Personal income tax (IRPF or PIT) in Andorra

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🏁 Origin and purpose of the tax

The Personal Income Tax (IRPF) was created by Law 5/2014 of 24 April, with the purpose of completing Andorra’s fiscal framework on income taxation, following the introduction of corporate and non-resident income taxes.

The preamble highlights the need to provide the country with a modern tax system comparable to that of neighbouring states — capable of taxing all income earned by resident individuals while giving effect to the constitutional duty to contribute to public expenditure according to economic capacity, within a fair and equitable system.

Furthermore, the law is a cornerstone of the Principality’s economic openness, allowing Andorra to adopt a personal income tax compatible with those of EU and OECD countries, thus facilitating the signing of double taxation agreements (DTTs) and attracting foreign investment.

The preamble also outlines the guiding principles of the tax:

• Simplicity and clarity in its application, avoiding complex mechanisms.
• Effective progressivity through generous exemptions (€24,000 and €40,000 in certain cases) and deductions based on personal and family circumstances.
• Fiscal neutrality and international competitiveness to encourage investment.
• Social sensitivity, with deductions for family dependants and acquisition of a primary residence.

⚖️ Taxable event and scope of application

According to Article 4 of Law 5/2014, the taxable event is defined as:

“The obtaining of income, regardless of its source or origin, by the taxpayer, irrespective of the place where it has been produced and the residence of the payer.”

This means that Andorra’s IRPF taxes the worldwide income of fiscal residents.

Determining fiscal residency is therefore essential to establish whether an individual is subject to the tax.

➤ To learn more about this topic, read Tax residency in Andorra: requirements and real advantages
https://elysiumconsultingfirm.com/en/publications/tax-residency-in-andorra

🧾 Structure and taxable bases

The IRPF is divided into two main components — the general base and the savings base — each with its own regime, exemptions and specific types of income.

🧮 General base

This base includes ordinary and recurrent income:

• Employment income: salaries, wages, pensions and other remuneration for personal work.
• Income from economic activities: income derived from business or professional activities.
• Real estate income: rental income or other returns from immovable property.

It is taxed at a nominal rate of 10%, with an effective progressive scale that reduces the real burden:

• 0% up to €24,000
• 5% from €24,000 to €40,000
• 10% on income exceeding €40,000

This progressive structure means the effective rate is significantly lower than the nominal 10%, strengthening Andorra’s fiscal competitiveness.

💰 Savings base

This base includes financial and capital gains income, such as:

• Income from movable capital: interest, dividends or financial instrument returns.
• Capital gains and losses: variations in asset value arising from the transfer of shares, participations, real estate or cryptoassets.

It also acts as a residual base, integrating income not clearly classified within the general base.

The exempt threshold is €3,000 per year, and any excess is taxed at a flat rate of 10%.

➤ You can read more about how this applies to specific cases in Taxation of digital assets and cryptoassets in Andorra.

📈 Exempt income and capital gains

The law provides numerous exemptions designed to avoid double taxation and stimulate investment. The most notable include:

• Capital gains from the sale of shares or participations:
  • Exempt if the shareholding does not exceed 25%.
  • Also exempt if held for at least 10 years, even when exceeding that percentage.
• Dividends received from Andorran entities, provided the distributing company has already paid corporate tax on the profits distributed (Art. 5.a, Law 5/2014).
• Severance payments, disability pensions, public or private scholarships, and other exempt income listed in Articles 4 and 5 of Law 5/2014.
• Interest and income from Andorran bank deposits, up to €3,000.
• Dividends and capital gains from the sale of foreign securities, within certain limits.
• Capital gains from the sale of real estate, generally exempt if the property has been held for at least 10 years, with a decreasing tax rate applied annually.

➤ To understand how this regime works and the exemption rules based on ownership period, see Taxation of real estate capital gains in Andorra.

• Public benefits and insurance payments, including disability, maternity, health or life insurance (Articles 5.d and 5.e).

These exemptions reflect the legislator’s intention to promote investment, prevent double taxation and encourage long-term savings.

🧩 Technical communications and implementing regulation

Since its entry into force, the Andorran Tax Administration has issued several technical communications clarifying interpretative criteria on specific topics such as:

• financial products
• life insurance
• income in kind
• foreign trusts and foundations
• transactions in foreign currencies or digital assets

These communications complement the Regulation implementing Law 5/2014, approved on 23 July 2014, and constitute a key interpretative source in Andorran tax practice.

🧭 Interpretation and comparative law

In its early years, Andorra’s IRPF relied on comparative law — particularly the Spanish system — to fill normative gaps or clarify economic concepts.

However, the Andorran administration now applies its own criteria, consistent with domestic legislation and the principle of legal certainty.

This evolution demonstrates the growing maturity of the Andorran tax system, increasingly autonomous and aligned with its economic reality.

🧮 Reforms and evolution

Since its creation, the IRPF has evolved significantly:

• Law 5/2023 of 19 January incorporated the former tax on real estate capital gains into the IRPF, enhancing the coherence of the system.
• Several amendments have improved transparency, the control of international income and coordination with corporate taxation, in line with OECD standards.

➤ You can also read Double taxation agreements (DTTs) signed by Andorra, which explains how these treaties allow for international tax optimisation.

🌍 A simple yet forward-looking model

Andorra’s IRPF stands out for its simplicity, low tax rates and legal certainty.

Nevertheless, with the expansion of the digital economy and new income models — such as cryptoassets and international remote work — the law is expected to evolve towards greater technical sophistication and regulatory detail, especially to adapt to the framework described in Taxation in Andorra: structure, rates and real advantages.

🧩 Conclusion

The Andorran IRPF is one of the key pillars of the Principality’s fiscal system:
clear, simple and comparable to that of its European neighbours.

With a nominal rate of 10%, broad exemptions and a growing network of double taxation treaties, Andorra offers a competitive, secure and internationally recognised tax environment.

Moreover, the current DTT network allows taxpayers not only to enjoy low taxation within Andorra but also to optimise the taxation of income earned abroad.

📩 Do you need to optimise your personal taxation in Andorra?

Our team can analyse your situation and help you structure or optimise your income according to Andorran law — efficiently and safely.

👉 Book your consultation or contact us through our contact form.

Last review date: November 2025