How are cryptocurrencies taxed in Andorra?

Among the many profiles that have opted to move their tax residence to Andorra, it is very common to find people who receive a significant part of their income from investments in the stock market and cryptocurrencies. Therefore, it is important to know the taxation of cryptocurrencies (led by Bitcoin and Ethereum) in Andorra before deciding whether living in Andorra is the best option for you and your family (read this article if you want to discover the advantages and disadvantages of living in Andorra).

Looking for a quick headline to the question about the taxation of cryptocurrencies in Andorra? Answer: under current legislation, the maximum tax rate is 10% as a capital gain under personal income tax. At present, cryptocurrencies in Andorra do not pay exit tax (tax on changes of residence) or capital gains tax. If you want to know more, we invite you to read our article or contact us for a first meeting to address your doubts and concerns.

1. Taxation of cryptocurrencies in Andorra

As we have told you, the maximum you will pay for the sale of your cryptocurrencies is 10% of your profits from €3,001 onwards. In other words, the first €3,000 per year that you declare as profits from trading cryptocurrencies will be tax-free. The rest will form part of your income to be declared in the IRPF under the concept of capital gains.

If you want to compare the situation in Andorra with others such as Spain, you should know that in Spain you are taxed a minimum of 19% of the profits and that, as a big difference, cryptocurrencies must be taxed as Wealth Tax. In other words, just for owning cryptocurrencies, your Bitcoin, Ethereum or the cryptocurrency you own must be taxed as part of your total wealth.

In Andorra there is no wealth tax. Therefore, you will never be taxed on what you have but on what has given you a profit in that year, which you include in your tax return and which exceeds €24,000. In addition, the Principality is studying new legislation, which should be published in 2023, and which should determine in more depth the casuistry, exceptions and taxation of cryptocurrencies.

2. Importance of traceability for the residency

If you are a large cryptocurrency holder, we recommend that you seek personalised advice in order to deal with your case as accurately as possible. Broadly speaking, and due to the fact that this is a sensitive issue for Andorran banks, it is possible that it may be difficult to obtain your residence permit.

Due to previous scandals and in order to prevent money laundering, the five Andorran banks that make up the country’s financial centre are very meticulous when accepting new clients, especially when the income does not come from a payroll but from investments. Before opening an account, the banks carry out an extensive due diligence process (much more extensive than in other countries) in order to ensure that income and yields come from legal and solvent sources, thus removing the shadow of money laundering.

That is why it is essential that you have traceability of your cryptocurrency trading, especially if you have a large cryptocurrency portfolio. If, as some of our clients have done, you bought or mined cryptocurrencies (especially Bitcoin) in the early 2010s, you probably did not attach much importance to the traceability of your cryptocurrencies.

✔️ If this is your case, do not hesitate to contact us to study your case in depth and offer you the best solution, which may involve finding an alternative formula for taxation in Andorra, finding the country with the most favourable legislation for your case to sell your cryptocurrencies and then moving to Andorra or informing you of the new developments in cryptocurrency legislation in case there is any change that will benefit you.

3. Should I move now?

As you know, Andorra is constantly absorbing new residents with high purchasing power who come to live in Andorra because of its low taxes and high quality of life. In the field of cryptocurrencies, Andorra offers one of the most favourable taxation, as you are only taxed once for them (in the IRPF and at the time of sale) and not for the fact of owning them.

Currently, the Govern d’Andorra is studying a law on cryptocurrencies that should see the light of day in the coming months. Given that we do not yet know the content, it is advisable to move as soon as possible, as there is a possibility that these new regulations will be more restrictive with the acceptance of new residents with a large cryptocurrency portfolio.

Consistent with its tax margin, Andorra is not currently considering making any upward changes to the taxation payable by a cryptocurrency owner, so it should not be higher than the current 10% in the future. Moreover, the law currently under study envisages that in the future the taxation of cryptocurrencies will be 0%, as it wants to make Andorra a leading country in technology and raise the per capita income of its residents even further.

In conclusion, if you have a significant amount of cryptocurrencies, ❗the best time to move to Andorra is now, as the legislation is not restrictive with the arrival of this profile of investors and the taxation is very favourable, with expectations of improvement in the future.

4. Listing of equities, ETFs and index funds

In most cases, investment portfolios are composed of individual stocks, ETFs, index funds and cryptocurrencies, with the proportion changing depending on the aggressiveness of the portfolio and risk aversion. Therefore, if you hold cryptocurrencies, you probably also hold these types of assets and are interested in knowing about their taxation in Andorra. Again, Andorra’s tax legislation for traders and investors is very favourable. Here is a summary:

  • You will pay 0% tax on profits on the purchase and sale of shares and investment funds as long as you do not own 25% of the company you are buying or selling. This therefore includes stock market trading, whether short or long term. Equities are therefore tax-free (unlike in European countries, where they are usually taxed at 20%).
  • If you own more than 25% of the shares of a company and do not want to pay tax on your profits, it is in your interest to know that after 10 years of holding those shares you will no longer have to pay anything on them (to avoid speculation and to give stability to the market).
  • You will pay 0% of the profits you earn through your index fund portfolio.
  • You will pay 10% of the profits you make on financial instruments other than shares, investment funds (active management) or index funds (passive management).

After this explanation, we would like to highlight the need to find out from your broker, traditional bank or digital bank whether you are buying an ETF or an index fund. Their composition is the same and the only difference is that ETFs work like shares, they can be bought or sold immediately, whereas index funds are settled at the end of the day. This small difference, which most investors will not notice, will mean that taxation on profits can vary by 10%, so we recommend that you be aware of the type of fund you are buying.

We would also like to underline the fact that the AFA, the Andorran financial authority, is constantly studying new developments in the financial system, with new instruments and investment methods becoming popular, such as NFTs. You should therefore be aware that the legislation and regulatory framework for these assets may change at any time, although it will always remain in line with Andorra’s financial culture, which is to have very low taxes in order to attract new residents.

5. Is this a good time to invest?

This is a relative and personal question that will be mainly influenced by your current position (composition of your portfolio) and the availability of fiat (cash) that you will need in the coming months and years. As you know, cryptocurrency is a commodity that is yielding much higher returns than other more traditional instruments, but it is also much more subject to volatility, with rises and falls of 20% in less than 24 hours.

What is indisputable is that Andorra is the best of your options if you are interested in the world of cryptocurrencies and blockchain technologies. Not only does it have advantageous taxation and its highest financial body (AFA) preparing a specific regulation, but other bodies have also been created that demonstrate the interest of Andorra and in Andorra in this type of asset. A couple of examples could be the creation of the Andblockchain Association, of which some of the Principality’s banks are members, or the blockchain training offered in the country’s universities.

If you are interested in investing in cryptocurrencies by mining them, a procedure that is no longer as profitable for the big players but still of interest to many buyers of smaller cryptocurrencies, you should know that in Andorra you will get a first-class electricity service, with an extensive and reliable grid and a very attractive price per kilowatt per hour, which is usually half the price paid on electricity bills in neighbouring countries such as France and Spain.

Relocation to Andorra has been booming in recent years thanks to its low taxes and various attractions that make for a great quality of life. However, a life in the Principality is not for everyone, it depends on your personal interests, hobbies and lifestyle.
We will now present the main services and intangibles of Andorra, together with a selection of the most recurrent comments on the best and worst things about living in Andorra. Go ahead!