Tax system in Andorra: the personal income tax on natural persons (IRPF)

Andorra is a country known for its simple and advantageous tax system. The general tax rate on incomes is 10% at the most. Essential apparatus of the tax system in Andorra, the personal income tax on natural persons (IRPF) came into effect in 2015. Who has to pay it, what is the level of contributions, what are the reductions and exemptions possible? We review these different questions hereunder.

Tax system in Andorra: the personal income tax on natural persons (IRPF)

Definition

Under the tax system regime in Andorra, the IRPF, Personal Income Tax on Natural Persons, is due by individuals that have the status of tax resident in the Principality.

It affects all the incomes taxable irrespectively of their nature and source as well as of the taxpayer’s registration.

The Andorran income tax is then debited on the taxpayer’s whole global income. Actually, it incorporates incomes arising from economic and commercial activities that, prior to 2014, were subject to the tax on economic activities’ benefits (IAE).

Who must pay the IRPF?

How does the Andorran tax system define the taxpayer that has to pay the IRPF? Here is the answer! In Andorra, the income tax on natural persons must be paid by:

• every person living in the Principality for more than 183 days per year,
• every person justifying one or more economic activities (or benefiting from economic interests) on the territory and taking advantage of it.

Tax system in Andorra: the basis of the taxation on the income of the IRPF in details

In the Andorran tax system, the taxable incomes for the IRPF are defined in accordance with their origin and nature according to:

• the general basis: work income (salaries, treatments), real property income (exploitation of rental property, possible rights over these properties), economic activities income;
• the basis of the saving: change of assets composition, capital gains (interests, insurance income, etc.).

Let us clarify that the Andorran tax system excludes from the income tax system the free acquisitions such as donations or inheritance (there are no inheritance taxes). There is also no wealth tax in Andorra (ISF), as it is the case in other European countries.

Moreover, there are agreements between France and Andorra in order to eliminate the double taxation, notably regarding the entrepreneurial activities.

The applied rate and the payment rules

A maximal tax rate of 10%

The Andorran tax system is clear and transparent. The tax rate on the income in Andorra la Vella and the whole Principality of the IRPF is 10% at the most.
This rate is reduced to 5% for the people that can prove that their income is between €24 00 and €40 000.

The moment of the payment

Here again, the rules are very clear and do not leave room for interpretation. Every taxpayer has to file its tax return between April 1st and September 30th. This return takes into account the incomes received during the previous financial year.

The retention on the work incomes

Since 2015, company bosses and employers participate actively to the Andorran tax system. They are asked to practice the appropriate retention of the work income tax on behalf of the ministry in charge of finances, through the CASS (“Caixa Andorrana de Seguretat Social”).

The system of deduction realized by the employer

In the Andorran tax system, the head of the company is in charge of certain deductions related to the IRPF.

The scale applied to the deduction rate, established according to the salary received by the workers, is as follows:

• from €0 to €27 000: 0 %
• from €27 000 to €30 000 : 0,5 %
• from €30 000 to €40 000 : 1 %
• from €40 000 to €50 000 : 2 %
• from €50 000 to €60 000 : 3 %
• from €60 000 to €70 000 : 4 %
• from €70 000 to €80 000 : 4,5 %
• from €80 000 to €90 000 : 5 %
• from €90 000 to €100 000 : 5,5 %
• from €100 000 to €120 000 : 6 %
• from €120 000 to €150 000 : 6,5 %
• from €150 000 and more: 7 %

In cases where the net income is inferior to €24 000, the Andorran taxpayer does not have to disclose his personal economic information to the Andorran tax administration.

If you wish to know more about the tax system in Andorra related to the IRPF, income tax on natural persons, do not hesitate to contact Set Up, Private Concierge Service specialized in the expatriation in Andorra. We will also facilitate your administrative procedures and help you with the search for an accommodation. See you soon in the Principality!