Andorra or Dubai: which tax system to choose?

Andorra and Dubai are two popular destinations for expats attracted by their low tax system. But which jurisdiction offers the most attractive tax system? To help you make your choice, this article compares Andorra’s and Dubai’s tax regimes in detail, while also looking at immigration rules, passport retention, security, and financial management from an international perspective.

Personal income tax

Andorra levies a personal income tax (IRPF) with progressive rates ranging from 0% to 10%. The first €24,000 of income is tax-free.

Dubai does not levy any personal income tax for residents.

Corporate income tax

Corporate income tax in Andorra is a maximum of 10%.

The corporate tax rate in Dubai is 0% for most business activities.

But to benefit from the tax benefits of the Emirates, you will need to be considered a tax resident there.

This tax residency is obtained when:

• You reside in the territory of the United Arab Emirates for at least 185 days a year.
• You have owned a home in the Emirates for more than 6 months.
• You have an active bank account in the Emirates for more than 6 months.
• You have a residency visa.

Since1989 there has been a bilateral agreement between the United Arab Emirates and France that fixes the tax residence of the expatriate and settles any conflict of residence thus avoiding potential double taxation (the fact of paying taxes in 2 countries at the same time).

The criteria required by the tax treaty and by Article 4B of the French Tax Code to no longer be recognized as a French tax resident are as follows:

• Not have your home and/or main place of residence in France.
• Not to carry out a professional activity in France, unless this activity is carried out on an ancillary basis.
• Not having the center of its economic interests in France (in particular not having as its main sources of income, income of French origin).

However, even if you obtain tax residency in Dubai, all of your income from French sources remains taxable in France.

Value Added Tax (VAT)

VAT in Andorra is 4.5%, with a reduced rate of 0% for certain basic necessities.

VAT in Dubai is 5%.

Other taxes

In Andorra, there are no wealth taxes, inheritance or gift taxes.

Dubai does not levy any wealth, inheritance or gift taxes.

Immigration Rules

EU citizens can enter relatively easily, as can non-EU citizens.

Read our article on how to successfully expat in Andorra?

Foreign residents must obtain a residency visa which is usually tied to employment, real estate ownership, or significant investments in the country. There are different categories of visas, including work visas, real estate ownership visas, and investment visas. It is important to note that Dubai may impose restrictions related to religion, especially in public and commercial practices, so it is necessary to be well informed before moving your family there.

Passport Retention

Andorra does not retain the passports of residents, it is just necessary to provide all the necessary documents for your expatriation, for the classic administrative processing.

As part of the visa and residency process in Dubai, it is common for authorities to withhold applicants’ passports during processing. This may be necessary to process paperwork, such as issuing residency visas or work permits. It is important to know that many testimonies talk about the Kafala system. It is important to stay informed about this system.

Security

Andorra is renowned for being an extremely safe and stable destination, providing a secure environment for residents and expats alike. On the other hand, Dubai can be subject to security fluctuations due to the unstable international climate and regional tensions, but the city is known to be extremely safe.

Financial management

Andorra is known for its clear financial management. The banks, regulated by the Association of Andorran Banks (ABA), are subject to strict standards of transparency and compliance. In addition, the Andorran Financial Authority (AFA) supervises the national finance with rigour, ensuring its own management of the financial system.

On the other hand, Dubai is often criticized for its opaque financial system. Although Dubai has taken steps to increase transparency in recent years, financial management remains less transparent than Andorra’s.

The choice between Andorra and Dubai depends mainly on your individual priorities. If you are looking for a stable tax system with low taxes, a high quality of life, and transparent financial management, Andorra may be a good choice. On the other hand, if you are attracted by a tax-free tax environment, numerous business opportunities and a sunny climate, Dubai may be more attractive despite the considerations related to the geographical location and the totally different financial management that is related to the local political system.

It is important to note that this article does not constitute tax advice and you should always consult with a professional tax professional before making any decision. Considerations about immigration rules, passport retention, security, financial management, and other factors add an important dimension to the decision you have to make.