US Expat Taxes for Americans Living in Andorra – What You Need to Know
It has been estimated that there are several thousand Americans living in Andorra.
Living in Andorra is an incredible experience for a number of reasons, including the low taxes, the climate and the mountains, the security and health care, and having easy access to the rest of Europe. As an American expatriate living in Andorra though, what exactly do you need to know regarding filing US expat (and Andorran) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Andorra, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Residents are subject to personal income tax on their worldwide profits and capital gains. Non-resident individuals are only taxed on their Andorra-source income.” – Deloitte
While most expats won’t pay any income tax in Andorra, they can reduce their US tax liability by claiming the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Andorran resident. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
Andorran banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Andorran dual citizen, and you have been living in Andorra but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Andorran taxes – what you need to know
Andorran residents are taxed on their worldwide income above the personal exemption rate of 24,000 Euros at a flat rate of 10%. Non-residents are only taxed on income arising in Andorra.
Andorra has no wealth, property, or inheritance taxes.
Foreigners can become residents in Andorra by making a substantial (currently 400,000 Euro) investment in Andorra, as well as proving that they have sufficient funds to support themselves and their families.
The Andorran tax year is the same as in the US, which is to say the calendar year. Andorran tax returns are due by September 30th. The Andorran tax authority is simply called Impostos.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Andorra that you contact a US expat tax specialist.