Answer ...

• The Personal Income Tax (5/2014), which applies to tax resident individuals;
• The Real Estate Capital Gains Tax Law (21/2006); and
• The Non-Resident Income Tax Law (94/2014), which applies to non-tax resident individuals.

Answer ... There is a special regime for cross-border employees living in Spain and working in Andorra. These special employees can avail of certain conditions only foreseen for tax residents.

There are no special tax regimes for new residents.

Answer ... Seven double tax agreement are in force in Andorra and negotiations with other jurisdictions are underway to increase this number. Additionally, Andorra is part of the Common Reporting Standard and a member of the Organisation for Economic Co-operation and Development, and as such is also engaged in the Base Erosion and Profit Shifting Protocol.

Answer ... Tax residents are subject to taxation on their worldwide income. An individual is considered to be a tax resident in Andorra if one of the following criteria is met:

• The individual spends more than 183 days in Andorra during the calendar year. In determining the period of the stay, temporary absences are included, except where tax residence in another country can be proven;
• The individual has his or her main base or centre of activities or economic interest in Andorra; or
• The individual’s husband or spouse and his or her dependent minor children reside in Andorra – this is a rebuttable presumption.

Answer ... The tax year in Andorra starts on 1 January and ends on 31 December.

Answer ... (a) What taxes are levied and what are the applicable rates?

Personal income tax is levied at a rate of 10%.

(b) How is the taxable base determined?

The general rules to determine the taxable base are based on Organisation for Economic Co-operation and Development (OECD) standards. Essentially, the taxable base is calculated on the individual’s income. Net income is calculated on the difference between gross income and tax-deductible expenses.

(c) What are the relevant tax return requirements?

For individual tax residents, the personal income tax return for a given year must be filed annually prior to 30 September the following year.

For individual non-tax residents, assuming that the individual has no permanent establishment in Andorra, tax returns must be filed quarterly.

(d) What exemptions, deductions and other forms of relief are available?

The first €24,000 generated from working income, economic activity income and real estate income is exempt under the Personal Income Tax Law. This exemption can be extended up to €40,000 if certain family requirements are met. Moreover, additional relief is applicable to the excess up to €16,000, so that the effective tax rate within this bracket is 5%.

The first €3,000 generated by savings and capital gains is also exempt.

Dividends distributed by Andorran companies are exempt from personal income tax.

The Andorran legislation also provides for double tax relief on certain foreign-source income taxed abroad, according to OECD standards.

Other minor relief relating to health insurance, number of children and investment in the taxpayer’s main residence is also available.

Answer ... (a) What taxes are levied and what are the applicable rates?

Personal income tax is levied on capital gains at a rate of 10%.

(b) How is the taxable base determined?

The taxable base is calculated by the difference between the acquisition value and the transfer value, also taking into account all costs required for the acquisition and the transfer.

(c) What are the relevant tax return requirements?

A personal income tax return must be filed before 30 September.

(d) What exemptions, deductions and other forms of relief are available?

Capital gains derived from the sale of local or foreign shares or collective investment undertaking participations are exempt if the individual held a percentage share of no more than 25% of the company in the year prior to the sale, or, alternatively, if the individual held a higher participation (more than 25%) uninterruptedly for at least the previous 10 years before the sale.

Answer ... (a) What taxes are levied and what are the applicable rates?

There is no inheritance tax in Andorra.

(b) How is the taxable base determined?

N/A.

(c) What are the relevant tax return requirements?

N/A.

(d) What exemptions, deductions and other forms of relief are available?

N/A.

Answer ... (a) What taxes are levied and what are the applicable rates?

Personal income tax is levied on investment gains and savings returns at a rate of 10%.

(b) How is the taxable base determined?

The taxable base is the capital gain or gross income minus related expenses.

(c) What are the relevant tax return requirements?

A personal income tax must be filed before 30 September.

(d) What exemptions, deductions and other forms of relief are available?

The first €3,000 generated by savings and capital gains is exempt.

Answer ... (a) What taxes are levied and what are the applicable rates?

In the case of capital gains arising from real estate located in Andorra, a degressive tax rate applies from 15% (less than one year of ownership) to 0% (more than 10 years of ownership).

(b) How is the taxable base determined?

The taxable base is calculated based on the difference between the acquisition value and the transfer value, also taking into account all costs required for the acquisition and the transfer.

(c) What are the relevant tax return requirements?

In the case of real estate capital gains, the tax return must be filed at the same time as the public notary authorises the transfer. If the transfer is made through private contract, the transferor has 30 days to file the tax return.

(d) What exemptions, deductions and other forms of relief are available?

Capital gains arising from the sale of real estate located in Andorra are subject to a 0% tax rate in case of properties held for at least 10 years.

Answer ... (a) What are they and what are the applicable rates?

Taxes are levied on the income of non-resident companies and professionals for services rendered or income received in Andorra (NRIT). The general rate is 10% for most income types. In the case of royalties, the rate is 5% of the invoice paid. Finally, for reinsurance products, the rate is 1.5%.

Taxes are also levied on empty real estate and living spaces. However, this is not a relevant tax in terms of the tax burden.

Taxes on gambling are subject to rates of between 3% and 25%.

(b) How is the taxable base determined?

The NRIT taxable base is calculated based on the net income regarding economic activities, work, real estate income, royalties and capital gains. However, in some cases non-tax residents are subject to taxation on gross income without the possibility to deduct expenses related to this income, or only certain expenses as expressly established in the NRIT:

• Taxes on empty real estate are based on the square metres of surface area that is not rented or used for housing or economic activities; and
• Taxes on gambling are based on the type of activity and on the prizes or margin on the gambling activity.

(c) What are the relevant tax return requirements?

NRIT: Depending on the circumstances, the NRIT return is either filed by the non-resident payee or retained as withholding tax and filed by the Andorran tax resident payer.

Empty housing tax: Parties that are subject to the empty real estate tax must submit a declaration within two months of the date on which the living space becomes empty under the definition of the law.

Gambling tax: For long-term gambling authorisations, a tax return must be filed on a quarterly basis.

For one-off authorisations, an advance payment must be made prior to undertaking the activity. This payment is based on the estimated income. At the end of the activity, a final settlement must be declared within a maximum of 20 days.

(d) What exemptions, deductions and other forms of relief are available?

Non-resident tax does not apply to:

• dividends;
• interest and other returns on movable capital; and
• capital gains arising from the transfer of shares of Andorran companies where the non-tax resident has held no more than 25% of the company during the last 12 months.

Answer ... (a) What are they and what are the applicable rates?

Value-added tax is referred as ‘impost general indirecte’ (IGI) and applies to goods and services provided in the Andorran territory by companies or professionals undertaking an economic activity.

The general rate is 4.5%. Certain special rates of 2.5%, 1% and 0% apply to specific basic goods and services, such as transportation, food and sanitary services.

A higher rate of 9.5% applies to services provided by banks and financial entities.

With regard to real estate transfers, if the asset is not affected by the transferor’s economic activity, the indirect tax that will apply is real estate transfer tax at a rate of 4%; otherwise, IGI will apply at a rate of 4.5%.

(b) How is the taxable base determined?

Input IGI is deducted from charged/output IGI.

(c) What are the relevant tax return requirements?

Companies and professionals must file an IGI return each month, quarter or semester, depending on the turnover in the previous tax year.

(d) What exemptions, deductions and other forms of relief are available?

Some goods and services are exempt from indirect tax if certain conditions are met (Article 14-41 of the IGI Law and Article 4 of the ITP (Impost de Transmissions Patrimonials) Law).

Answer ... The legislative framework governing succession follows the constitutional principles that recognise the rights of citizens to private property and inheritance. However, succession can be governed by the laws of other jurisdictions.

Answer ... No law regulates this issue in Andorra. Andorran case law on the conflict of laws follows customs and traditions; as a result, the law of the jurisdiction of which the deceased was a citizen will be applied.

Answer ... There are two relevant compulsory restrictions on testamentary freedom:

• One-quarter of the deceased’s estate must be transferred to his or her children or, if there are no children, his or her ascendants; and
• One-quarter of the estate must be transferred to the surviving spouse, if he or she does not have sufficient economic resources.

Answer ... If an individual dies intestate, under the succession regime, his or her estate will be distributed as follows:

• children or their descendants by right of representation;
• if there are no children, the surviving spouse, considering the legitimate rights of the parents of the deceased;
• if there are no children or spouse, the parents; and
• if there are no children, surviving spouse or parents, the collateral relatives.

Answer ... The intestacy rules and the restrictions on testamentary freedom established in the law cannot be challenged.

Answer ... Foreign wills are recognised if:

• the deceased had his or her domicile and residence in Andorra;
• the law applicable at the time of death is Andorran law; or
• the deceased held goods or rights located in Andorra.

Answer ... No law regulates this issue in Andorra. Andorran case law on the conflict of laws follows customs and traditions; as a result, the law of the jurisdiction of which the deceased was a citizen will be applied.

Answer ... Foreign wills are recognised if:

• the deceased had his or her domicile and residence in Andorra;
• the law applicable at the time of death is Andorran law; or
• the deceased held goods or rights located in Andorra.

Answer ... No.

Answer ... The individual must:

• be over 14 years old; and
• have full capacity to act at the time of the event.

Holographic wills are allowed. Both open and closed wills can be formalised before a notary.

Answer ... Drafting a will before a notary affords it a certain level of validity, due to the fact that a notary should not authorise an invalid will.

Answer ... No, this is not possible under Andorran law.

Answer ... A will can only be challenged in court.

Answer ... Please see question 3.4. The rules cannot be challenged.

Answer ... There is no equivalent instrument in Andorra. The recognition of foreign trusts and the applicable taxation are regulated by Technical Communication 25-11-2015. An individual tax resident in Andorra may be a beneficiary or settlor of a foreign trust governed by foreign laws.

Answer ... There is no conflict of laws. Andorra is not signatory to the Hague Convention on the Law Applicable to Trusts and Their Recognition and under civil Andorran law, trusts are not recognised.

In terms of taxation, if an Andorran tax resident is a settlor or beneficiary of a foreign trust, the Andorran tax authorities will clarify the tax treatment of each case under Technical Communication 25-11-2015.

Answer ... Not applicable, as Andorra has no inheritance tax.

Answer ... The recognition of foreign trusts and the applicable taxation are regulated by Technical Communication 25-11-2015. An individual tax resident in Andorra may be a beneficiary or settlor of a foreign trust governed by foreign laws.

Answer ... N/A.

Answer ... N/A.

Answer ... From the Andorran tax perspective, the settlor remains the owner of the trust assets if the possession and control of the assets do not pass to the beneficiary. However, in the case of an irrevocable trust, possession and control pass to the beneficiary and a capital gain is generated.

Income and capital gains will be allocated to the beneficiary or the settlor, depending on the possession and control of the assets.

As there is no gift tax in Andorra, the transfer of assets from the settlor to the beneficiary will not be taxed from the beneficiary’s perspective.

Answer ... Where an Andorran company is hold by a foreign trust, the ultimate beneficial owner must be disclosed through an official declaration to the Andorran government.

Answer ... N/A.

Answer ... Andorra’s current tax regime for private individuals remains one of the most attractive in Europe. Clients that invest their wealth in equity benefit from several capital gains exemptions. Therefore, Andorra’s passive residency scheme is one of the most popular in Europe, allowing individuals to become tax resident while benefiting from low income tax and available exemptions. Passive residency requires only 90 days of residence per year and gives the flexibility to travel and have multiple residencies worldwide while maintaining tax residency in Andorra.

Andorra is working on a new legislative framework for digital assets, including the taxation of returns from cryptocurrencies and intellectual property, among other things. Tax planning opportunities will exist for individuals who wish to formalise their holdings in digital assets through international holding structures.

Quality of life is an important factor when establishing effective and real tax residency in a particular jurisdiction. Andorra has a solid healthcare system, low crime rates, legal security and a very competitive cost of living, making it extremely attractive for those who decide to become residents in the principality.

Answer ... Given Andorra’s tax exemption on dividends from resident companies and its tax treaties with neighbouring Spain, it offers opportunities to combine establishing tax residency with the management and holding of company structures in Europe and Latin America. The favourable treatment of dividend flows from Spanish holding companies allows for tax planning opportunities for shareholders.

Retiring executives with potential pension fund remittances may also find Andorra an attractive jurisdiction, given the tax treaties in place to optimise a change of residency and the significant exemptions available.

Andorra’s banking sector remains sensitive to external remittances from jurisdictions that are considered risky in compliance terms. With only a few banks operating in the country and a conservative risk management approach, Andorra may not be open to international structures and revenue streams that involve some of the world’s major financial hubs outside of Europe. The possibility of delay and rejection is a risk for those who operate in offshore jurisdictions, and such individuals should be aware of the need for proper guidance and advice on compliance matters.

Co-Authored by Albert Barroso