Taxes in Andorra vs Spain: Which should I pay?

What are the differences between taxes in Andorra vs. Spain? Spain. When choosing a country to live in, whether to set up a business, work, or move for leisure, it’s important to understand all the tax aspects of that location. The reason is that you may find some significant advantages that can help reduce your tax burden considerably.

Andorra and Spain differ significantly in terms of taxes, and in this article, we’ve prepared a comparison for you. This way, you’ll find it easier to determine which country is more suitable for you to reside in based on your financial needs and enjoy a new destination. Let’s dive in!

Taxes for businesses or legal entities

Every business or legal entity must face taxes in either country, but each government sets its own tax rates, deductions, and benefits. So, how are taxes in Andorra vs. Spain for businesses? Spain for a company? Below, we outline the main taxes you will face.

1. Corporate Tax in Andorra vs. Spain

Corporate tax is a direct tax, as it is based on the economic capacity of the taxpayer, and a personal one, based on their circumstances. This tax levies income from companies, businesses, and other legal entities to help fund public expenses. Let’s see the differences between both countries:

• Andorra: The general corporate tax rate is 10%, one of the lowest in Europe. Additionally, some companies can benefit from a reduced rate of 2% if they meet specific requirements, such as operating in certain sectors or conducting international activities.
• Spain: Here, corporate tax stands at 25%, a significant difference from Andorra’s rate. New businesses benefit from a 15% deduction during the first two years of profit.

2. VAT or IGI: Consumption Taxes

VAT in Spain or IGI in Andorra is an indirect tax on consumption derived from professional services or the purchase of goods. It’s a percentage applied to the price of each product or service offered. Both businesses and self-employed individuals must include this tax on their invoices, adding the applicable percentage, which may vary depending on the product, either standard or reduced, to the taxable base. The goal of VAT and IGI is to collect funds for the State. Here are the characteristics of these taxes in Andorra vs. Spain:

• Andorra: IGI (Indirect General Tax) in this country is one of the lowest in all of Europe, at 4.5%. There are reduced rates of 1% for essential products like basic food and medical services.
• Spain: The VAT (Value Added Tax) in Spain is 21% as the general rate, with a reduced rate of 10% for certain products like food and 4% for basic services such as bread and medicines.

VAT and IGI characteristics, Andorra vs. Spain taxes. Spain.

3. Social Contributions

Social contributions represent a significant burden for companies, as they are required to contribute a percentage of each employee’s salary, which includes social security, pensions, unemployment, and vocational training contributions. Here are the taxes in Spain vs. Andorra on contributions:

• Andorra: These contributions are around 15.5% of the gross salary. For example, for a gross salary of €2,000 ($2,117), the company would pay around €310 additional ($328).
• Spain: 28.3% for common contingencies (23.6% employer, 4.7% employee); 0.8% for the Intergenerational Equity Mechanism (0.67% employer, 0.13% employee).

4. Local taxes

Local taxes include specific rates and licences that affect businesses depending on their location and activity. As we’ve seen so far, Andorra offers a significant reduction in all tax rates, and in this case, local taxes that businesses must pay are either nonexistent or minimal.

• Andorra: Companies must pay small administrative fees, but recurring taxes like the IBI are usually negligible or very low.
• Spain: Varies by municipality; for example, in Madrid, it is 0.66%

Taxes for individuals or natural persons

Individuals are also subject to tax payments, and the rates vary depending on where they reside, among other specific conditions. Therefore, if you are thinking of living in Andorra or Spain, you should know that the taxes set by both governments differ quite a lot. Knowing these is important to make an informed decision, as it could affect your savings capacity and quality of life. Let’s review the main taxes for individuals in both countries.

1. VAT vs. IGI

Earlier, we explained the meaning of this tax for businesses or legal entities, but it is also a tax burden that individuals must face. These are the differences between Andorra’s vs. Spain’s taxes:

• Andorra: IGI, equivalent to VAT, has a general rate of just 4.5%. Additionally, there are reduced rates of 1% and exemptions in sectors such as education and healthcare. This helps keep the daily cost of living lower.
• Spain: VAT taxes consumption at a general rate of 21%, along with reduced rates of 10% and 4% for certain essential products like basic foods and medicines. This tax significantly increases the cost of living, as it applies to both consumer goods and regular services.

2. Andorra vs. Spain: Where Do You Pay Less Personal Income Tax?

Personal income tax (IRPF) is a progressive tax that levies income earned by individuals. As we’ll see in the following breakdown, Andorra offers a more advantageous tax system, with very low rates. On the other hand, Spain offers deductions for expenses such as purchasing a primary residence, pension plan contributions, and family expenses.

• Andorra: Andorra’s tax system sets a maximum fixed rate of 10% on income. Additionally, the first €24,000 ($25,399) are tax-exempt, and between €24,001 ($25,400) and €40,000 ($42,333), a 5% tax rate applies. Any income exceeding €40,000 ($42,333) is taxed at 10%. For example, on €60,000 ($63,499), the tax would be €3,600 ($3,809), which is much lower than expected compared to the higher tax brackets you mentioned later.
• Spain: The rates here range from 19% to 47%, depending on the autonomous community you reside in and your income level. For example, if you have an annual income of €60,000 ($63,499), your total tax burden could exceed €18,000 ($19,049), depending on applicable deductions.

3. Wealth Tax in Andorra vs. Spain Spain

This tax is levied on the net wealth of individuals, meaning all their assets and economic rights. This tax applies to residents and is typically due on December 31st of each year, affecting the wealth held by the taxpayer on that date. How do these taxes compare in Andorra vs. Spain? Spain.

• Andorra: There is no wealth tax, which is a significant advantage for people with large assets.
• Spain: The wealth tax applies to individuals with net wealth exceeding €700,000 ($740,831), with progressive rates between 0.2% and 3.5%, depending on the autonomous community.

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4. Inheritance and Donation Taxes in Andorra vs. Spain

This is a tax applied to individuals who receive assets through inheritance or donation. It covers both transmissions made mortis causa (in the case of inheritance) and those made inter vivos (in the case of donation). It is a direct, personal, subjective, and progressive tax. Here are the differences between the two countries:

• Andorra: Direct inheritances are tax-exempt, while indirect inheritances have either symbolic or minimal rates.
• Spain: Rates depend on the inherited value, the relationship to the deceased, and the autonomous community. Rates range between 7.65% and 34% in most cases.

5. Social Contributions: Taxes in Andorra vs. Spain Spain.

Both employees and self-employed individuals must contribute to social security to support the State and have access to benefits such as pensions, healthcare, unemployment insurance, and other social services.

• Andorra: Self-employed individuals pay around €100 ($106) per month, and salaried employees contribute 6.5%, with a significant portion covered by the employer.
• Spain: Self-employed individuals face minimum contributions of around €294 ($312) per month in 2025, while salaried employees contribute a percentage of their salary, ranging from 6.35% to 6.98%.

6. Other Indirect and Local Taxes

In Spain, there are other additional taxes such as the documented legal acts tax (between 6% and 10%), as well as municipal taxes like the property tax (IBI). In contrast, Andorra’s local taxes are minimal or nonexistent, and additional indirect taxes are very low.

Tax Comparison: Andorra vs. Spain

As you can see after reviewing the main taxes in Andorra vs. Spain, the key conclusion is: In Spain, there is one key conclusion: Andorra is a country with one of the lowest tax rates in Europe, making it highly beneficial for business owners or individuals with large assets.

On the other hand, although taxes in Spain are higher, it’s true that the country has designed deduction programs and tax advantages that can be more beneficial for people with low incomes or businesses that qualify for these reductions. Here’s a summary of all the information we’ve covered:

Taxes for businesses: Andorra vs. Spain:

Summary of taxes for businesses in Andorra and Spain.

Taxes for individuals: Andorra vs. Spain:

Summary of taxes for individuals in Andorra and Spain.

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