How much tax will I save if I live in Andorra rather than Spain?

As many foreigners are discovering upon arriving on Spain’s digital nomad and non-lucrative visas, taxes here are not low and may even be considerably higher than what they pay back in their home country.

But, what if you decide to move north to the small landlocked country in the Pyrenees – the nation of Andorra?

Situated right between France and Spain in the middle of the mountains, Andorra is known for its excellent ski resorts, outdoor adventures, duty-free shopping, and low tax status.

READ ALSO: How will I be taxed on Spain's digital nomad visa?

In fact, if you’re a self-employed person living in Spain earning €60,000 per year and you chose to move to Andorra, you’d actually be paying €20,000 less in taxes.

To take advantage of this, around 20,699 Spanish residents have moved to this pint-sized country, almost a third of its total population.

This mainly includes many high-net worth individuals such as online content creators, cyclists, poker players, traders, and crypto investors.

The income tax rate in Andorra is up to 40 percent lower than in Spain and VAT is at 4.5 percent.

The tax burden in Andorra stands at around 27.5 percent of GDP, like that of Switzerland or Ireland. This is compared to Spain's 38 percent.

Andorra also has several other tax advantages over Spain. Personal income tax rate is set at a maximum of 10 percent and exempts those earning less than €24,000 from paying it all. It also does not charge wealth tax, inheritance tax or gift tax.

READ ALSO: Which regions in Spain have the best wealth tax conditions?

Spain, on the other hand, applies a progressive system that starts at 19 percent — and can exceed 50 percent, depending on the region in which you live.

It’s important to point out that moving to Andorra for tax reasons is not right for everyone, if you earn around €30,000 a year or less for example, it may not be worth your while as you'd be paying a lot more in cost of living instead.

New rental contracts in Andorra now exceed €20 per square metre which is more than double older rental contracts, making access to housing increasingly difficult.

Experts tend to think that it's only worth it if you're making €50,000 to €60,000 in annual income. Below that threshold, it’s not worth making the move to Andorra to save in taxes.

How easy is it to get residency in Andorra?

As Andorra is not part of the EU or Schengen, both EU and non-EU citizens need to get a residence permit to live there.

Some of the most common ways to get Andorran residency are the self-employed active residence for those who want to create a company in Andorra, and the digital nomad visa for remote workers who earn outside of the country.

For the self-employed active residence, you are required to invest at least €50,000 and operate your business within the country.

For the digital nomad visa, you need to prove you earn three times the Andorran minimum wage which is €4,128 per month.

If you want to renew your residency visa, new rules as of 2024 now state that you must prove a basic A1 level of Catalan.

There’s also passive residence which is designed for people with sufficient economic means to live in Andorra without the need to work. It also requires an investment of at least €600,000 and you to only have to stay a minimum of 90 days in Andorra per year.