Tax havens are popular places for wealthy individuals and businesses because their tax laws allow them to legally reduce their tax liabilities. These locales are generally offshore—a country, state, or territory—that are stable both politically and economically. Some locations may limit the amount of information reported to tax liabilities, while others don't share anything at all.

People who use tax havens typically allocate assets to offshore bank accounts or shell companies. And although many tax havens don't require residency, some individuals may choose to move to set up residency in a particular location to benefit from lower tax rates. This article examines laws and regulations in the country of Andorra and whether or not it is considered a tax haven.

Key Takeaways

  • Tax havens are popular places located offshore for wealthy individuals and businesses because their tax laws allow them to legally reduce their tax liabilities.
  • From a legal standpoint, Andorra is not considered a tax haven because it imposes income taxes on certain residents and corporations.
  • Some still consider Andorra to be a tax haven because of its low rate of taxation.
  • Prior to 2015, Andorra had no personal or corporate income taxes.

Is Andorra a Tax Haven?

Andorra is a small country located in Europe between France and Spain. Although the country is not part of the European Union, it uses the euro as its national currency.

Whether Andorra is a tax haven depends on who you ask. The country agreed to enforce and impose income taxes on all entities in 2013 in response to pressure from the European Union. The new laws were established in 2015, making it less of a haven than it was a decade ago. So, legally, Andorra may not be the tax haven some people believe it to be.

But others still consider it to be a tax haven. Prior to 2015, there was no taxation in the country, making it a favorable place for people in which to invest or do business. And even though the country now has a taxation system, it is fairly low and lenient. More on this below.

Andorran Tax Laws

Historically, Andorra had no income, capital gains, sales, gift, or inheritance tax, and gaining residency was relatively simple. But that all changed after 2015, when the country introduced its own taxation system. This was a direct result of pressure from the rest of the EU, which felt Andorra was being used by wealthy individuals and corporations to avoid paying taxes.

The system implemented by the Andorran government in 2015 caps taxes at 10% for personal income over €40,000, while those who earn between €24,000 and €40,000 are only taxed at a rate of 5%. Anyone who makes less than €24,000 is exempt from taxation. Taxes paid by corporation is also taxed at 10%.

Andorra caps personal income and corporate taxes at 10%.

The country also implemented: 

  • A 4.5% value-added tax (VAT)
  • A set of relatively stringent residency requirements, primarily based on an investment of no less than €400,000

Capital gains earned in Andorra are taxed as regular business income at 10%. Any gains earned from the sale of Andorran property at a maximum rate of 15% depending on how long the property has been held. Most other investment income remains tax-free.

No Offshore Incorporation

Unlike most other tax havens, Andorra does not provide for the easy creation of offshore companies, so it is better suited to wealthy individuals who need offshore banking services than to businesses looking to squirrel away assets in Andorran-based subsidiaries.

Nonresidents must request approval from the Ministry of Economy to own more than 10% of an Andorra-based company. But this often proves to be difficult. It is possible for a foreigner to form a company after attaining residency, but the company's net profits are subject to the 10% corporate tax applicable to resident businesses.