Settling in Andorra involves much more than just getting a residence permit. If the move also involves changing your tax residence, particularly if you’re coming from Spain, it’s important to plan properly. Ensuring that your new administrative, tax, professional and personal circumstances accurately reflect your situation is also essential.
The goal is to relocate in a well-planned and logical way, with all the necessary safeguards in place from the outset. Thoroughly planning a change of residence helps with minimising risks, complying with the obligations of each jurisdiction, and above all, demonstrating where the centre of the taxpayer’s life actually is.
Table of contents:
- Administrative residence and tax residence: two different concepts
Three key criteria for correctly establishing tax residence
What happens if you have tax obligations in both Spain and Andorra?
Do you need to take the Exit Tax into account?
Correctly documenting a change of residence
Can I still hold assets or run businesses in Spain?
Planning your move in advance
Administrative residence and tax residence: two different concepts
One of the first things to understand is that having administrative residence in Andorra does not automatically make you a tax resident of the Principality.
Administrative residence is granted by the Andorran authorities and allows you to live in the country, either through active or passive residence, or any of the other categories provided for by the regulations.
Tax residence, on the other hand, determines which country a person must pay income tax to as a resident. Specific tax criteria are used to determine this, taking into account not only the length of stay in a given country, but also other personal and financial factors.
Three key criteria for correctly establishing tax residence
If a person moves from Spain to Andorra, it is important that their change of tax residence reflects their actual situation. Spanish legislation sets out various criteria for determining whether a person is still considered a tax resident of Spain. Understanding these criteria allows you to plan the relocation better and helps to avoid conflicting interpretations between the two jurisdictions.
1. Length of stay: the 183-day rule
If you move to Andorra, bear in mind that Spain may still consider you a tax resident if you spend more than 183 days there in a calendar year. Furthermore, in some circumstances sporadic absences may also be included in this calculation, unless you can prove your tax residence in another country.
This means that simply holding Andorran administrative residence is not enough; your tax residence in Andorra must be effective and provable.
2. Centre of economic interests
You should also take into account where your main financial interests and activity are concentrated. For instance, if you live in Andorra but your business activity or sources of income are primarily based in Spain, the Spanish tax authorities could dispute your tax residence in Andorra.
Therefore, rather than simply considering the number of days you spend in either location, you need to assess your overall economic ties in each country.
3. The family unit
It may also be presumed that you retain tax residence in Spain if your spouse (from whom you are not legally separated) and any dependent children habitually reside there, unless you can prove otherwise.
Your family situation is therefore another factor to consider when transferring your tax residence to Andorra.
What happens if you have tax obligations in both Spain and Andorra?
If, due to your circumstances, you can be considered a tax resident in both Spain and Andorra, the Double Taxation Agreement between the two countries allows you to determine where your tax residence lies.
For this, factors such as where you have a permanent home, where your centre of personal and economic interests lies, and where you habitually reside are taken into account.
Correctly determining your residence is important as it determines how and where your income is taxed. Furthermore, if you have income, property or business activities in Spain, you may still have tax obligations in that country, even if you are a tax resident of Andorra.
The agreement allows for the coordination of taxation between the two countries and, where applicable, prevents the same income from being taxed twice.
In this article, we discuss double taxation agreements with Andorra.
Do you need to take the Exit Tax into account?
If you are a business owner, investor or high-net-worth individual considering transferring your tax residence to Andorra, it is important to check whether you will be subject to the Exit Tax.
This tax may affect any unrealised capital gains on shares or holdings if you stop being a tax resident of Spain.
In general, you should check whether the Exit Tax applies if you have been a tax resident of Spain for at least 10 of the previous 15 tax years and any of the following conditions apply:
- The combined market value of your shares or holdings exceeds 4 million euros.
- You hold a stake of more than 25% in an entity and its market value exceeds one million euros.
Would you like to know more? We explain how theExit Tax works in the linked article.
Correctly documenting a change of residence
Proper planning doesn’t end when you’ve been granted a residence permit.
Storing any documentation that proves your relocation to and residence in the Principality in an organised manner is strongly advised. This includes residence permits and certificates, tenancy agreements or property documentation, utility bills, employment contracts, company documents, records relating to business activities, and any other evidence of daily life.
Can I still hold assets or run businesses in Spain?
Yes. Transferring your tax residence to Andorra does not mean severing all economic ties with Spain.
You can continue to own property, investments and shares in Spanish companies, or receive income from Spain, whilst being a tax resident of Andorra.
Nevertheless, you should review your remaining ties and their tax implications, as certain types of income or Spanish-based assets may still be subject to tax, even if you are a tax resident of Andorra.
We therefore recommend analysing your assets, companies and sources of income before making the move.
Find out more about setting up a company in Andorra whilst continuing to live in Spain.
Planning your move in advance
Before settling in Andorra, it is important to analyse your personal, financial and professional situation so you can properly plan your change of residence and be aware of any tax obligations you may have in each country.
Seeking specialist advice in Andorra will help you to prepare for the move in advance, make the right decisions and start this new chapter with confidence and peace of mind. Let’s talk!