Tax residency status in Andorra and Switzerland: what are the benefits and differences?

Tax residency is a key factor for entrepreneurs, investors, and expatriates seeking tax optimization and quality of life. Andorra and Switzerland are two popular destinations in Europe for their attractive taxation and exceptional living environment. However, these two countries have notable differences in terms of taxation, cost of living, and conditions for obtaining tax residency status.

1/ Obtaining tax residency status
First, it is important to note that neither Andorra nor Switzerland is part of the European Union. Therefore, anyone wishing to settle there must obtain a specific residence permit to live legally and, if applicable, acquire the tax residency status.

  • Andorra
    • There is a single tax regime applicable to people residing there.
  • Switzerland

Several cantons offer attractive tax regimes, including:

    • Flat-rate regime: Applicable to wealthy foreigners who do not engage in professional activities in Switzerland.
    • Ordinary tax residency: Subject to living at least 183 days a year in Switzerland.

2/ Taxation and income tax

  • Andorra
    • Personal income tax (IRPF):
    • 0% up to €24,000
    • 5% between €24,000 and €40,000
    • 10% over €40,000
    • Corporate tax: 10%
    • No wealth tax or inheritance tax.
  • Switzerland
    • Income tax varies by canton, with a combined rate (federal, cantonal, and municipal) ranging from 20% to 45%.
    • Corporate tax: Variable by canton, ranging from 12% to 25%.
    • Wealth tax: Applicable in several cantons, with rates reaching up to 1% of net wealth.
    • Possibility of accessing a flat-rate tax based on lifestyle for wealthy individuals.

3/ VAT and indirect taxation

  • Andorra
    • VAT (IGI): 4.5%, one of the lowest rates in Europe.
    • No inheritance or donation taxes.
  • Switzerland
    • VAT: 7.7%, with reduced rates for certain products and services (2.5% for food products, books, and press).
    • Inheritance and donation taxes: Variable by canton.

4/ Cost of living and advantages

  • Andorra
    • Moderate cost of living (housing, consumption, services)
    • Exceptional security and natural environment
    • No inheritance taxes
    • Very favorable taxation
  • Switzerland
    • Access to a stable and international financial market
    • High-level infrastructure (healthcare, education, transport)
    • Premium quality of life
    • Possibility to obtain a Swiss passport after several years of residency

Conclusion: which destination to choose?

The choice between Andorra and Switzerland will mainly depend on the fiscal objectives and lifestyle desired. Andorra stands out for its extremely attractive tax system and more accessible cost of living, making it an ideal destination for entrepreneurs and expatriates seeking to optimize their income. Switzerland, on the other hand, attracts large fortunes and investors looking for a stable environment, well-connected to Europe and the international financial world.

In both cases, consulting with a tax expert is recommended to optimize the transition and benefits of tax residency.