Andorra Firms Up IRPF Income Tax Plans
10 July 2013
Posted by: Author: Ulrika Lomas
Author: Ulrika Lomas
Andorran Finance Minister Jordi Cinca has provided further clarification on provisions contained in the Government's bill, providing for the introduction of a tax on individual income in Andorra (IRPF).
The tax is intended to "complete" a new competitive and comparable fiscal framework, enabling Andorra to conclude double taxation agreements with other states. The tax is also designed to promote equity, in accordance with the country's constitution, and to provide greater stability and diversity of state income. Cinca made clear, however, that indirect taxation will remain a more important source of state income.
The IRPF tax will be levied on the global income of natural persons at a flat rate of 10 percent. The levy will be imposed on income from labor, on income from economic activities, on income from capital (both moveable and immovable assets), and on capital gains and losses. Once the IRPF enters into force, the levy will replace the existing tax on economic activities (IAE).
Furthermore, the bill establishes a minimum personal IRPF exemption of EUR24,000 (USD30,698), rising to EUR40,000 in households where the spouse or partner is not in receipt of any income. The text also provides for an IRPF tax rate of 5 percent (50 percent IRPF tax rate reduction) to be levied on income of between EUR24,001 and EUR40,000.
The draft legislation provides for a number of tax breaks for families, for incapacity, as well as for the acquisition of a primary residence. Consequently, the bill accords a tax reduction for dependents, amounting to EUR750 for each child under 25, and for elderly dependents over 65, provided that they are not in receipt of annual income in excess of EUR12,000. The provisions grant a tax reduction of up to EUR1,000 annually for investment in a principle residence, and provide for a tax exemption of EUR3,000 to be granted for interest income, to protect small savers.
Finally, the bill provides for a raft of exemptions from income tax. These include tax exemptions for compensation income resulting from a personal injury liability, compensation pay for unfair dismissal, literary, artistic, and scientific financial awards (under certain conditions,) dividends and participation paid out by companies resident in Andorra, and income from bonds issued by the Principality of Andorra.
The bill contains provisions intended to avoid double taxation, as well as tax deductions for job creation and investment in Andorra.