There are many compelling reasons why you might want to set up a company in Andorra.
If you’re looking for a European base with an investor-friendly tax system, you may already have a list of potential locations in mind. With corporate and personal income tax rates of just 10%, plus other tax benefits for residents, you should consider adding Andorra to the list.
Discover the benefits as we discuss the pros and cons of this low-tax country and walk you through how Andorran companies are formed.
Looking to set up shop in a tax-friendly European jurisdiction? Then get in touch to discuss your options. We have helped thousands of entrepreneurs and investors legally reduce their taxes while increasing profits, form offshore companies, and go where they’re treated best.
Andorra is a tiny principality on the border between France and Spain.
Though not an EU member, the country uses the Euro as its official currency and enjoys free travel agreements with the EU.
The country has a decent tax system, which includes the lowest VAT rate in Europe (4.5%) plus a standard tax rate of 10% for both personal and corporate income tax.
Unlike some jurisdictions, profit from overseas will still be taxed (generally at 10%, but this can potentially be reduced to 2%.)
Benefits Of A Company In Andorra
There are many benefits to opening a company in Andorra. The main one is that Andorran companies allow you to take advantage of Andorra’s tax system and its low 10% rate.
Path To Residency
For individuals looking to obtain residency in Andorra, opening a company provides a clear path to obtaining a residence permit with minimal physical presence requirements.
Changes to the law also allow non-residents to form, own or own part of an Andorra-based company with the same rights as a resident.
Taxes In Andorra
Andorra enjoys some of the lowest taxes in Europe. The Andorran tax system is quite business-friendly and relatively straightforward compared to many of its European neighbors. It does not levy any inheritance tax or wealth tax and sets income tax rates (both personal income and corporation tax) at a general rate of 10%. (For more info on taxes in Andorra, see our article on Andorran tax residency.)
The corporate tax rate in Andorra is 10%, among the lowest in Europe. However, this can be reduced to just 2% corporation tax on profits for business income derived from outside Andorra.
This special tax regime requires government approval, which we can help you navigate successfully as a Nomad Capitalist client.
Personal Income Tax
Personal income tax in Andorra, just like the corporate tax rate, is set at a general rate of 10%.
Non-tax residents are liable to pay 10%, regardless of their income, while tax residents also enjoy an exemption on their income of up to €24,000.
The rate applies to various types of passive income, such as rental income.
Dividend payments from companies in Andorra are not liable for income tax if the payment is from a company that has already declared corporate tax.
This is also charged at the same general rate of 10% and applies to income derived from sources such as dividends or interest.
Capital Gains Tax
The standard capital gains tax rate in Andorra is, once again, set at 10%. This means it generally falls under the same personal or corporate income tax classification.
Profits on real estate sales are also liable for capital gains tax, though exemptions are available in certain cases. For example, foreign real estate held for over ten years or more is not eligible for capital gains tax.
Otherwise, capital gains taxes are levied depending on how long the property was held prior to its sale. The longer this period is, the less tax needs to be paid. If the property was held for 13 years or more, then the rate of tax drops to 0%.
Real estate sales are also liable for a transfer tax set at 4% of the property’s value.
Companies in Andorra also need to pay a local community tax known as Comú .
This local tax varies depending on where your business is located, the most expensive rate is in the main capital region of Andorra La Vella.
Value Added Tax in Andorra is the lowest in Europe at just 4.5%, making the country popular with tourists and shoppers.In Andorra, VAT is known as IGI, which stands for impost general indirecte, or indirect general tax.
Your Obligations As A Taxpayer
If you are registered to pay IGI in Andorra, you must file tax returns. In this case, it might be worth speaking with an Andorran tax professional to ensure you file your taxes correctly.
Similarly, if your company employs workers in Andorra, you will need to register for social security payments. (In Andorra, social security payments are split between employer and employee.)
You do not need to be physically resident in Andorra for 183 days to be a tax resident, though you do need to declare that Andorra is your main economic base when filing your returns.
While there are many benefits to the Andorran tax system, particularly its low 10% income tax rate, this does not mean you won’t also be taxed in your home country.
Andorra has only been removed from the OECD blacklist relatively recently (2014) and, as such, does not have that many double tax treaties in effect.
While it does have double taxation treaties with its neighbors in Spain, France, and other European countries, it does not have any such treaties with the UK or Canada, for example. (For a full list of countries with double taxation treaties, see the FAQ section at the bottom of this page.)
Given the unique nature of the US tax system, it should also be noted that any such potential tax savings as a US citizen are rendered moot, as you will still be required to pay income tax to the IRS.
Again this is why we always recommend getting professional tax advice before embarking on ventures within a new country – it’s just good business sense.
Andorra is an extremely tax-friendly country, and setting up a company in Andorra can certainly result in significant tax savings. But as always, it’s important to understand your tax burden and related obligations beforehand to ensure you’re not unnecessarily taxed.
Better yet, you can talk to Nomad Capitalist about creating a holistic Action Plan to help find the most suitable location to incorporate for minimal taxes and maximum profit potential.
Active Residency Vs. Passive Residency
Investors often open companies in Andorra to take advantage of their residency program.
There are two main residency routes; active and passive. To become eligible, an individual needs only to own 20% or more of an Andorran-registered company.
Category D Active Residence: This requires you to form a company with a minimum register capital of €3,000 with a €15,000 bond requirement per shareholder. There are no restrictions on where you derive your income from. However, you must make Andorra your main home and base of operations and make social security contributions, which can cost as much as €450 monthly.
Category B Passive Residence: This also has a minimum register capital of €3,000, but the bond requirement is €50,000 for the principal applicant, and dependents are €10,000. Unlike Category D, Category B Passive Residents must ensure that at least 85% of their commercial operations are conducted outside Andorra, and you are only allowed to hire one local employee.
There are no steep monthly social security contributions with this option; instead, you are obliged to have your own private medical insurance. Category B residents have a physical presence requirement of 90 days.
In most cases, Category B is the type of residency we recommend for the obvious reason that you get more flexibility in terms of physical presence, and it’s fair to say the majority, if not all, of your income, will likely be derived from outside of Andorra anyway.
How To Set Up An Andorran Company
The first step to setting up a company in Andorra is to open a company bank account.
Once you have done so, you can deposit the €3,000 share capital amount required.
You must visit a public notary and sign the Certificate of Accession.
Company formation times in Europe can vary. What takes the Spanish weeks, the Irish manage in days, and Estonia can do in just 24 hours.
In Andorra, which is obviously closer to Spain than Estonia, setting up a company can take up to three months.
This is not ideal, but the point to keep in mind is that Andorra is not an “off-the-shelf company” jurisdiction, and, as such, each company must be formally approved by the government.
This does provide an added reputational advantage, but it also means more paperwork.
Applying for Foreign Investment Approval with all relevant documents apostilled, including official translations of each document which have been professionally translated into Catalan (the official language).
You will need to provide:
- A police certificate from your country of birth. (If you hold a second passport from another country and/or you are resident in a country other than your place of birth, then you must provide police certificates from those countries also.)
- A copy of your passport ID page (or you can also have your passport notarised locally.)
- A business resume
This information is required for yourself plus for any additional shareholders.
It’s also recommended that you use local, accredited translation services to ensure your documents are more readily accepted and you reduce the possibility of procedural delays.
Andorran Subsidiary Company Requirements
If you plan to create an Andorran subsidiary of a pre-existing foreign company, then you will also be required to provide:
- A copy of the passport of the Director or Representative individual forming the Andorran subsidiary, plus supporting documentation showing that this individual has been granted the right to open the subsidiary.
- A police certificate for the Director/Representative. (As per the first point above, this is usually just from their home country though other police certs may be required.)
- A business resume for the Director/Representative.
- The company’s Articles of Association or similar document providing full details of the company’s structure and professional activities
- Two copies of the meeting minutes in which foreign investment in Andorra for the purposes of subsidiary company formation has been authorized.
It’s recommended for official purposes, both for the company formations stage and for immigration, to create a business plan document that can be referred back to in the future.
This would include the company name and type of company. Different business entities are available, the most common choice being a public limited company.
A Societat Limitada (SL) is an Andorran LLC, or limited liability company, you can also set up a special holding company structure if you wish.
Whichever structure you choose, your plan should include details of the nature of the company, operations and its connection to Andorra, how you intend to invest in Andorra, the intended amount, expected turnover, etc., plus details on the shareholders and a resume of their experience to date.
Once you have been granted permission to form the company, you still need to come to Andorra to sign the final paperwork or grant power of attorney to a legal representative to do so on your behalf.
Andorran Companies – Conclusion
As we have seen, Andorran taxation is quite low, with a flat 10% income tax rate, VAT at just 4.5%, plus a range of other tax benefits.
Although it may take longer than many other countries, setting up a company in Andorra may be worthwhile if your goal is to have a commercial base in a low-tax European country.
In Andorra, residents need only stay in the country 90 days, and even then, this does not appear to be heavily enforced, so you do not need to spend much time there. As proponents of the nomadic lifestyle, this is a huge plus for us.
Andorra is happy for you to come and go as you please, perhaps stopping occasionally to enjoy the fresh mountain air and take advantage of the country’s world-renowned skiing.
So Andorra offers an investor-friendly tax system and grants considerable freedom of movement, two major plus points, what about the minuses?
One major downside is the lack of international tax treaties. Currently, Andorra has only 13 taxation treaties (see the FAQ section below). While others are planned, these negotiations generally take years before the agreements come into effect.
As such, you will need to consider your options carefully, taking things like tax residency, sources of income, and other factors to ensure you are not double-taxed.
Taxation can be a complicated subject at the best of times, but it can be even more confusing when trying to determine how to pay taxes in a new country, and even more frustrating is the prospect of going through all the effort and realizing you still have to pay more taxes back home.
At Nomad Capitalist, we have helped thousands of HNWIs to legally reduce their taxes while maximizing their profits through the proper implementation of offshore companies.
Save yourself the time and hassle of trying to go it alone by letting us create a holistic Action Plan, and we’ll find the perfect offshore solution to fit your exact needs.
Andorra Companies FAQ
Yes. Foreign residents and non-residents alike can open a company in Andorra or invest in an existing one. In doing so, non-residents also have the option to apply for residency, providing them with a European base with a low tax rate of 10%.
No, Andorra is not in the EU but uses the Euro as currency. Due to its geographical position, nestled in the Pyrenees mountains between France and Spain, it has close ties to Europe. Also, since many EU citizens commute to and from the country to work, or regularly travel for leisure, the country enjoys freedom of movement in Europe, despite not being a member of the EU or the Schengen zone.
Officially, no. Andorra was removed from the OECD blacklist of tax havens in 2014. Therefore a more accurate term would be to describe Andorra as a low-tax jurisdiction. Andorra still levies taxes, albeit at a lower rate than most of its European neighbors.
Its value-added tax rate is the lowest in Europe, at just 4.5%. It also has a flat tax rate of 10% for corporate and personal income tax and withholding and capital gains taxes.
Andorra currently has tax treaties with the following countries:
United Arab Emirates
At the time of writing, the most recent treaty ratified was with the Czech Republic in January 2023. Other countries pending ratification include Croatia, Lithuania, and Germany.
Yes, but at low tax rates. As a resident, your first €24,000 is exempt, after which Andorra levies income taxes at a rate of 10%. While Andorra’s tax rates are low compared to many of its European neighbors, it’s worth investigating alternatives.
Gibraltar, for example, on the opposite end of the Iberian Peninsula, doesn’t tax foreign income, and instead of tax rates of 10% on capital gains and 4.5% for VAT, has neither.
The trade-off is that it has a higher corporate tax rate of 12.5% rather than 10%, even fewer tax agreements, and less direct European access.
There are always trade-offs. But the main takeaway here is that you can find various solutions with different tax rates when you shop around.
Admittedly that does take time, which is why you can save yourself a ton of time and endless research by talking to us, the go-to agency for nomadic entrepreneurs.