exit tax

¿What is the Exit Tax and how does it influence the investors in France who arrive in Andorra?

The OECD measures to stop tax fraud and the position of Andorra

In recent years, the member states of the Organization for Economic Cooperation and Development (OECD) have established new measures to to control tax fraud and tax evasion to other states with lower taxation, being Andorra one of the recurring destinations. Still, it should be noted that since 2011 Andorra has launched a new tax legislation and, at the same time, it has signed several agreements to avoid double taxation (CDI), which have granted greater credibility to the country and, consequently, have allowed many states of the international community to stop considering the Principality as a “Fiscal Paradise”.

In any case, there is no doubt that currently the Principality continues to offer many facilities for foreign investors, finding in the French investor one of the main collectives. The Gallic country actively contributes to the Andorran economy through tourism or investment (mainly in real estate), although since 2014 its volume of investment in Andorra has been conditioned by the  application of the Exit Tax by the OCDE.

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What is the Exit Tax and how it applies in France?

Literally, the English translation of Exit Tax means “exit of fees”, expanding the definition which is nothing but a measure of protection to retain capital gains at the time the taxpayer leaves his country of origin. In France, this tax is applied to those taxpayers who own shares, participations or investment funds with values above € 800,000. Specifically, in the participations, the Exit Tax also has validity over those that exceed 50%. A percentage value that is noticeably different in other countries such as the United States, Germany or Spain. In the case of the Spanish state, for example, this tax compensation is claimed for capital gains that have at least 25% of the control of a company, with assets greater than 1 million euros or a portfolio with more than 4 million euros of latent capital gains.

For its part, France continues to guarantee its investments in Andorra and collaborates to reduce the possibility of committing tax crimes for evasion of undeclared capital to the treasury. Thus, the effect of Exit Tax on France has repercussions on those taxpayers who stipulate their tax residence in countries that aren’t part of the European Union. Even so, the tax contains another point to take into account, since in the French case the tax regulation only affects citizens who have resided in France 6 of the last 10 years.

Despite the effect of Exit Tax, Andorra is still the best country to invest

As explained above, the application of this tax imposed mainly affects high incomes who change their fiscal residence in countries outside the EU. Thus, in the case of France, the Exit Tax is applied in those gains mentioned above, with a single tax of 30% that is made at the moment that person leaves the country.

It must be emphasized that the Exit Tax is an instrument that the OECD has created to avoid crimes of tax evasion and thus guarantee the declaration to the treasury of participations, stocks and investment funds of those with high incomes. Drastic measures that do not affect those taxpayers who reside in another country temporarily. Although apparently these measures can be an obstacle for the arrival of investors with a great heritage, it must be said that the same Andorran tax system provides all those investment groups with a very attractive market. Thus, it should be noted that Andorra has a reduced corporate tax of 10%, with the possibility of reducing it to 2% in the case of international trade companies or dedicated to financial investment, besides having the VAT (IGI) lowest in Europe, with only 4.5%.

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