Andorra charges 10% corporate tax. Cyprus charges 15%. On paper, Andorra looks cheaper.
But effective tax rates tell a different story. And the structural differences between the two jurisdictions explain why founders who do their homework almost always end up in Cyprus.
Andorra's Tax System in Plain Terms
Andorra levies a flat 10% corporate tax (Impost de Societats) on net profits. Personal income tax is also capped at 10%, with the first EUR 24,000 fully exempt and a 5% rate applied to income between EUR 24,000 and EUR 40,000. Dividends distributed from an Andorran company to a resident shareholder carry no additional personal tax if the company has already paid corporate tax.
Capital gains on share disposals held over 10 years are exempt. Social contributions run roughly 10% employee-side and 15.5% employer-side, with self-employed individuals paying around 22% of a declared base.
For an entrepreneur earning EUR 100,000 in business income, the total tax load when extracting as dividends runs between 10% and 15% depending on structure and salary mix.
Why Cyprus Still Wins the Math
Under Cyprus Non-Dom status, business income routed through a Cyprus Ltd is taxed at 15% at the corporate level. Dividends paid to a Non-Dom shareholder are exempt from income tax and from the Special Defence Contribution (SDC). The only personal levy is 2.65% GHS (the national health contribution).
For EUR 100,000 of revenue: the company pays roughly EUR 12,750 in corporate tax after deductions, then distributes dividends with approximately EUR 2,250 in GHS. Total: around EUR 15,000. Effective rate: approximately 5%.
The difference to Andorra is 5 to 10 percentage points annually. Over five years extracting EUR 100,000 per year, that represents EUR 25,000 to EUR 50,000 in additional savings.
The Residency Barrier in Andorra
Andorra requires genuine physical residence. Passive residency requires depositing EUR 400,000 into an Andorran institution. Active residency requires demonstrating economic activity and spending 90 days per year on Andorran territory.
This is workable for founders who genuinely want to live there. But the EUR 400,000 passive residency deposit is capital locked up earning below-market returns, which changes the net calculation.
Cyprus uses the 60-day tax residency rule as a lower-threshold alternative. Spend 60 days on the island, maintain no other tax residency, and keep a business nexus in Cyprus. No minimum deposit. The first step is obtaining the Yellow Slip, the registration certificate for EU citizens, which unlocks banking and Non-Dom status eligibility.
EU Membership Changes the Calculus
Andorra is not an EU member state. It has a customs agreement with the EU but sits outside the single market, outside the EU VAT system, and outside the network of EU tax directives.
For a business operating across Europe this creates friction:
Parent-subsidiary directive: EU companies receive dividends from EU subsidiaries with 0% withholding tax. Andorran companies do not qualify.
VAT One-Stop Shop (OSS): EU businesses selling digital services B2C across Europe register once and file centrally. Andorran companies face separate VAT registrations per country.
Banking access: Andorran banks have fewer correspondent relationships. Opening accounts in major EU financial institutions as an Andorran entity is harder than as a Cypriot company.
For any founder with EU clients, EU staff, or EU expansion plans, the Cyprus structure is substantially more practical.
The 2026 Numbers Side by Side
| Andorra | Cyprus (Non-Dom) | |
|---|---|---|
| Corporate tax | 10% | 15% |
| Personal income tax | 0% (dividends) | 0% |
| Dividend levy | 0% | 2.65% GHS |
| Effective rate | ~10-15% | ~5% |
| Residency requirement | 90 days + EUR 400K deposit | 60 days, no deposit |
| EU membership | No | Yes |
| VAT system | 4.5% IGI (own) | 19% EU VAT |
Company Setup
Cyprus company formation typically costs EUR 1,500 to EUR 2,500 including registered address and secretary. Annual compliance runs EUR 1,500 to EUR 3,000. Andorran setup and running costs are broadly comparable.
The cost difference between the two structures is recovered in under one month at any income level above EUR 50,000 annually.
The Bottom Line
Andorra suits founders who genuinely want to live there for lifestyle reasons: outdoor sports, proximity to Barcelona, lower property costs than Western European capitals. If you plan to spend most of the year in Andorra regardless of tax, the regime works.
For EU-focused founders, developers, consultants, and remote workers who need EU banking, EU contracts, and a credible European business address, Cyprus is the stronger choice. The effective rate is lower, the residency threshold is lower, and the EU infrastructure is fully accessible.
The ~5% effective rate under Non-Dom is not a workaround. It is the designed outcome of Cyprus tax law for qualifying residents who structure their income correctly.
