Director of Augé Grup’s Tax Department Marc Urgell Díaz answers:
Andorra is an increasingly popular destination for tax residence purposes, especially in the case of people with “high added value”, such as ex-directors of large companies right after their retirement.
To what is it due? Andorra is an attractive destination to reside, both for proximity to Spain and France, as well as for its standard of living, its natural environment and security, and recently, for its fiscal framework.
Article 18 of the OECD Model CDI (the Double Taxation Avoidance), which corresponds to Article 17 of those subscribed by Andorra, as could be the case of France and Spain, grant exclusive taxing power to the State of residence to tax retirement pensions. This implies that if a new resident in Andorra receives a pension from the Spanish Social Security, they will only be taxed according to the Personal Income Tax (IRPF) of Andorra, without withholding taxes.
This provision also extends to the assumption that the employer, by virtue of the employment relationship, provides a social welfare plan that will serve, after the employee’s retirement, to supplement their Social Security pension. Charges for this social welfare plan, which is normally outsourced and managed by a financial institution, will also be taxable only in the State of residence. The same would occur in the event that the beneficiary, namely the retired manager, decides to collect the capitalized pension through a single payment system.
However, it is highly advisable to analyze the typology of the social welfare plan to determine if we can frame it in the income of article 18 of the CDI (Double Taxation Avoidance). The main requirement is that the mentioned plan is provided by the employer and in the context of an employment relationship, and that it occurs as a consequence of an equivalent event to those covered in social welfare systems (death, retirement or disability).
It recalls that the maximum taxation of the earned income, which would be the category of this type of income in the Andorran legal system, is 10% compared to the progressive rates in Spain or France, which reach up to 50%.
In addition, in Andorra, the application of the Fourth Additional Provision of the Law of the IRPF would be implemented, as evidenced by the Binding Consultation CV0041-2016, dated 26/04/2016, precisely carried out by the Fiscal Department of Augé Grup. This additional provision implies a substantial reduction of taxation, since all the profits generated up to 31/12/2014 would not be taxable and to calculate the profits we would start from the mathematical provision of the instrument at that date.