• What is personal income tax in Andorra and who is required to file it?

Personal income tax is the direct tax on worldwide income obtained by all those individuals who are considered tax residents in the Principality. In this sentence there are two key aspects that I believe need to be defined:

• Global income means all income obtained without taking into account who the payer is and where it is located.
• Regarding the status of tax resident, it should be taken into account that not all natural persons resident in Andorra automatically acquire this status. In order to determine whether a natural person is a tax resident in Andorra (and, therefore, obliged to submit the personal income tax return to the Andorran Tax Authorities), it is necessary to analyze whether any of the criteria established in article 8 of the Tax Law are met. Andorran personal income tax:
  • Criterion of permanence in the Andorran territory of more than 183 days in the calendar year.
  • Criterion of center of economic interests located in the Andorran territory.

In addition, a presumption of tax residency in Andorra may apply if the non-legally separated spouse and minor children reside in the Principality.

• What should be taken into account when preparing a personal income tax? (deductions, gains, losses from other years, etc.)

In order to prepare the personal income tax return, it is necessary to know the family, personal and financial aspects of each person, in addition to the income obtained during the year, such as, for example:

• Family circumstances, such as if the client is married, has dependent children under 25 years of age, or ascendants. In this sense, it will also be necessary to know if the spouse receives income from the general base and if these exceed €24,000 per year.
• Personal circumstances, such as whether the person makes contributions to pension plans or pays compensatory pensions or annuities for alimony.
• Financial circumstances such as if the person pays installments for a mortgage related to their habitual residence, as long as it is located in Andorran territory.

This is because the personal income tax regulations in Andorra provide for different reductions and exempt minimums, among others, from which taxpayers can benefit:

• For income from the general base (income from work, income from real estate capital and income from economic activities):
  • Exempt minimum for the first €24,000. This can be increased to the extent that the spouse has not received income from the general base greater than €24,000.
  • Reduction by ascending or descending.
  • Reduction for investment in habitual residence.
  • Reduction for contributions to pension plans.
  • Reduction for compensatory pensions or annuities for food.
• For income from the savings base (financial capital and capital gains):
  • Minimum exempt for the first €3,000 of profit are also exempt.

It is also important to be able to take into account the last 3 personal income tax returns submitted for the purposes of possible deductions pending application or deducting the payment on account made the previous year.

• When do you have to start preparing your personal income tax and when is the maximum deadline?

The Personal Income Tax Campaign in Andorra has a very long voluntary submission period compared to other countries, since it begins every April 1 and ends on September 30.

• Why is it essential to have an advisor to prepare personal income tax?

In order to take advantage of all the advantages that taxpayers can benefit from when preparing their personal income tax, it is necessary to have an advisor who knows in detail the regulations in force at all times as well as the interpretative criteria published by the Department of Taxes and Taxes. Borders.

• What modifications are expected for next year's campaign in Andorra?

On January 1, 2024, the tax reform in direct taxation came into force, approved by Law 5/2023, of January 19, on measures for the reform of direct taxation and modification of other tax and customs regulations. In this sense, it is worth highlighting the following modifications for the Personal Income Tax Campaign:

• New parameters have been established for the classification of rental income as income from economic activities.

Until the present modification, when natural persons obtained income from renting apartments they owned, they could freely decide to declare them as income from real estate capital or as income from economic activity, without any type of objective criteria.

Through this reform, objective requirements are introduced to define when an income from real estate origin is considered income from economic activity, establishing a minimum number of properties rented or offered for rent or rental income:

• • When 6 or more properties are rented or offered for rent, at any time during the tax period.

• • When the full income obtained has been greater than €100,000.

• The Tax on Capital Gains on Real Estate Transfers has been integrated into the Personal Income Tax. After reviewing the Andorran tax system, globally, it has been decided to repeal the specific direct tax that existed in relation to the taxation of capital gains on real estate transfers, integrating it into direct income taxes (IS and IRPF).

With this integration, the Andorran tax system is simplified and given coherence, eliminating unnecessary regulatory and procedural duplications. Thus, integration facilitates compliance with the standard, eliminates administrative complexities and difficulties, and corrects technical deficiencies.

• A new tax incentive for patronage has been introduced by incorporating a new deduction on donations made in favor of the Government, the Commons, or foundations and associations.