The IRPFis one of the most important taxes in Andorra (link with taxes taxes taxes taxes). Andorra's personal income tax is one of the lowest in Andorra. The Andorran personal income tax never exceeds 10%, in this article we will explain in detail everything related to personal income tax in Andorra. It is a relatively new tax as it came into force on 1 January 2014, previously there was no personal income tax in Andorra.
1. What is personal income tax?
The Personal income tax is a tax paid by each individual. (non-legal) to contribute to the support of the State according to their income.
Generally, personal income tax is calculated as result of a tax rate multiplied by the taxable income. The tax rate can vary according to the individual (taxpayer), increases as taxable income increases and is then divided into bands or brackets.
The rate varies according to the source of income (capital gains, salaried labour, etc.). To modify the total amount to be charged to the taxpayer, jurisdictions can do the following:
- Modify the tax base (the total amount of income on which the levy is applied).
- Modify tax rates (those that apply to the base).
As appropriate, jurisdictions can make different classifications and exceptions (deductions, exemptions, income measures, reductions, etc.) and thus vary the tax base and also the tax rates. There are tax credits that reduce taxes. Tax law, like other laws, grows with the changes made by legislators to stimulate the economic sector and raise revenue.
The tax IRPF was established in Andorra in order to equalise with other European countries, to help them open up and transform themselves internationally. To be able to collaborate with other countries, to get out of blacklists and to negotiate treaties.
CONTACT US
Our Telephone:
2. History of personal income tax
Taxes are created by the state because it believes that citizens earn too much. Currently, personal income tax is used for different social programmes (pensions and unemployment benefits in Spain, for example).
In the past, they were invested as expenditures in military conflicts. Therefore, the current income tax comes from the UK from 1799.The tax was levied on the population to pay for the expenditure of the British army and its armaments to fight the French Revolutionary War. This income tax was introduced in the budget of 1798 by Prime Minister William Pitt (the Younger) and laid the administrative foundations of the British Empire.
In the United States, the cause was the same, the federal government imposed the first personal income tax in 1861. to meet the costs of the American Civil War. In 1913 it was made permanent in the US tax system by President Woodrow Wilson, although the percentage was not as high as it is today.
3. Personal income tax in Andorra
Andorran personal income tax is paid by individuals who are tax residents of the Principality of Andorra. In this way, the tax corresponding to all the income of the individual resident in Andorra is deducted, regardless of the place where the activity took place or the state where the individual is located. In other words, the worldwide income is taxed in Andorra, as this is the person's tax liability.
It has the tax liability any natural person who is resident for tax purposes in the territory of Andorra. A person is considered a tax resident of Andorra by fulfilling one of the following points:
- Living more than 183 days within the territory Andorra during the calendar year.
- Having in Andorra the ncore economic activitiesdirectly or indirectly.
As a curiosity, the following are not considered tax residents in Andorra frontier workersIn addition, their income is considered as special regime income and is subject to income tax for non-resident taxpayers.
4. Personal income tax return and income tax rates
People who are tax residents in Andorraare obliged to file a personal income tax return in the following cases:
- Whether they make capital gains and losses.
- If the income from real estate capital and/or earned income is obtained from a minimum amount equal to or greater than €24,000.00.
- If income is obtained from economic activities.
- If the income obtained from real estate capital was not withheld and is greater than €3,000.00.
The exempted income (e.g. stock exchange operations) should not be declared. The Andorran personal income tax is divided into two taxable bases: the general base and the savings base.
These are the types of income:
General basis:
- Income from real estate capital: those arising from immovable property or rights to immovable property. A good example is the rental of real estate.
- Income from work: those arising from an employment relationship, e.g. wages and salaries.
- Income from economic activities: those deriving from business and professional activities, or from administrative functions of the companies themselves (self-employed and entrepreneurs).
Savings base:
- Capital gains and losses: those deriving from income from changes in assets. Personal income tax does not apply to inheritances and donations, except when the income from real estate is considered to be income from economic activity.
- Income from movable capital: those arising from equity participation (e.g. dividends), capitalisation transactions, life or disability insurance, as well as the transfer of own capital (e.g. dividends) to third parties.
5. Tax rates and reductions
The general rate of taxation Personal Income Tax in Andorra is 10% on an amount exceeding €24,000.00 per person, there is a 5% rebate for incomes between €24,000.00 and €40,000.00. In other words, individuals with an income of less than €24,000.00 do not pay personal income tax in Andorra.
In other words, a person would pay the following rent:
- With incomes between 0 and 24.00,00€ is exempted from taxationwould be 0%
- With incomes between 24.000,00 y 40.000,00€ tax is levied on 5%
- From revenues of 40.000,00€ tax is levied on 10%
This implies that:
- A person who earns €23,900.00 in income does not pay personal income tax.
- A person earning 39.000,00€ pays 750,00€ of personal income tax (effective rate of 1,9%).
- A person earning 60.000,00€ pays 2.800,00€ of personal income tax (effective rate of 4,6%).
There is a minimum exemption of €3,000.00 on the savings base (dividends, interest, capital gains, etc.), bearing in mind that dividends obtained from Andorran companies are exempt from paying this tax. As can be seen, with the allowances offered in Andorra, the general 10% is not taxed at all.. But if you get closer to the percentage as you have more annual income declared.
If we compare with Spain, there a single person pays an income of 19% from 0 to 12,450.00€ and up to 45% for incomes over 60,000.00€. And it is expected to continue to rise, especially in the higher brackets.
It is important to note that there are certain allowances and deductions which reduce taxation. Depending on the case, this can be deductions for housing expenses, pension contributions, etc. There are also bonuses for job creation, new investment, etc. Therefore, before investing in a new country, it is important to have the support of professionals who can guide you and carry out a complete tax planning, thus optimising all the returns while complying with the legislation in force in the country where you want to invest.
CONTACT US
Our Telephone:
6. Retention and liquidation period
The official period for the settlement and filing of personal income tax returns in Andorra is from 1 April to 30 September.
With regard to withholdings, payers of earned income and income from movable capital are obliged to make the corresponding withholding and pay it to the Ministry of Finance. Depending on the origin of the income and taking into account the allowances and reductions to which you are entitled, you must apply the corresponding deductions. From 0% for salaries under 27.000,00€ and up to 7% for salaries over 150.000,00€.
We remind you that it is always best to consult a professional tax office first in order to obtain the maximum tax, accounting and legal information.
7. Tax on the income of non-residents for tax purposes in Andorra (IRNR)
The IRNR tax is not part of personal income tax.but we would also like to mention it as it is tax for persons who are not tax residents of Andorra. (they carry out different economic activities but are not Andorran residents). They can be different services such as conferences, technical assistance, services such as maintenance and repairs, training and studies, among others.
This tax is levied on frontier workers (under the special regime), rental of real estate by non-residents, pensions paid by the CASS to non-residents, etc.
The IRNR tax is generally 10% of the invoice paid, but withholdings and deductions have to be taken into account.
It is important to know that income from real estate, dividends, interest and international sales and purchases do not pay IRNR tax.
Only Andorra - the professional experts who will guide you at all times
As a summary and conclusion, we can say that the IRPF in Andorra is perfectThe maximum overall value is 10%. It is essential to take into account different details and always in strict compliance with Andorran legislation, thus allowing for maximum optimisation of income yields at international and national level.
At Only Andorra we will guide you together with our team of experts in the tax sector, as well as consultancy, advisory and agency services. Depending on each personal case, we offer customised solutions for each client. We will guide you through the process of setting up your business in Andorra (link to create your company in Andorra), do not hesitate and contact us. Information about the services offered by Only Andorra (link to the services we offer) here.
