The indirect taxes are those that are levied on consumption of each person irrespective of his or her total income. A percentage is applied to the selling price of a product or service that the consumer pays to obtain it.
In Andorra, indirect taxation is minimalThe IGI in Andorra is much lower than in other European countries. We will explain in this article all about the IGI in Andorra, which is the equivalent of the VAT tax in other countries.
What is an indirect tax?
We pay indirect tax on a daily basis without realising it. It is a tax levied by an economic agent, i.e. a company, which then pays the tax to the corresponding collecting agent. All or most of the amount of the tax is passed on to the final consumer. The amount of the tax is integrated into the final price paid when purchasing the service or product. As it is integrated into the final price, we are often unaware of its existence as only the final price of the product or service is taken into account. This type of indirect taxation is very common and was one of the first to emerge. It has several advantages:
- It is convenient and easy to collect. It is aggravated by each consumption or use.
- The taxpayer is the final consumer. The amount is the same for all citizens regardless of their economic conditions (income and purchasing power).
The standards of the hegemonic countries divide Indirect Taxes in a very simplified way into two categories:
- Consumption tax: like VAT (value added tax), is the only tax applied to different consumer goods. In some countries it may be divided and the percentage may vary according to the category of the service or good, in other cases it always remains the same.
- Excise duties: are those implemented under the guise of social benefit. For example, to improve pollution, public health, etc. Excise taxes are also applied to products such as tobacco, alcohol, fuel, vehicle registration, electricity, among others.
2. Indirect taxes or VAT in Andorra
Andorra is a relative newcomer in the field of taxation since until 2006, it did not have a general indirect tax. but that taxation was divided into several taxes:
- The fee for notarial authentication services
- The tax on domestic production (IPI)
- The Indirect Merchandise Tax (IMI)
- The tax on the provision of business and professional services (ISI)
- Indirect tax on commercial activities (IAC)
- The telephone and electricity consumption charge
- The indirect tax on financial and banking services (ISI on banking and financial services)
When the Andorran IGI tax came into force, it replaced most of the taxes mentioned above. But some, such as the insurance benefit, remained in force. This will be explained in detail below.
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3. What is IGI?
The VAT amount in Andorra is called IGI, which stands for General Indirect Tax. This tax is levied on the acquisition of goods and the provision of services carried out in the territory of Andorra, on an occasional or habitual basis, during consumption, the development of economic activity and imports. It is understood to mean:
- Economic activity: those which involve, on their own account, the organisation and intervention of human and material production factors for the distribution of goods or services rendered. Leasing is also considered to be an economic activity.
- Professional entrepreneurs: Legal entities or individuals who carry out economic activities with regard to the IGI tax do not qualify as entrepreneurs unless they expressly state so. For example, when providing services or delivering goods exceeding an annual amount of € 40,000.00, as well as agricultural and livestock farming activities that produce more than € 150,000.00.
3.1 Tax structure and tax rates
The structure of the IGI tax is divided by brackets, as follows 4.5% overall. We can differentiate between the following types:
- Super-reduced rate of 0%: applied to certain Andorran health services such as hospital and health care provided by public bodies, which is then reimbursed by CASS according to the agreement. Also medicines, ambulance service, education, childcare, private lessons (up to university syllabus), cultural and sporting activities of public bodies, investment gold, stamp duty, certain leases and certain transfers of housing, among others to be consulted.
- Reduced rate of 1%: applied to foodstuffs for animal and human consumption (except alcohol), live animals, plants and seeds, water suitable for human consumption and irrigation, press (except for advertising only), books, among others to be consulted.
- Special rate of 2,5%: applied to passenger transport services and their commercialisation. In addition to services offered by non-profit cultural and social entities under public law:
- Libraries and documentation centres.
- Museums, art galleries, visits to monuments, historical sites, nature parks and zoos, botanical gardens, fairs and other similar venues or activities on request.
- Audiovisual, cinematographic and choreographic cultural sites, as well as musical and theatrical performances.
- Exhibitions and other similar educational, social or cultural activities.
- Collector's items and goods, works of art or antiques, according to the previous regulation and the product nomenclature.
- Increased rate of 9,5%: applied only to financial and banking services.
3.2. Tax assessment and the simplified system
The person who carries out the assessment and is liable to pay the IGI tax is the seller who carries out the economic activity. To settle the taxAs a professional or entrepreneur, he/she first pays the IGI when purchasing the service or good and then when selling it or providing the service to the final customer. Both amounts are subtracted, resulting in the IGI payable by the professional or businessman (IGI of goods purchased - IGI of goods sold).
This process is carried out by periodic declaration to the tax authorities of AndorraThe result is either the amount of IGI you have to pay to the administration concerned or the amount of IGI that will be refunded to you. Depending on the annual turnover, the frequency with which this declaration must be made depends on the annual turnover. of the previous completed year. The tax must be paid in accordance with the corresponding Andorran legislation.
A curious fact to bear in mind regarding the tax under the simplified special scheme for settlement in Andorra is that professionals and entrepreneurs can voluntarily opt for it if the services they provide or the amount of sales of their goods does not exceed €100,000.00 per year. The minimum period that will be maintained will be 3 years.
Under this regime, the assessment rate is established by subtracting from the IGI concerned in the assessment period an estimated input IGI. This estimated amount will be based on a percentage applied on the annual income, which may vary according to the economic activity (commercial activity 3% and the others 1,5%). Periodically a declaration is made and the amount resulting from the subtraction is collected (or paid).
3.3. Who pays the IGI? Passing on and transfer of the tax
Because the IGI tax is levied on services offered and consumer goods. but it is the companies and businesses (i.e. the suppliers) that pay the tax, the taxpayers have to pass it on to the taxpayers. pass on the tax in full to the users for whom the taxable transaction is carried out. This means an additional cost for the bidding company and an additional price to be paid by the complainant.
The transfer of the tax must be in accordance with Andorran law. The transfer of the tax is carried out through invoice or substitute document, the affected quota is entered separately from the tax base (including those with the administratively fixed price, always indicating which tax rate was applied). For the import of goods, the change of the tax is carried out by means of the document previously issued by Customs.
4. Other Taxes and Fees in Andorra:
4.1 Municipal or parish taxes (Comuns) in Andorra:
Depending on the municipality (comuns) the corresponding percentage of regulation and taxation may vary:
- Property tax.
- The tax on rental income.
- The construction tax.
- The fire and place tax (foc i lloc).
- The location tax on business, professional and commercial activities.
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4. Other indirect taxes in Andorra
In Andorra, in addition to the general indirect tax on final goods or consumptionhas the following:
- Excise duties: which is applied to products such as hydrocarbons, alcohol, tobacco. Taxes are levied on both manufacture and importation. They are paid by the manufacturers of the products in question or by the importers. For example, the tax on a packet of tobacco is €0.02, €0.285 per litre of diesel and €25.00 per hectolitre of pure alcohol (neither wine nor beer).
- Tax on the provision of insurance services: applies to insurance undertakings in the case of transactions subject to the tax. 4% is levied on the amount to be paid by the policyholder or on the total premium.
- Real estate transfer tax (ITP): the transfer and creation of rights in rem over property is taxed, their transfer is taxed, taking into account the various exemptions. 4% applies, of which 1% is imposed by the government and 3% is imposed by the common tax on the real value of the property transferred or of the right that is transferred or constituted.
5. Conclusion
IGI is a simpler tax than the others. The amounts paid to the tax authorities must be subtracted from the input tax, the bureaucracy and all the formalities are much simpler, as is the liquidity margin that the taxpayer (the professional) must have to meet the various payments. The simplified regime is an extra for small professionals in order to favour the taxpayer and thus eliminate the possible administrative duplications of the different institutions.
However, strict consideration must be given to the different details for the settlement and passing on of the IGI. For all these reasons, you should always count on the help of professionals in the legal, fiscal and accounting sector in order to comply with each point according to the Andorran Law. At Only Andorra we will offer you effective solutions, complete assistance and support during the requested process, for example opening a company in Andorra or for obtain Andorran residency.
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