Andorra is one of those countries where cryptocurrencies and other innovative technologies are eagerly accepted by the population and positively viewed by the government. Crypto businesses will find the Andorran tax system uncomplicated, fairly structured, and non-burdensome as it boasts relatively low tax rates. Moreover, it’s constantly improving to keep up with global standards, as well as meet the needs of local taxpayers.
In Andorra, local councils and the government are responsible for the collection of taxes that already have the same structures as those of the EU and OECD countries but at the same time are very competitive in the context of the most developed countries.
The local councils set, collect and administer taxes levied on the following:
- Commercial, business, and professional activities
- The fire and place
- Rental income
The Andorran government sets, collects, and administers taxes levied on the following:
- Various types of personal income
- Corporate income
- Sold products and services
- Capital gains from property transfers
- Vehicle ownership
- Trademark registration
- Registration as the owner of economic activities
It’s worth noting that Andorra partners with international tax authorities and organisations for tax purposes and is committed to automatically exchanging tax information with relevant foreign institutions. For instance, almost 10 years ago, the government signed an OECD declaration that obligates countries to end bank secrecy for tax purposes which contributes towards ensuring transparency of the international tax system.
Pursuant to the Digital Assets Act, cryptocurrencies aren’t considered legal tender in Andorra. Instead, they’re categorised either as intangible assets or inventory for accounting and taxation purposes, depending on their function. If the intention of the holder is to sell cryptocurrencies in the ordinary course of the business, they’re treated as inventory and if this is not the case, they’re treated as intangible assets.
Advantages of the Andorran Tax System
First and foremost, tax rates in Andorra are significantly lower than in other European countries, which is a huge benefit for businesses and investors looking to minimise their tax burden. Moreover, the process of the year-end closing is quite straightforward and easy to manage, which saves a lot of time and effort.
Other notable advantages of the Andorran tax system are the following:
- No taxes on wealth
- No succession tax
- No donation tax
- A very low Corporate Income Tax plus available exemptions
- Possible exemption from Personal Income Tax
- Very low VAT
- Moderate social contributions
- No tax on company cars
Corporate Income Tax
In Andorra, the standard Corporate Income Tax is 10%, and it’s paid by tax resident and non-resident companies, including companies engaged in crypto-related activities. Tax resident companies are subject to taxation on their worldwide income, and non-resident companies are obligated to pay tax only on their income sourced in Andorra. The tax is levied on a transaction-by-transaction basis when a non-resident company has no permanent establishment in Andorra.
According to Law 95/2010 of 29 December, a company is considered a tax resident if it’s incorporated according to Andorran law, has a registered office in the Andorran territory, has a place of effective management in Andorra, or has transferred its fiscal domicile to Andorra.
All companies are obligated to file tax returns within a month following the six-month period after the end of the accounting period. Advance payments for the current accounting period are made on the first day of the ninth month following the commencement of the accounting period.
Other Corporate Income Tax rules include the following:
- Holding companies that invest outside of Andorra are subject to a 2% tax rate
- Andorran collective investment institutions might be subject to a 0% tax rate
- In the context of various deductions, whenever a company makes profits, the minimum rate is 3%
In Andorra, the standard VAT rate is 4.5% which is certainly the lowest in Europe as within the EU a VAT rate must not be lower than 15%. It’s levied on products and services sold in Andorra, including those imported to the Andorran territory. If the annual value of sold products or services doesn’t exceed 40,000 EUR, there’s no obligation to register as a VAT payer in Andorra.
Crypto companies are also generally obligated to pay standard VAT unless their specific business model doesn’t constitute a sufficient taxable relationship between a seller and a client or an applicable law makes them tax-exempt. For instance, crypto trading might be VAT-exempt as these transactions are treated as financial services involving cryptocurrencies as a means of payment. However, the authorities haven’t issued any crypto-related guidance yet. If you wish to have your crypto business examined carefully for VAT purposes, please reach out to our consultants here at Regulated United Europe (RUE) and we’ll be happy to provide you with specific advice.
Capital Gains Tax
For companies and individuals, capital gains are considered another type of income. Companies are subject to paying tax at a 10% rate, and individuals might pay up to 10% from capital gains, depending on the taxable amount. Exemptions are available, provided that certain conditions are met.
Capital gains aren’t taxed in the following instances:
- The sale of shares if the shareholder owns less than 25% of the company, which means trading shares can be tax-free
- The sale of an asset that’s been owned for more than 10 years
In Andorra, the standard Withholding Tax rate is 10%. An additional rate of 1.5% is levied on reinsurance transactions. Interest and royalties are taxed at a standard rate when paid to individuals who are tax residents in Andorra. Royalties paid to resident companies are tax-exempt. Royalties are taxed at a 5% rate when paid to a company or individual that isn’t a tax resident in Andorra. Andorran companies aren’t obligated to withhold taxes from the payments of dividends made to non-resident or resident companies or individuals.
Individual Income Tax
For resident individuals in Andorra, i.e. those who spend more than 183 days a year in Andorra, the standard Individual Income Tax rate is 10%, and it’s levied on income sourced in Andorra and abroad. Non-resident individuals are subject to a 10% rate, which is levied only on the income sourced in Andorra. Generally, Individual Income Tax is withheld from salaries and other payments made by Andorran companies, including those engaged in crypto activities. The rates for residents can vary depending on the size of income and available deductions and credits.
For resident single individuals, the rates range as follows:
- When the annual pay is 0-24,000 EUR – 0%
- When the annual pay is 24,001-40,000 EUR – 5%
- When the annual pay is 40,001 EUR or more – 10%
Married couples are subject to the following rates:
- When the annual pay is 0-40,000 EUR – 0%
- When the annual pay is 40,001 EUR or more – 10%
Exemptions apply, inter alia, to the following types of income:
- Income from Andorran government bonds
- Dividends and other income from holdings in companies registered in Andorra
- Dividends and other income from holdings in companies that are residents of Andorra
- Interest from funds held at an Andorran bank (up to 3,000 EUR)
- Public grants and scholarships
If you wish to benefit from low tax rates in Andorra and also ensure that your crypto business complies with applicable rules, our highly qualified and experienced legal consultants here at Regulated United Europe (RUE) will be pleased to assist you. We very well understand and closely monitor local and international taxation rules applicable to cryptocurrency businesses, and strive to ensure that our clients not only comply with local regulations but also operate in a tax-efficient way. Moreover, we’re more than happy to help you with the formation of a new Andorran crypto company, crypto licensing, and financial accounting. Book a personalised consultation now to receive comprehensive legal advice which will set the stage for your success.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.