Guide to dividends and capital gains taxes in Andorra

Many will know Andorra for its ski slopes, its hiking trails, its solvent banks and that advantageous taxation that has attracted so many bikers and youtubers.

However, this small country in the Pyrenees is not only fiscally attractive for athletes and Internet celebrities: its legislation is also very beneficial for “traders” and in general for individuals who obtain high returns with their stock market operations.

New: do you have trading profits and want to know how much you would save in taxes living in Andorra? Try our calculator.

Why is Andorra so attractive for investors?

In general terms in Andorra taxes are very low (the maximum tax rate for any return is 10%), but there are also tax exemptions that make the financial returns are exempt from taxation, ie, you do not pay a euro for your earnings on the stock market.

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Article 5k) of the current Andorran Personal Income Tax Law establishes that capital gains derived from the sale of participations, shares in companies, or participations in collective investment institutions (investment funds) will be exempt from taxation, as long as they do not hold more than 25% of said fund or company.

And unless you are Amancio Ortega, Bill Gates or similar, it is unlikely that you own more than 25% of a listed company.

This means that a trader or a person who invests in the stock market and settles in Andorra will not pay tax on his capital gains. It is as simple as that.

The exemption, easily explained

Imagine you buy some Apple shares and after some time you decide to sell them at a profit.

Let’s take Spain as an example, for this profit you would pay 19 or 23% depending on the total profit you have received during the year. On the other hand, in Andorra, since you have less than 25% of Apple, the taxation would be 0% since the gain is covered by an exemption.

Also, since the US does not apply withholding tax on the sale of shares (despite not having a double taxation avoidance agreement with Andorra), the total taxation on the gain will be 0% worldwide, a totally net income. Isn’t it fantastic?

Bottom line:

  • In Spain, up to 23%
  • In Andorra, up to 0%

What about other income derived from your financial portfolio?

Unfortunately this exemption is only applicable for the sale of shares and investment funds.

We will now go on to detail how other portfolio or derivative income and financial products are taxed to see the potential and attractiveness of Andorra clearly.

How are dividends taxed?

Regarding dividends, a distinction should be made between dividends from Andorran sources (i.e. those coming from Andorran companies), which are taxed at 0%, and those from foreign sources, which are taxed at 10%.

Let’s take two examples of taxation in Spain VS taxation in Andorra.

Inditex dividends:

Imagine that you receive dividends from the multinational Inditex. In Spain these would be taxed between 19% and 23% depending on the amount you receive.

If you were to receive this income being a tax resident in Andorra, you would pay a maximum tax of 10%, corresponding 5% to the Non-Resident Income Tax paid in Spain and the remaining %5 to the Andorran Personal Income Tax (once the deduction for international double taxation has been applied).

In summary:

  • In Spain, up to 23%
  • In Andorra, up to 10%

Apple’s dividends:

Here we are faced with one of the Andorran dysfunctionalities… Unfortunately Andorra has a rather poor network of double taxation avoidance treaties, so generally dividends received by countries without a double taxation avoidance treaty are subject to a withholding tax ranging from 15% to 35%.

In the example here, an Apple dividend received as a Spanish resident would be subject to a withholding tax in the United States of 15% and a subsequent taxation in Spain of between 19% and 23%, which, together with the deductions for the avoidance of international double taxation, would imply a total taxation of 23%.

On the other hand, as an Andorran resident, a dividend from Apple will be subject to a withholding tax of 30% and its subsequent integration in Andorra exempt from payment of the deduction for the avoidance of double international taxation. Therefore, the total taxation is 30%… higher even than the “overall” taxation of a resident in Spain….

In short:

  • In Spain, up to 23%
  • In Andorra, up to 30%

How is interest taxed?

Like dividends, in Andorra interest does not enjoy any exception beyond the minimum exemption of €3,000 for savings income already mentioned.

Thus, interest received for lending capital to third parties, coupons, bonds etc, will be taxed at a maximum of 10%.

How are CFDs taxed?

Many risk averse traders operate with trading platforms such as Plus500 or Etoro.

These have the characteristic that, for the most part, they do not operate through the holding of real shares but through contracts for difference with speculative purposes on shares, commonly known as CFDs.

CFD’s are not “per se” participation titles or shares in companies, but are a speculative financial instrument whose underlying asset is a share, therefore, the 5k) exemption mentioned above is not applicable and the yields will be taxed at a maximum of 10% (versus 19% to 23% in Spain).

In summary:

  • In Spain, up to 23%
  • In Andorra, up to 10%

Warrants, spread-bets and other derivatives or options

These instruments follow the same criteria as above: for the Andorran authorities in charge of interpreting the Law, derivatives or options on shares are not shares per se, therefore they cannot enjoy any exemption.

However, they will continue to enjoy that advantageous 10%.

How to reduce the tax bill of your portfolio returns?

If you are considering moving to Andorra, we recommend reading the report “The definitive guide to living in Andorra”, with the most complete information on Andorran taxation, residence and society.

For any other matter, please do not hesitate to contact us.

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