The residence permit in Andorra allows a person to live in the country, but does not automatically change the tax residence to the Principality. Although a person can reside in different countries, he/she can only have one tax residence.
Most OECD (Organization for Economic Co-operation and Development) member countries use certain criteria, which are summarized in Double Taxation Conventions (DTC). Andorra also makes use of these rules to determine legal tax residence.
Different points apply to determine a tax residence in Andorra. This is where the DTA plays an essential role, but even without the existence of a Double Taxation Convention, sometimes the same factors and criteria are applied to determine tax residency and, therefore, tax liability.
You are interested: Spain-Andorra double taxation agreement, what should I know?
If you want to know the requirements to obtain tax residency in Andorra, do not miss this article. From WITwe will tell you everything you need to know about this.
Requirements to obtain tax residency in Andorra
Before discussing in detail the criteria necessary to obtain tax residence in Andorra, we must distinguish two concepts that are sometimes confused: administrative residence and tax residence.
Administrative residence is granted by the competent authorities for foreigners, while tax residence is not acquired in parallel, but is consolidated once a series of requirements established in the current legislation have been met.
There are different ways to obtain administrative residency. The following are the three most consolidated:
- Labor residence, which is obtained through an employment contract. This type of residency requires living in Andorra and working on site.
- Active residence: requires the development of an economic activity through the incorporation of a company in Andorra. In this case, the required presence is 183 days spread over a calendar year and the deposit of 50,000 euros to the Andorran Financial Authority (AFA). It is necessary to be the administrator of the company, to hold more than 20% of the shares of the company and to contribute to the Andorran Social Security (CASS). In short, this is the model par excellence for developing a business in Andorra.
- Non-profit passive residence: requires an investment in Andorra of 550,000 euros (in real estate, in shares of an Andorran company or investing in listed financial products) and a deposit of 47,500 euros refundable to the AFA and 9,500 euros for each dependant. You only want to live in Andorra 90 days a year. Generally, since passive residence does not contemplate any economic activity, it is usually a type of residence for retired persons and/or those who wish to manage their assets from Andorran territory, thus being able to benefit partially or totally from the tax advantages in Andorra.
As mentioned above, administrative residence is diametrically different from tax residence, since the latter is consolidated on the basis of requirements unrelated to the immigration regulations.
However, what are the requirements to be considered an Andorran tax resident?
The conditions for obtaining tax residency in the Principality are as follows:
- Living in Andorra for more than 183 days a year. A person is considered a tax resident of the State in which he has a permanent home at his disposal, and lives there more than half of the year.
- The center of economic interest is in Andorra, i.e. where most of the personal income comes from.
- The family lives in the country (legal partner and minor children). This is the so-called experiential center of interest.
Therefore, once the above criteria have been met, it is possible to notify the competent tax authorities of the change of tax residence and be taxed in Andorra.
Conversely, if you do not meet any of these requirements, your nationality may be a factor in determining the location of your unrestricted tax liability. If a double tax treaty exists, both tax authorities are responsible for resolving the conflict.
The person concerned can apply for a tax residence certificate, both active residence and passive residence in a certain country, which will then clearly determine the tax liability in Andorra.
Why consider tax residency in Andorra?
Andorra has a lot to offer in addition to lower than normal tax rates. Many people looking for low tax countries in Europe end up moving there because of the quality of life.
- 0-10% Personal Income Tax.
- 2-10% Corporate income tax.
- 0% Wealth Tax.
- 0% Inheritance and Gift Tax.
- It is the safest country in Europe, along with Iceland and Liechtenstein.
- Andorra has the best healthcare systems in Europe.
- It is located two hours and 50 minutes from Barcelona and Toulouse.
- The cost of living in the Principality is similar to that of Spain or France.
Tax residence in Andorra: frequently asked questions
1. Can I become a tax resident without living in Andorra?
No, you must spend at least 90 days in Andorra if you want to become a passive resident. For other types of residence, a permanent stay is advised (excluding business trips and vacations). You must have a permanent address at all times, whether it is a rented or purchased property.
2. Can I live in several countries or travel most of the year?
Technically, you can be resident in more than one country if you have legal resident status in all of them. However, you should be aware that tax residency is usually declared only in one country where all your worldwide income must be declared.
How much does it cost to be a tax resident in Andorra?
Andorra requires from 2023 a refundable deposit to the AFA of 50,000 euros for active residents who are shareholders or members.
For passive residence, a deposit of 47,500 euros and 9,500 euros for each dependant is required, and a cost of 2,500 euros for the holder and 500 euros for each regrouped person.
Other types of residency, such as work permits or family reunification, do not require a deposit.
It should be noted that tax liability can be a very complex issue. Therefore, we recommend that if you have any questions regarding this matter, please contact us.
From WIT we will be happy to help you in everything you need.
