As a fan of sensible tax policy and tax competition, I could not resist the opportunity to visit Andorra on my current trip to Europe (as part of the Free Market Road Show).
Here’s a chart that will tells you everything you need to know. Andorra’s top tax rate is just 10 percent, while its neighbors (Spain and France) have top tax rates of more than 40 percent.
Not as good as the Cayman Islands and Monaco, to be sure, but it is obviously better to keep 90 percent of the income you earn rather than only about 50 percent in Spain or France.
Actually, you probably only get to benefit from the use of about 40 percent of your income in those two nations when you factor in the value-added tax.
Lawrence Reed of the Foundation for Economic Education recently wrote about the virtues of Andorra, including its superior tax regime.
…one of Europe’s seven “micro-states,” quaint and tiny nations which are political holdovers from the distant past. The other six are San Marino, Liechtenstein, Luxembourg, Monaco, Malta, and Vatican City. Andorra is landlocked and sandwiched in the eastern Pyrenees Mountains between France and Spain. …Micro-states are fascinating and among the freest enclaves in the world. …Freedom House ranks Andorra in its highest category—a “Free” country scoring an impressive 93 on a 100-point scale of political and civil liberties. …“The legal and regulatory framework,” the survey reports, “is generally supportive of property rights and entrepreneurship, and there are few undue obstacles to private business activity in practice.” …writes Guy Sharp, a native Andorran financial advisor…“you get many of the benefits of Europe without the high taxes.” …The maximum personal income tax rate, as well as the capital gains rate, is just 10 percent. …Most goods are subject to a modest value-added tax rate of less than five percent.
I can vouch for the fact that everything is more affordable in Andorra. That nation’s 4.5 percent value-added tax is akin to a modest sales tax in American states. When I’m in Spain, France, or other European countries, by contrast, you definitely feel the pain of 20 percent-plus VATs.
That being said, it’s the low-rate income tax that is a magnet for jobs and investment. The nation’s tax system is even attracting Spanish tax exiles.
Especially entrepreneurs who are making money online. Miodrag Pepic reports for the Valencian.
When the famous YouTube star ElRubius announced last month that he is permanently moving to Andorra, the Spanish public became aware for the first time that the most popular YouTubers are leaving the country, taking their earnings with them as well. The reason is very simple – Andorra has become a tax haven for this type of activity…many Spanish YouTubers have moved there. But ElRubius is one of the most famous. …In Spain, he would have paid up to 54% of his income in taxes, while in Andorra, the top income tax is only 10%. …The decision of ElRubius was criticised in the Spanish media as unpatriotic. …his popularity on YouTube remained undeterred, and in fact, his subscription base even grew. …There are quite a few other countries that have begun to lose their top earners, notably France and the Netherlands
Predictably, the Spanish government is not amused, as reported by Aida Pelaez-Fernandez of Reuters.
Spain’s tax agency said on Monday it would start using “big data” to track wealthy individuals who pretend to reside abroad for tax purposes. The crackdown comes after some of Spain’s most popular YouTube personalities moved their residency to Andorra, a wealthy microstate perched in the Pyrenees mountains between France and Spain, with lower tax rates than its larger neighbours. …In Spain, anyone who earns above 300,000 euros per year must pay income tax of 47%, compared with a 10% flat rate charged by Andorra on earnings of more than 40,000 euros.
As you might expect, the Spanish government is not considering lower tax rates, which would be the best way of retaining successful entrepreneurs.
Instead, politicians are pushing tax policy in the wrong direction.
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Image credit: carmen_carbonell | Pixabay License.
