAT / IGI (General Rate): Andorra 4.5% / Spain 21%.
- Dividends (from local company to resident): Andorra 0% / Spain 19%-28%.
- Wealth Tax: Andorra Does Not exist / Spain Does exist.
- Inheritance and Gift Tax: Andorra Does Not exist / Spain Does exist.
Why Do These Differences Make Andorra Such an Attractive Destination?
The numbers speak for themselves. Andorra’s low tax burden not only allows residents and companies to retain a larger share of their income and profits but also creates an environment of stability and economic predictability. A simpler tax system with low rates fosters investment, entrepreneurship, and talent attraction.
If you are considering a change of scenery and are looking for a place with a high quality of life, a privileged natural environment, and above all, a fair and competitive tax system, the tax differences between Andorra and Spain make the Principality a serious option. At Andorraway, we are experts in facilitating this relocation process, offering comprehensive advice on all aspects related to taxes in Andorra and obtaining your residence. If you want to explore your options, do not hesitate to contact us.