TAX SYSTEM

The Andorran tax system contains no direct tax on business profits, individual income or capital comparable to those in force in surrounding countries.

The indirect goods tax (IMI) and the consumer tax (customs system).
The application of the agreement of 28 June 1990 between Andorra and the EEC includes entry into the Community Customs Union of goods figuring in chapters 25 through 97 of the harmonized Community system of naming and codifying goods. A result of this agreement was the passing of the Law on the indirect goods tax (IMI), which is an indirect tax levied on the production and importing of goods as a percentage of their value. The rate goes from 0% on certain products, through a reduced rate of 1% on agricultural products to a normal rate of 4%, an increased rate of 7% and a special rate of 12%.

The Law amending the consumer tax is applied to imports of agricultural products figuring in chapters 1 through 24 of the harmonized system, levied as a percentage of their value at 0 %, 1 %, 2 %, 3 %, 5 %, 15 % and 19 % with a special rate applied to live cattle and a higher rate for tobacco and alcohol.

The indirect tax on the provision of business and professional services (ISI). Taxes the provision of services rendered or contracted in Andorra, when they are offered by business people or professionals, whether they be physical persons or legal entities, on a regular or occasional basis in the development of their business or professional activities. The payer of this tax is the business person providing the service, who shall pay according to a system of modules or according to a system of evaluation based directly on the actual operations carried out and reflected in the accounts. This tax is levied on the end user of the service; accordingly, the business person has to formally transfer the tax to the client who must pay 4% of the value of the service rendered.

The indirect tax on internal production (IPI).
Taxes the delivery of goods produced or manufactured in Andorra on a regular or occasional basis by business people or professionals as part of their business or professional activities. The payer of the tax is the producer established in Andorra, who delivers the goods that he has previously produced and he must pay the tax in accordance with a system of modules or in accordance with an alternative system based directly on the operations actually carried out and reflected in the accounting books. The business person will transfer or pass on the tax to the person acquiring the good, applying the tax rate (0%, 1%, 4%, 7% and 12%) corresponding to the type of product concerned and based on the value of the service.

The indirect tax on commercial activities (IAC).
Taxes the commercialisation of goods within Andorra, whether they be imported goods or domestically produced goods. The payer of the tax is the importer of the goods as well as the Andorran producer of goods who subsequently commercialises them.

If the taxpayer is the importer, he will have to pay a supplement or payment equivalent to the IMI tax rate at the moment the goods are sent to the customs. If the taxpayer is the producer established in Andorra, he will have to pay a coefficient that is proportionate to the amount of the indirect tax on internal production (IPI). The taxpayer will pass on the tax to the persons acquiring the goods.

The Tax on earnings from savings.
Taxes interest on monetary and fixed income products deposited with financial entities in the Principality by physical persons resident in one of the Member States of the European Union. The agents paying this interest, who are established in the Principality, must retain 15% from 1st July 2005 until 30th June 2008, 20% from 1st July 2008 to 30th June 2011 and 35% from 1st July 2011. The Principality of Andorra keeps 25% of the income from this retention and transfers 75% of this to the public coffers of the EU Member State where the real beneficiary is resident, making sure to maintain banking secrecy in the management of this tax, in other words, the identity of the person from whom part of the interest has been retained shall not be revealed. Collection of this tax began on 1st July 2005.

The tax on the registration of persons in charge of economic activities.
What gives rise to this tax is the act of registering with and remaining on the Register of Persons in charge of Economic Activities which contains the following sections: Register of Merchant Companies, Register of Commerce and Industry and Register of Liberal Professions. The registered holder, whether an individual or a company, entered in the Register of Commerce and Industry pays an annual fee of 201.80 ¤ for each authorized registration of a shop.

The tax on holding vehicles.
Is levied on the ownership of any type of vehicle figuring in the Register of Vehicles. It is payable annually and the contribution depends on the type of vehicle and its official horsepower rating.

Tax contribution – Year 2006

(1) Contribution payable when entering a company in the Register of Merchant Companies.
(2) Annual contribution payable if the company is not entered in the Register of Commerce and Industry within three months of being entered in the Register of Merchant Companies.
(3) Annual contribution payable starting with the third year of being entered in the Register of Liberal Professions.

The levy on electricity and phone.
Consumption has as its tax base the consumption of electricity and the use of any telecommunications service by the end user. The contribution is calculated by applying a tax rate (at present 10%) to the taxable amount. The levy is handled through the supplier bodies.

The tax on the registration of trademarks.
Levies a fixed sum on the registration and renewal of a trademark.

The tax on bingo.
Is levied on the total face value of cards used to play the game. The current tax rate is 12%.

The tax on the transfer of real estate is levied on the transfer of real estate between living persons for lucrative or chargeable considerations. The tax base is the real value of the goods or rights transferred or assigned. There are two types of tax: a state tax of 2.50%, and a commune tax (which the communes establish according to their regulations), which cannot be less than 0.50% or more than 1.50%.

The Tax on capitals gains in real estate transfers taxes the increase in the value of a real estate asset covered by onerous or lucrative “inter vivos” transfers of real estate assets, and by the constitution or cession of real rights on these same assets. The tax rate is based on the years in which the fixed asset has been in the property of the taxpayer:

• A rate of 15 % for up to one year.
• A rate of 13 % from one year and a day up to two years.
• A rate of 10 % from two years and a day up to three years.
• A rate of 9 % from three years and a day up to four years.
• A rate of 8 % from four years and a day up to five years.
• A rate of 7 % from five years and a day up to six years.
• A rate of 6 % from six years and a day up to seven years.
• A rate of 5 % from seven years and a day up to eight years.
• A rate of 4 % from eight years and a day up to nine years.
• A rate of 3 % from nine years and a day up to ten years.
• A rate of 2 % from ten years and a day up to eleven years.
• A rate of 1 % from eleven years and a day up to twelve years.
• A rate of 0 % more than twelve years.

The following are communal rates and taxes that are typical of the local administrations:

Location tax for commercial, business and professional activities
This taxes the exercise of a commercial, business or professional activity in the territory of a parish. The type of activity involved, the location of the business and the square metres of the premises are all taken into consideration when calculating the tax. This tax is paid on an annual basis.

Tax on rental income
This taxes income deriving from the rental of a real estate asset situated in the territory of a parish. It is paid annually by the landlord or landlady and the amount to be paid consists of a percentage (which may range from a minimum of 0.4% to a maximum of 4%) of the total value of the income obtained during the year.

Tax on ownership of built real estate
This taxes the ownership of a fixed and constructed real estate asset or the ownership of a real or property right of use on the ownership of a fixed and constructed real estate asset. The tax is paid on an annual basis. The amount to be paid is determined by the square metres of the surface of the fixed asset and its location. The tax rate to be applied must be between 0.3 and 3 euros per built square metre.

Hearth Tax (foc i lloc).
This taxes the fact of residing in a parish. It is paid by physical persons aged between 18 and 65, who appear on the parish census. The tax payable is a fixed annual amount, which varies from parish to parish and which must be between 5 and 50 euros.

The communes can establish their own tax regulations for the provision of public services, covering concepts such as public hygiene, lighting, maintenance of public spaces, snow removal, crane service, connection to the sewage and drinking water network, etc. They can also establish taxes for carrying out the following administrative functions: granting of planning permission, authorisation for the starting up of a business concern, issuing of certificates etc.