In a previous article, we examined how the new Law on Sustainable Growth and Housing Rights re-defines foreign real estate investments in Andorra. The new legislation also introduces significant changes in important areas such as taxation and residence requirements. These aspects deserve examination because they directly affect individuals seeking to settle or invest in the Principality. Read on to find out how these changes will affect taxation and residence in Andorra in 2025, and what you will need to consider if you wish to settle here.
Table of contents:
- How will taxes change under the Sustainable Growth and Housing Rights Act?
Property Transfer Tax (ITP) exemptions are intended to facilitate access to housing
Fiscal incentives for affordable renting
Penalising property speculation through taxation
Progressive personal income tax adjustments
New regulations on taxing foreign investments in property
Changes to regulations governing residence
New conditions for residence and paid employment
Criteria for obtaining a residence permit for the self-employed
Changes in residence without gainful activity
How can one adapt to the new legal and fiscal scenario in Andorra?
How will taxes change under the Sustainable Growth and Housing Rights Act?
The Law for Sustainable Growth and the Right to Housing primarily amends five crucial provisions of the Andorran tax system. These changes will directly affect Property Transfer Tax (ITP), non-resident income tax (IRNR), corporate income tax (IS), personal income tax (IRPF) and tax on foreign investment in property. This revision forms part of the Principality’s new approach to a more balanced and sustainable model, with direct implications for investors, residents, and companies.
Property Transfer Tax (ITP) exemptions are intended to facilitate access to housing
The changes introduced aim to curb short-term property speculation while favouring access to a principal residence for Andorra’s resident population.
One of the most notable provisions is that individuals purchasing their first home in Andorra for up to €600,000 will be exempt from paying Property Transfer Tax (ITP). This measure applies exclusively to those who intend to use the property as their habitual and permanent residence. It represents a direct incentive for young people and families.
Companies in Andorra that are more than five years old will also be exempt from this tax if they acquire an affordable property for rent for at least ten years.
Fiscal incentives for affordable renting
The new law incorporates measures aimed at stimulating the rental of affordable housing. In this context, taxpayers subject to Corporate Income Tax (IS) and Personal Income Tax (IRPF) will be able to benefit from a 10 % reduction in the tax base on rental income, provided that certain requirements are met:
- The rent must not exceed €9 per square metre.
- The monthly rent must not exceed 1,250 euros.
- This allowance cannot generate a negative tax base.
This measure aims to increase the supply of affordable housing while ensuring that the profits of those who are committed to a socially responsible rental model are not affected.
Penalising property speculation through taxation
At the same time, to combat short-term property speculation, a surcharge has been introduced on capital gains from the rapid sale of property. This measure affects personal income tax, corporate income tax, and non-resident income tax (IRNR) in cases of permanent establishment.
The new tax brackets are as follows:
- 10% surcharge if the property is sold within two years of purchase.
- 5% surcharge if the sale takes place between two and five years after the purchase.
- 0% if the sale takes place after the fifth year.
Progressive personal income tax adjustments
Correction coefficients are introduced to progressively reduce the tax burden on capital gains from the sixth and tenth years of property ownership. This fiscal tool is designed to reward long-term property investment and encourage stable ownership.
New regulations on taxing foreign investments in property
The new law has come into force together with a new regulation to replace the previous one. The aim is to provide greater clarity and legal certainty in the application of the tax on foreign investment in property. One of the innovations is the restriction of the 90% rebate to properties intended for affordable rental, which strengthens the commitment to accessible housing.
This subject, together with other relevant measures, is discussed in our previous article entitled ‘Changes in foreign investment in Andorran property: what you need to know’.
Changes to regulations governing residence
The Omnibus Law also introduces changes to immigration regulations. The aim is, on the one hand, to adapt them to the current context, and on the other, to strengthen control mechanisms and ensure compliance.
To that end, the articles relating to temporary immigration authorisations (for both Andorran company workers and employees posted from abroad), residence and work authorisations, study permits, non-lucrative residence permits and authorisations for self-employed workers have all been updated.
Aspects related to safety, renovation criteria and mandatory investments for certain passive houses have also been reviewed.
Additionally, new grounds for refusal, cancellation or non-renewal of permits have been introduced, and the penalty system has been updated.
New conditions for residence and paid employment
The law tightens the conditions for the first year of residence and employment, prohibiting self-employment during this period.
The prohibition on employees changing sector during the first year remains, but an exception has been introduced for urgent cases relating to health or education, provided prior authorisation is obtained.
Conversely, the residence permit can now be cancelled if the worker is self-employed during the first year, and shareholding in the contracting company is limited to a maximum of 5%.
Criteria for obtaining a residence permit for the self-employed
It is now necessary to reserve the permit in advance and, within six months, to provide proof of:
- The authorisation of foreign investment in an Andorran company with more than 34 % of the share capital.
- The exercise of effective management functions within the company.
- The deposit of €50,000 with the Andorran Financial Authority (AFA).
Additionally, the obligation to hold a trading licence prior to obtaining authorisation has been removed. In the event of voluntary de-registration, a new trading licence cannot be applied for within one year.
Changes in residence without gainful activity
The law maintains the requirement for a minimum investment of €600,000 for residence without gainful activity, but expressly excludes debt instruments and securities issued by Andorran entities. If property is included, each property must have a minimum value of €600,000.
The owner’s mandatory deposit of €50,000 with the Andorran Financial Authority (AFA) remains unchanged, but the additional deposit per dependant is increased to €12,000.
An extension of up to six months is permitted in the event of justified delays to the formalisation of the investment.
How can one adapt to the new legal and fiscal scenario in Andorra?
The introduction of the new Law on Sustainable Growth and Housing Rights marks a turning point in investment, residence and taxation conditions in Andorra. While the Principality remains an attractive locality, one now requires more careful planning and a detailed knowledge of the regulatory framework. If one is considering moving to Andorra or setting up a business there, expert support is needed in order to make informed decisions.
If you require personalised advice, please do not hesitate to contact our team. We are here to help you take advantage of the opportunities that Andorra continues to offer, through a legal and fiscal strategy adapted to the current situation.