Employers in Andorra are responsible for significant contributions to the Andorran social security system (Caixa Andorrana de Seguretat Social, or CASS). These contributions cover various benefits for employees, including healthcare, pensions, and disability insurance.

Social Security Contributions (CASS)

The total CASS contribution rate is 22% of the employee's gross salary. Employers bear the larger portion of this cost, at 15.5% of the gross salary. The breakdown of employer contributions is as follows:

• General Branch (Old Age, Disability, Survivors, Sickness, Maternity, Medical): 7% of gross earnings
• Retirement Branch: 8.5% of gross earnings

Corporate Income Tax

Andorran businesses are subject to a corporate income tax on their profits, known as the Impost de Societats (IS). The standard corporate income tax rate in Andorra is 10%. Resident companies are taxed on their worldwide income, while non-residents are only taxed on their Andorra-sourced profits. Andorran companies are eligible for various deductions and compensations that can reduce their tax liability.

Other Potential Employer Taxes

Depending on the nature of your business and the employees you hire, you might be subject to additional taxes:

• Economic Activities Tax (IAE): Businesses engaging in commercial, professional, or artistic activities are subject to IAE. This tax varies based on business activity and location.
• Indirect General Tax (IGI): IGI is applied to the sale of goods and services.
• Special Taxes: Certain industries, such as banking and insurance, may be subject to special taxes.

Andorra operates a progressive income tax system known as Impost sobre la Renda de les Persones Físiques (IRPF). Residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Andorra.

Tax Rates

• 0% for income up to €24,000
• 5% for income between €24,001 and €40,000
• 10% for income exceeding €40,000

Employees in Andorra also contribute to the social security system (CASS), which covers health insurance, pensions, and other social benefits.

Social Security Contributions (CASS)

Employees contribute 6.5% of their gross salary to CASS. This is deducted directly from their paycheck.

Andorra's tax system includes various deductions and allowances that can lower an individual's taxable income.

Allowances and Deductions

• Minimum Personal and Family Allowance: Each taxpayer has a minimum personal allowance, and additional allowances can be applied for dependents (spouse, children).
• Housing-related Deductions: Renters may be eligible for deductions, or those who own property may have deductions related to their mortgage.
• Pension Contributions: Contributions to certain pension plans may be tax-deductible.
• Additional Deductions: Deductions may be available for disability, donations to charitable organizations, and other specific circumstances.

Andorra's VAT system, known as the General Indirect Tax (Impost General Indirecte, or IGI), applies to the supply of goods and services within the country.

Standard IGI Rate

The standard IGI rate in Andorra is 4.5%. This rate is considerably lower than VAT rates in many other European countries.

Reduced IGI Rates

Certain services qualify for reduced IGI rates:

• 1% Reduced Rate: Applies to some essential goods and services, including basic foodstuffs, cultural activities, and certain medical services.
• 2.5% Reduced Rate: Applies to services like education, passenger transportation, and some hospitality services.

VAT/IGI Registration

Businesses that supply taxable goods and services in Andorra may need to register for IGI if their turnover exceeds certain thresholds.

Services Subject to IGI

Most services provided within Andorra are subject to IGI. This includes:

• Professional Services (legal, accounting, consulting, etc.)
• Technical services (repairs, maintenance)
• Telecommunications services
• Cultural and entertainment services
• Transportation services

Services Exempt from IGI

Some services are exempt from IGI in Andorra, including:

• Financial services
• Insurance services
• Medical and healthcare services
• Educational services
• Certain rental services

B2B (Business-to-Business) Transactions

• EU Businesses: The reverse charge mechanism may apply for B2B services provided to businesses registered in other EU countries.
• Non-EU Businesses: IGI may not be charged for B2B services provided to businesses located outside the EU.

B2C (Business-to-Consumer) Transactions

IGI generally applies to services provided to consumers within Andorra, regardless of the location of the service provider.

Andorra's low corporate tax rate is a significant incentive for businesses. The general rate is 10%, but newly established companies enjoy a 50% reduction on their taxable base during their first year of operation.

Andorran businesses also benefit from a participation exemption regime, which is particularly attractive for holding companies. Under this regime, dividends from subsidiaries (whether resident or non-resident) and capital gains generated from the sale of shares in subsidiaries are exempt from Andorran corporate income tax (CIT). To qualify for the exemption, the Andorra company must hold at least a 5% stake in the subsidiary, the holding period must be a minimum of one year, and the subsidiary must be subject to a tax comparable to Andorran CIT, with a minimum nominal rate of 4% (i.e., 40% of the standard Andorran rate).

Tax Credits

Andorra offers tax credits to encourage investments and job creation. These include a 5% deduction on investments made in fixed assets related to a company's business activity, a deduction of €3,000 for every increase in the average number of permanent employees, and a tax credit for Andorran taxes paid by the company.

International Tax Agreements

Andorra has signed several Double Taxation Treaties (DTTs) to avoid double taxation and promote cross-border investments. Andorra has also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which impacts a vast network of bilateral treaties.