Today we are going to explain how to obtain residency in Andorra, register your company there, and benefit from the many advantages that this principality offers to those who are self-employed, entrepreneurs, investors, and those looking to save money.
As you may already know, Andorra is a tiny European state situated in the Pyrenees, between France and Spain. It’s a well-known spot to those who enjoy skiing and hiking, but Andorra´s assets do not end there; if they did, there would certainly not be so much written about this small state.
The reason we are speaking about Andorra today is, of course, due to the great tax benefits that it offers. As also occurs with other European microstates, Andorra has managed to attract wealth by becoming a safe haven for all types of investors, businessmen, and savers in the face of large European States´ desire for money.
In Andorra, both personal income tax and corporate tax are capped at 10%, general VAT is 4.5%, capital gains generally do not pay taxes, donation tax is not paid, and there is no estate tax.
But before you start packing your bags, let me tell you more about life there.
Living in Andorra
Andorra has a population of 50,000 inhabitants, a low crime rate, and average temperatures of 5 degrees Celsius in winter, and 21 degrees Celsius in summer. It´s a small State in the mountains which would undoubtedly be perfect for families, as well as those wanting to live a quiet life of going on hikes and being in the mountains.
Even if you don’t particularly love peace and quiet, and prefer the hustle and bustle of the city, Barcelona is nearby, and there’d be nothing to stop you working in Andorra in the week, and then leaving at the weekend to enjoy everything that the Catalonian city has to offer.
Be that as it may, don´t forget that in order to be a tax resident in Andorra, you have to spend between 90-183 days there each year, depending on which residence permit you have (this will be discussed in greater depth later), and you are never permitted to spend more than 183 days in another country.
There are those who think that living in Andorra is expensive, and therefore only an option for the wealthy. However, it turns out that the only aspect in which it is more expensive than its neighboring countries is housing. Of course, in this respect, it would be no more expensive to live in Barcelona or Madrid.
In terms of consumer products, the situation is completely different, as the general VAT is 4.5%, compared to 21% in Spain and 20% in France, which is evident when buying ordinary, day-to-day products, as well as those which are more expensive.
Contrary to what you may have thought previously, Andorra is by no means as expensive as Switzerland or other small European states (even though the tax advantages of living in Andorra are, for 95% of the population, far greater than in Switzerland). This is evident in the following list of prices:
- 1 meal at an average restaurant: 9.74 €
- Cappuccino: 1.61 €
- 1 litre of milk: 0.80 €
- Bottle of wine (average price): 5.00 €
- One-way ticket (local transport): 1.85 €
- Petrol (1 litre): 1.09 €
- Volkswagen Golf 1.4 90 KW: 28,490.34 €
- 1 room in an apartment (in city centre): 643.75 €
- 1 room in an apartment (on the outskirts): 475.00 €
- Internet (60 Mbps or more, unlimited data, Cable/ADSL): 40.00 €
One main disadvantage of living in Andorra is that it does not have an airport, meaning that if you had to travel to see clients etc, you would first have to get to Barcelona or Toulouse.
In Andorra, the official currency is the euro, and the official language is Catalan, although practically everyone there also speaks Spanish, meaning that if you speak Spanish, you would have no problems with being understood. French is also widely spoken.
When wouldn’t Andorra be a good option?
Having told you a bit about what your life could be like in Andorra, I will now outline a few instances in which obtaining residency in Andorra would not be a good option for you.
Furthermore, Andorra is very demanding when it comes to bank compliance and asks for extensive documentation, which complicates the process (background certificates from country of birth, current residence and nationality). For example, it can take 3 months to open a company bank account.
If you have been living as a Perpetual Traveler for the last few years and you haven’t worried about making tax declarations in any of the countries you have visited, you must keep in mind that in Andorra it is practically impossible to open up a bank account without your tax declarations from the last two years.
Not having an EU passport is not in itself a problem when it comes to obtaining residency in Andorra.
If you want to avoid problems, you will have to spend the stipulated amount of time in the principality, as well as having all your papers in order.
For people with ties in Spain, residency in Andorra can be a bit ‘risky’, as it is extremely likely that the Spanish Tax Office will try to undermine said residency. Therefore, it is important that the Andorran resident does not have active positions in Spanish companies and that their family (should they have one) also move to Andorra.
Andorra appears from time to time (though less and less) on some countries’ lists of tax havens, therefore it is recommended to consult such lists before transferring residency.
Ways of becoming a resident in Andorra
Now that you have an idea of whether this microstate could be an option for you to live, (if you want information on other options, you may be interested in our Encyclopedia for Migrants), the next step is to understand the different ways of becoming a resident in Andorra.
In Andorra, there are two ways of obtaining a residence visa. You can opt for passive residency (for investors who do not engage in professional activity), or for active residency (for businessmen and those who are self employed, with a work permit).
There is actually a third option, which we will not discuss in detail here, as very few people are in the position to pursue it. You can also become resident if you are hired as an employee.
In order to pursue this third option, you must be hired by an Andorran company. After 12 months, you could become self employed without having to comply with the requirements of active residency, which we will discuss later.
Even if you don’t have a European passport, when you first go to Andorra to obtain residency, you can spend up to 90 days there without needing a visa.
Regardless of your nationality, you must have your passport or relevant European identification document in order. Although the chances of you being asked for this are small, it’s important that you are aware that it could happen.
Although Andorra does not belong to the Schengen Area, it has the same set of criteria. You can therefore enter through Spain or France with a Schengen visa (remember that there is no border control).
In the event that you do need a visa, ensure that you get one which allows multiple entries, as on entering and leaving Andorra, you will be leaving and returning to the European Union.
As has been mentioned previously, you do not need to be a citizen of a European State to obtain residency in Andorra.
Furthermore, one of the advantages of having an Andorran residence permit is that it allows you to move throughout the Schengen Area without a visa, regardless of nationality. This is of particular advantage to those from China and Russia, as people from these nationalities are normally required to obtain a visa.
However, keep in mind that if you enter the Schengen Area through countries with less of a connection to Andorra (ie. if you enter through a country other than France or Spain) it’s possible that the officials at the border won´t know what to do with someone travelling with Andorran residence, and therefore it may take some time before the situation is cleared up and they let you through.
The maximum time that you can spend in countries belonging to the Schengen Area with Andorran residence is 90 days, for every 180.
How to obtain passive residency in Andorra
Investors and those who do not need a work permit in Andorra can opt for passive residency. The minimum length of stay is 90 days, without being checked. However, so that this process works, those with passive residency can also spend no more than 183 days in their country of origin.
Although it is quicker to obtain passive residency than it is active, the requirements are slightly greater. Therefore, if you intend to work, passive residency is not the best option for you.
As is almost always the case, one of the requirements for obtaining residency is to either rent or buy somewhere to live.
Someone with passive residency does not pay social security, but they must still have health insurance. They must also invest at least 350,000 euros in Andorran assets; this could be immovable assets, shares in Andorran companies, or Treasury bills.
In order to obtain passive residency, you have to be able to prove that you do not have a criminal record, and that you have the necessary means to live, which is usually done with a guarantee or bank certificate.
You must also pay a deposit of 50,000 euros to the INAF (Andorran National Institute of Finance). In the event that other people are coming with you, there is an additional charge of 10 thousand euros for each of them. Deposits are returned when you leave the country.
If you are interested in pursuing passive residency, or if you want more information, email us at [email protected], below you have information on potential prices.
How to obtain active residency in Andorra
The first thing to know about obtaining active residency in Andorra is that you have to spend at least 183 days there each year. At the beginning this will be checked, although in practice this is rather complicated, as you do not need to get your passport stamped upon entering or leaving Andorra. In any case, should the tax authorities from your home country question you, you must be able to prove that you have spent 183 days minimum in Andorra, especially if you are from Spain.
Furthermore, you have to set up a business in Andorra in which you own at least 21% of the shares, as well as being listed as an administrator in the company.
You must pay a deposit of 15,000 euros to the Andorran National Institute of Finance. This deposit will be returned in the event that you decide to terminate your residency and leave Andorra.
Something to keep in mind is that the cost of paying social security is fairly high. You have to pay the CASS (Caixa Andorrana de la Seguretat Social) a fee of 460 euros per month (however, remember that this fee isn’t that different in neighbouring countries). In the first year, this fee may be reduced by 50%.
And of course, you have to rent somewhere to live in Andorra, and actually live there.
We will speak in greater detail about taxation in Andorra, but for now let me jump ahead slightly and say that as a resident in Andorra you do not pay income tax while your salary is below 24 thousand euros. Above 24 thousand, you pay a tax at a rate of 5%, up to a maximum of 10% for those with an annual income of over 40 thousand euros.
Regarding corporation taxes in Andorra, corporate tax is 10%, one of the lowest tax rates in Europe, and on the same level as countries such as Hungary and Bulgaria.
You do not need to pay taxes on any dividends that you receive from your company in Andorra while you are a resident there. However, it is important to remember that this is only the case for your company in Andorra, and the same does not apply for any dividends received as a member of foreign companies, meaning that it does not make much sense to deal with foreign companies while you are an Andorran resident.
If you want, the registered office for the company can be the same as where you live, or anywhere else in Andorra. Of course, this would be an expense that you would have to cover (at least in part).
In order to create a limited company in Andorra, you need a minimum capital of 3,000 euros and any records of foreign investment. The establishment of an S.L. is done before an Andorran notary. Once the business is established, you just need to get a corporate tax ID number.
We work with an agency in Andorra which can help you with the various processes (more information below on potential prices). If you are interested, or if you want more information, email us at [email protected].
An idea of how much it might cost to obtain residency in Andorra
It goes without saying that every case is different, but here we have included a few different prices to give you an idea of how much it may cost. The main factors which influence the final amount you would have to pay are nationality, the type of activity you wish to undertake, and number of members.
- Cost of setting up a company in Andorra:
How much does it cost to get support for opening a bank account, registering the company, monthly accounting (approx.), finding an address for the company office, and any other necessary formalities? The ´setting up a business package´ includes all of this and can cost up to 4000 euros.
The cost of maintaining a company can vary but is generally between 250-300 euros a month. Of course, this figure will be higher if there is much accounting to do. This price includes everything on a legal, tax, and accounting level, as well as quarterly statements and annual accounts.
- Cost of passive residency:
The passive residency´package includes residence procedures, a notary, and other necessary procedures. It generally costs between 2000 euros for one person, up to 3500 in certain cases.
- Active residency
For active residency, you have to add the cost of setting up a business to the residence procedures. By itself, obtaining active residency usually costs between 1000 and 1200 euros. Having a residence card issued is 150 euros.
If you want to obtain residency in Andorra, email us at [email protected] and we will put you in contact with our trusted partners in Andorra (they also have an office in Barcelona).
Taxation in Andorra
As has already been mentioned, one of the main highlights of Andorran taxation is the flat tax rate being 10% and VAT being 4.5%, but now we will look at their taxation in a little more detail.
Income tax (Impost sobre la renda de les persones físiques in catalan) is still determined by tax brackets, but unlike what happens in many other countries, in Andorra the cap is set at 10%.
The tax brackets for individuals are as follows:
- €0 – €24,000: 0%
- €24,001 – €40,000: 5%
- €40,001+: 10%
For married couples, the tax brackets are slightly different:
- €0-€40,000: 0%
- €40,001+: 10%
For example, a married couple with a combined income of 130 thousand euros would pay 10% income tax on their taxable income of 90,000 euros (9,000 euros in tax), leaving them with 121 thousand euros.
If it were an individual receiving an income of 130 thousand euros, they would have to pay a total of 9800 euros in tax, leaving them with around 120 thousand euros. Naturally, in both of the previous examples, we are speaking about more than sufficient sums of money.
As for social security fees, when you are self employed, you have to pay 450 euros a month (5400 euros a year). Going back to the previous example, an individual with an annual income of 130 thousand euros would be left with 114,800 euros.
Dividends received from Andorran companies are not taxed, but any received from foreign corporations are taxed at 10%.
Capital gains are taxed at 10%, and therefore treated in the same way as an individual´s income. However, there are several exemptions. For example, if you sell your shares in companies of which you own less than 25%, you don’t pay for the profit. This means that in Andorra, traders don´t have to pay taxes.
Nor do you have to pay taxes on any profits gained by selling assets you’ve owned for more than 10 years.
Generally, profits made on investments in the Andorran economy (bonds and dividends from Andorran companies) are not taxed.
Profits made from Cryptocurrency trading are taxed at the normal rate of 10%
In Andorra there´s no equity tax, inheritance tax, or gift tax.
If you engage in betting, gambling, poker online, or similar activities, the tax burden is 10% on any profit made from the games, although in some cases such activities are exempt.
Corporate tax is 10%. Resident corporations are taxed on profits from capital gains worldwide. Non-resident corporations are taxed on profits made from Andorran sources.
A company is considered resident in Andorra if it is incorporated in the country, either by having a registered office in Andorra and/or its run from the country.
Andorran companies can enjoy various tax deductions and bonuses for investments and staff expansion.
Lastly, VAT (or IGI, as it’s called there) is generally 4.5%, but is reduced to 2.5% or 1% for goods and services related to food, health, education, culture, and renting. Banking and financial services pay a VAT of 9.5%
A note on Social Security in Andorra
Following the changes which occurred in 2019, Social Security contributions in Andorra have changed slightly. The standard payment is more or less the same – 464.62 euros a month – but from now on there will be instances in which certain people can pay less (a quarter of the normal fee), or may be required to pay up to 37.5% more.
Now, you pay 25% (a quarter of the standard 464 euros a month in social security fees) if your net income is less than 6 thousand a year; 50% if it´s below 12 thousand; 62.5% if it´s below 18 thousand; 75% if it´s below 24 thousand; 125% if it´s below 40 thousand; 137.5% for anything exceeding 40 thousand.
The advantages and disadvantages of setting up your business in Andorra
So far we have spoken about the advantages of Andorra for its tax residents and for its policies on corporation tax, but now I would like to tell you a bit about some of the reasons you may decide to set up a business in Andorra without actually being a resident there.
As we have already seen above, Andorran companies have many advantages, such as the fact that they are subject to one of the lowest corporation taxes in Europe, and that you would have no problems with getting your invoices approved.
Having a corporation tax of 10% and the dividend tax exemption are two very good reasons to go for this option.
In case you were to need employees, social charges such as retirement, union fee, occupational risk insurance, to name a few, are not excessively high and account for 14.5% of the worker’s gross salary (the employee then pays an added 5.5%).
For many, another advantage of Andorra is that its currency is the euro, which facilitates trade with the European Union.
However, although many entrepreneurs think about setting up their business in Andorra to optimize VAT, this nowadays does not make much sense.
Please note that you won’t be able to optimize for VAT, in fact there’s very little e-commerce in Andorra. What’s more, you cannot use Amazon from Andorra, you’d have to do it from Spain. For sales in the European Union, you will generally have to acquire an intra-European VAT number from Spain.
This means that the fact that Andorra has a low VAT is interesting, but unfortunately is of no use to you when it comes to making sales in the European Union, seeing as you generally have to use the VAT rate of the consumer (you may want to take look at these articles on VAT on products and services and VAT on digital products to see how it works, and what sale thresholds are).
Another important point is that, depending on the type of business you have, you don’t have to pay tariffs on imported goods (there are specific taxes on alcohol, tobacco, etc).
You should know that in Andorra you won’t get very far with a shell company, as your company must have a director and an office in the country. The effective management must be there.
Furthermore, you must have an Andorran bank account (although you can also have foreign bank accounts open at the same time). This may delay the start up of an Andorran company by up to three months.
Unfortunately Andorra does not have many double taxation agreements, something worth remembering as it could mean that your Andorran company is viewed as fiscally unfavorable, either because your country of residence has listed Andorra as a tax haven (which thankfully is becoming less common due to the exchange of information), or because it doesn’t have access to the same conditions as countries such as the United Kingdom, Hong Kong, and Cyprus (for example, lower withholdings on dividends, interest, and royalties).
Currently, Andorra has 8 double taxation agreements which are signed with Cyprus, the United Arab Emirates, Spain, France, Liechtenstein, Luxemburg, Malta, and Portugal (you can see the full list of signed agreements here).
You may now be asking yourself, is it a good idea or not for me to launch my business in Andorra?
For whom would it be a good idea to launch a business in Andorra?
- It´s a good idea if you want to live there
- If the director of your company lives and works in Andorra
- It’s not a good idea if you had a business in Spain and want to relocate it, or if you only sell to Spain, as the Spanish Tax Office will make this very difficult for you. If this is the case for you, you should be very well prepared before you take this step.
- There aren’t any advantages when it comes to VAT. It no longer makes sense for e-commerce like it used to in the past.
- The Andorran banks are rather difficult, so if you are looking to start up your business somewhere with few taxes, as well as few issues with banks (compliance and KYC procedures), Georgia or the USA or even some European countries might be better options for you.
Banking in Andorra (bank secrecy, whether it’s easy to open an account)
Due to the end of bank secrecy being approved, since the 1st of January 2016, Andorra compiles information on all of the bank accounts in the country, and as of 2018, this information is then shared with the taxation agencies of all countries which are part of the European Union.
The Andorran bank now works closely with the tax agencies of other countries, especially those which neighbor it. The days where one could hide their money in Andorran banks are officially over.
Furthermore, opening a bank account in Andorra can easily take up to two months due to the strict controls against money laundering. Also, as has been mentioned, if you don’t have your tax returns from previous years, it’s almost impossible to open a bank account.
If your company is viewed as more ´morally questionable´, Andorran banks will want nothing to do with it.
Just to give you a more accurate idea of what this means: One of Tax Free Today´s clients, which was providing technical services to a company in the erotic field, was unable to find an Andorran bank which would allow them to open up an account in order to receive payments from said company. Instead, the bank suggested that the company put the money in an foreign account, and then transfer it into the Andorran one.
Don’t expect to be able to open a bank account in Andorra for an offshore company.
Ah, one more thing, Andorran banks are wary of the crypto world.
In Andorra, cryptocurrency isn’t illegal, although local banks don’t exactly make it easy to trade with it. Therefore, in order to work in crypt, you would be far better off finding a bank account outside of Andorra.
Mining in Andorra is complicated, trading is possible on a certain level, and is taxed at 10% (capital gain).
There are several ways of acquiring an Andorran passport; heritage, birth, naturalization, or marriage.
If it’s not through heritage (in which case you automatically adopt the nationality), you have to spend a fair amount of time in Andorra in order to be eligible for a passport.
If your parents are not Andorran but you were born there, they will need to have spent at least 10 years in Andorra.
If you want to follow the route of naturalization, you will have to spend 20 years as a resident (the type of residency does not matter) before you can apply for citizenship. You will also have to pass exams which test your knowledge of Catalan, local history, and geography.
If you marry someone who is Andorran, you can acquire citizenship as long as you have lived there (legally) for 3 years.
The main disadvantage is that, to acquire Andorran nationality, you have to give up any previous nationalities, which puts many people off.
Be that as it may, it’s not a bad thing to have an Andorran passport, and it allows you to visit 157 countries without a visa. Although Andorra doesn’t belong to the European Union, living there comes with practically the same international advantages as living in countries which are in the EU.
Andorra’s relationship with its neighbouring countries and the European Union
Andorra’s relationship with its neighbouring countries and the EU is a matter which often causes a lot of confusion, so we will try and clarify some of the key points.
Firstly, Andorra is not in the European Union, and as is the case with England, Ireland, Bulgaria and Romania, it isn´t in the Schengen Area either.
As has been mentioned previously, there is no direct way to enter Andorra, meaning that in order to visit or live there, you need permission to visit or live in either France or Spain, as they are the two countries through which you can enter the state.
The chances of you being asked for documentation on entering or leaving Andorra are pretty slim. However, there is customs control on the side of the EU, mostly to prevent people from buying products in Andorra under the VAT rate of 4.5% (as opposed to 20% in France or 21% in Spain) and bringing them into the European Union.
Andorra doesn´t have a central bank, but it has an agreement with the EU which sets its currency as the euro.
As has been mentioned, Andorra, as with Switzerland and other European microstates outside of the EU, works with other European countries´ tax authorities. Since 2018, the country has been involved with the automatic exchange of tax information, resulting in Andorra being taken off various lists of tax havens.
There are plans to integrate Andorra in the European Union, however for the moment little is actually being done, so it is unlikely that anything will happen in the near future.
By now you will have seen that Andorra has its advantages. However, it also has some disadvantages which may lead you to pursue residency in other places which are also interesting in terms of their taxation, such as Cyprus and Bulgaria, to name a few.
If you are set on launching your business in Andorra, don´t forget that if you are not resident in Andorra, you will face some difficulties. Regardless of country of residency, you will need to have a director and office in Andorra.
If you want to obtain Andorran residency or start your business there, contact us at [email protected] and we will put you in contact with our trusted partners in Andorra.
If you want us to help you decide whether Andorra is the best decision for you and/or your business, you can book a consultation.