VAT in Andorra: how the indirect general tax (IGI) works

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🏁 Understanding VAT in Andorra: why IGI functions like a European VAT

Although Andorra is not part of the European Union, it applies a consumption tax that operates in a way very similar to European VAT: the Indirect General Tax (IGI). Its structure is explicitly inspired by Directive 2006/112/EC, and it maintains the same principles of neutrality for businesses, deductibility of input VAT and taxation at destination.

This article offers a clear, pedagogical and comprehensive guide — aimed especially at foreign entrepreneurs, investors and digital professionals — explaining how “Andorran VAT” works, which rates apply and how it is declared.

If you want general information about Andorra’s tax framework, we recommend reading the article Taxation in Andorra.

Additionally, if you would like to know the steps involved in setting up a company in Andorra, you can find them in the article Setting up a company in Andorra.

📖 What is IGI and how is it structured?

IGI is regulated by Law 11/2012 and by the Consolidated Text of 19 June 2019. The legislator highlights that the design of the tax draws on international experience and the harmonised European model.

Key elements

• It is a multi-phase tax: it applies at every stage of the supply chain.
• It works through output VAT + input VAT deduction, just like European VAT.
• It is neutral for businesses under the general regime.
• It applies the destination principle: imports are taxed, exports are exempt with the right to deduct.

In summary, if you come from a European VAT environment, you can understand IGI as Andorra’s version of VAT, but with considerably lower rates.

🌍 Scope of application and non-taxable transactions

IGI applies to:

• Supplies of goods and provision of services carried out by entrepreneurs and professionals in Andorra.
• Imports of goods, regardless of who the importer is.

The definition of “entrepreneur or professional” is similar to European VAT: any person who organises human and material resources to produce or distribute goods or services. Leasing activities are also considered economic activity.

Furthermore, those who invoice less than €40,000 per year (€150,000 for agricultural or livestock activities) may not be considered entrepreneurs unless they opt otherwise. In that case, their operations are non-taxable.

⚖️ Non-taxable transactions

The Law establishes several situations of non-taxation, different from exemptions or the 0% rate. Notable examples include:

• Transfer of an autonomous economic unit (transfer of a business as a whole).
• Certain insurance and mediation operations.
• Free samples without commercial value and demonstration services with promotional purpose.
• Certain advertising items without intrinsic commercial value.

These transactions are not subject to IGI and therefore do not generate the right to deduct input VAT.

💶 Tax rates: 4.5%, 1%, 0% and 9.5%

Andorra applies four real tax rates:

🔹 4.5% – General rate

Applicable by default to most goods and services.

🔹 1% – Reduced rate

For goods and services defined by regulation as being of notable but non-basic necessity (e.g. certain sanitary or cultural products).

🔹 0% – Super-reduced rate

This is a real tax rate, not an exemption.
It applies to basic-necessity goods and generally preserves the right to deduct input VAT.

🔹 9.5% – Increased rate

For banking and financial services, which previously fell under a specific indirect tax.

This structure makes Andorra’s average tax burden significantly lower than that of neighbouring countries.

🔄 Reverse charge and international services

For domestic transactions, the obligation to charge IGI lies with the supplier.
However, the Law provides several cases of reverse charge:

• When the supplier is not established in Andorra but the corporate client is, the obligation to account for IGI often falls on the client.
• In many cross-border B2B services, the place-of-supply rules mean that:
  • Services provided by an Andorran business to a foreign client do not include IGI.
  • Services provided by a foreign business to an Andorran client are self-assessed by the Andorran client through reverse charge.

For foreign clients, this is especially attractive: they receive the invoice without Andorran VAT, managing their local VAT obligations under the rules of their own jurisdiction.

🗓️ Returns, forms and filing frequency

Businesses must file periodic self-assessments including:

• IGI charged (according to the applicable rates).
• Deductible IGI paid on purchases.
• Final result: payable, to be offset or to be refunded.

Filing frequency

Depending on turnover:

• Monthly
• Quarterly
• Semi-annual (common for small businesses)

There is also an annual summary return containing aggregated information.

☑️ General regime and right to deduct

Under the general regime:

• The business charges IGI on sales.
• It may deduct IGI supported on expenses linked to activities giving rise to the right to deduct.
• If the result is negative, it may offset or request a refund.

The Law minimises exemptions that would break the chain of deductions, ensuring that the tax remains neutral — as VAT is intended to be.

📢 Special schemes

🔹 Simplified scheme

Optional and designed for small businesses.

Main characteristics:

• IGI charged is calculated in the same way as in the general regime.
• Input IGI is not deducted invoice by invoice; instead, fixed objective percentages are applied:
  • 3% for commercial activities.
  • 1.5% for all other activities.
• The tax payable is the difference between IGI charged and the “estimated” IGI supported.

It is useful for businesses with limited administrative structure, but not advisable for companies with significant investments or international operations.

🔹 Other special schemes

• Second-hand goods scheme: objective taxable base (10% of the sale price).
• Pharmacies scheme: periodic refunds due to the nature of the sector.
• Investment gold and financial sector: specific rules.

For most digital businesses and service companies, these schemes only require superficial knowledge.

💵 IGI refunds and deadlines

Refunds may be requested by:

• Any Andorran-established business with more IGI paid than charged in a filing period.
• Export-oriented companies with recurring credits.
• Non-established entrepreneurs who have paid IGI in Andorra and can prove activity in a country applying a similar indirect tax.

Deadlines (IGI Regulation)

• Refunds may refer to a quarter or a full calendar year.
• Deadline for submission: within 6 months after the end of the year.
• The Administration must issue a resolution within 3 months; if it fails to do so, statutory interest applies automatically.

Conclusion

IGI is, in essence, Andorra’s VAT, with highly competitive rates and a structure equivalent to European VAT systems.

Its neutrality, the simplicity of the general regime and the flexibility given to international services make it a central element for any business operating or considering establishing itself in Andorra. Furthermore, the possibility of recovering IGI paid — especially for exporters or non-established businesses — reinforces a system designed to be efficient and attractive.

If you are considering how IGI may affect your business — whether you are a digital entrepreneur, an investor or an international company with B2B flows — we can analyse your case and determine the regime that best optimises your activity.

If you want to understand precisely how IGI applies to your business model and what options you have to optimise it, you can request your personalised meeting just below, or fill in the contact form.

Last updated: November 2025.