Special Notice for Existing Passive Residents
Existing Passive Residents beware, the goalposts have moved dramatically. Who it may affect:-
Depending on your current situation, and this applies to all categories of passive residency, you may need to take immediate action to avoid FULL Capital Gains Tax (CGT) when you sell a property or the year you intend to leave Andorra. As a reminder, with the amendments to CGT rates over the past years, the maximum rate for non resident owners who sell a property are currently 25% (that is TWENTY FIVE PER CENT) for the first 2 years, 20% from 2 to 5 years, 5 to 10 years 15% and after 10 years 10%. As a passive resident of no matter how many years "service" you need to avoid being treated as a non resident for tax purposes by carefully reading the paragraphs below.
I will break this down to keep it simple, it relates to some recent issues with the Tax Office, concerning property sales and their interpretation of passive residents.
90 days or more is now just an administrative label in Immigration, as far as the tax office is concerned you are either fiscal OR NOT:-
- For those passive residents who already have been submitting tax returns are generally not affected save for the issue in points No 3, 5. and 6 (and maybe others) below.
- For those passive residents who do not own property then you will be largely unaffected except in possible circumstances in point No 3, 5, and 6 (and maybe others) below.
- For those passive residents who own a property and who have never registered with the tax office or filed a tax return (and, even if exempt, the return can be a zero return) may need to act now to avoid CGT, and take into account the points below.
- For those passive residents who have never been fiscal and who are intending to leave Andorra, it may not yet be too late to avoid (some or all) CGT but urgent action is required now, and take into account the points below.
So please read on !
So what has happened?
In a nutshell to avoid CGT not only do you need to show fiscal residency (by registration and annual returns) but (HORROR!) in the fiscal year that you sell the property you must now ALSO prove that you were here in the year of sale for 183 days minimum. This last bit runs contrary to the concept of the current 90 day understanding.
Point no 1:-
Any purchase of a property now and from after 28/02/2024 is automatically registered in the foreign Property Register by the Notary. Any purchase of a property before that date is not treated as a non resident purchase, so that date when it all changed on 28/02/2024 is not retrospective. Nobody then should need to do anything at this stage but be aware of this, and it is advisable to make tax returns for each year even if they are zero returns. Also importantly point No.3 below affects ALL passive resident property sales.
Point No 2:-
If your property is on the register (i.e. purchased after 28/02/2024) you need to register as fiscal and submit the annual tax return, for THREE years whether zero return or otherwise. After 3 years the property can be removed from the foreign register but you will need henceforth to file an annual return, whether zero or not. The property acquisition date then becomes the starting date for CGT residential sliding scale to zero over the 15 year period.
Point No3:- (AFFECTS ALL PASSIVE RESIDENTS)
In the year you decide to sell the property not only must you prove fiscal residency with a tax certificate, but also prove your physical presence here for 183 days; But note that they will NOT issue the required fiscal certificate unless you can physically prove 183 days in Andorra in the year of sale. We are told that utility bills, mobile calls, etc will NOT be accepted as evidence, and that as its stands ONLY bank statements and credit/ debit card records will suffice.
Point No 4:-
It is unclear yet whether a general request for a fiscal certificate will continue to be entertained for passive residents and this applies to ALL existing passive residents. For example if your bank outside Andorra asks for proof of tax residency in Andorra specifically with a fiscal certificate which historically they have issued, they MAY now just ask (assuming you have filed the annual tax return) for proof you are or have been here for those 183 days in the year in question. I must stress that this is extremely unlikely given the potential workload and purpose of the certificate, none the less the risk is there no matter how slight.
Point No 5:-
The current requirement now to avoid CGT on property is to show you have been here for 183 days and paid tax in the year of sale. The question then remains, what happens if a sale takes place in April 2026 ( for example) by a passive resident who has for years submitted tax returns and even paid tax etc but who is leaving Andorra when he sells the property? As is stands if he would not be able to prove fiscal residency or physical presence of 183 days in the year of sale; SO, will he be treated as a non resident for this transaction and face FULL CGT ? As it stands, the answer is yes he would be a non resident in the year of sale ( back to 25% CGT). The logical plan then in in point no, 6 !
Point No 6:-
With No 5, in mind the timing of the cancellation of passive residency during the fiscal year, combined with the 2 to 3 months current time schedule for the tax office to issue the certificate for the Notary, would suggest that passive residents aim for a sale and completion towards the last 3 months of the year when they have the 183 days PLUS the tax office certificate delay. IF the sale has to take place in the first half of the year, then the recommendation is to rent a property, do NOT cancel residency until you have satisfied the 183 days physical presence in the year of sale.
Point No 7:-
Will no doubt arrive soon, the passive residency status is changing rapidly, and will be affected further in the future when they decide to amend investment and other requirements.
So, where do I start?
So once you have determined above which numbered paragraph you fall into, and what points apply to you, I suggest you get legal advice if planning to sell, and also put in those tax returns.
Please contact me if you do not have a lawyer / Accountant, my partner Albert will be pleased to offer advice and assistance. I can only limit myself to Immigration requirements and the affect it may have on you at Immigration ( if any). As it stands, this is not expected to affect renewals of all passive residencies, just the cancellation process.
If anyone out there has feedback on any situation or if they have been advised differently, please let me know. The whole situation as it stands is total confusion as well as a lack of dissemination and information from the Tax Office.