Low tax system: Andorra

15.05.2018

Low tax system: Andorra. Tax rates

The taxation system in 2018. What Andorra tax free haven is?

The taxation system in the Principality of Andorra was developing in accordance with the activities and the economic structure of the country, expanding tax bases in order to optimize the distribution of tax levies for the transition from almost entirely indirect taxation system to direct taxation system, corresponding the international level.

In accordance with the mandate established in the Constitution, the tax powers are distributed between the municipalities and the Government.

On the municipal level, an adopted law on the delimitation of competences of municipalities of November 4, 1993 establishes and defines the powers of municipalities within their self-government authorities. The law determines the local tax authority for the following taxes types:

– Traditional tax for residents.

– Property tax.

– Income tax expense of tenants.

– Tax on conducting business, entrepreneurial and professional activities.

– Tax on construction.

In 2003, Law 10/2003 of June 27, on municipal finances combines the basic elements of municipal taxes and homogenizes the basis of various tax concepts that these local authorities develop through the appropriate decrees.

At the state level, the Customs Union Agreement between the Principality of Andorra and the European Economic Community modifies the structure of consumption taxes, and sets the start of the general indirect taxation.

The period from 1994 and 1996 is an important stage in the development of the taxation system, marked by the introduction of five new taxes:

– Tax on possession of vehicles (1994).

– Tax on the right to use the trademark (1995).

– Tax on registration of owners of economic activity (1995).

– Court fees (1995).

– Taxes on lotteries (1996).

In 2000, the legislative authority approved a tax on the provision of services (ISI) in accordance with the indirect taxation generalization political model in all sectors of the economy. It is a framework law that determines the basis for indirect taxation on services and that by means of specific legislation shall be introduced in all sectors within two years.

In May 2002, an indirect tax levied for the provision of banking and financial services (now canceled) and an indirect tax on the provision of insurance services were imposed. In the same year a tax levy on notary certification (now also canceled) and a tax on the transfer of title to real property under the tax liability between the municipalities and the government were approved.

Finally, on November 3, 2003, three special taxation laws, summarizing an indirect taxation in all areas of the economy were adopted:

– Indirect tax on the provision of professional and business services.

– Indirect tax on domestic production.

– Indirect tax on commercial activity.

These three new taxes, which entered into force on January 1, 2006, have been replaced by a general indirect tax (IGI), which entered into force on January 1, 2013.

Direct state taxation began to be applied in 2006 with the entry into force of the capital gains tax in transfer of immovable property. This is a direct taxes imposed on the increase in real property values, and being applied in transfer during lifetime of the encumbered or profitable real estate and the establishment or assignment and alienation of rights to this property.

On December 29, 2010, three very important laws in the field of direct taxation were adopted:

– Law 94/2010 from December 29 on the tax on income of non-residents.

– Law 18/2011 from December 1 on the Amendments to the Law 94/2010 from December 29 on Income Tax on non-residents.

– Law 95/2010 of 29 December on the corporate tax.

– Law 17/2011 from December 1 on the Amendments to the Law 95/2010 from December 29 on the corporate tax.

– Law 96/2010 from December 29 on the tax on income from business activities.

– Law 19/2011 from December 1 on the Amendments to the Law 96/2010 from December 29 on the tax on income from business activities.

The introduction of these three taxes meets all the specifics and fits perfectly into a real economic policy of the Principality of Andorra as a center of international services provision. Andorra’s economy being opened to the outside world, along with the modernization of the taxation system and a more rational distribution of tax liabilities were the main reason for the determination of the legislative initiative.

In 2013, a general indirect tax (IGI) was introduced. Its implementation allows to replace most of the existing indirect taxes levying an industrial consumption within our territory. Thus, the structure of indirect taxation becomes more neutral and efficient for businesses and citizens.

Finally, on January 1, an income tax on individuals (IRPF) came into force, which ultimately determines the tax base of Andorra and introduces a tax corresponding to a tax existing in other countries across the European Union and the OECD. The new tax applies to all income received by the taxpayer, regardless of its type and source, including corporate income tax previously taxed on profits from business activities.

– Law 5/2014 from April 24 on the tax on income of individuals

– Law 42/2014 from December 11 on amending the Law 5/2014 from April 24 on the tax on income of individuals

Taxes and fees

– Tax on lotteries “Joc del Bingo”

– Tax on lotteries “Joc del Quinto”

– Tax on keeping the register of owners of economic activity

– Taxes on ownership of vehicles

– Tax on immigration

– Court fees

– Tax for the right to use the trademark

– Visitor prices

– Fee for the issuance of work permits

– Fees on animal health and food safety (2012)

Direct taxes

– Capital gains tax in transfer of real estate rights (PLV) (2006)

– Tax on income of non-residents (IRNR) (2010)

– Tax on profits of companies and legal persons (IS) (2010)

– Tax on business and economic activities (IAE) (2010)

– Tax on income from savings

– Tax on income of individuals (IRPF) (IAE to 31/12/2014)

Indirect taxes

– Tax on transfer of rights to real estate (ITP) (2000)

– Tax on the provision of insurance services (2002)

– Special taxes (2008)

– General indirect tax (IGI) (2012)

Customs duties

– Consumption tax (1985)

– Common external tariff