Passive vs active residence: which to choose?

Passive vs active residence in Andorra: which to choose?

Andorra offers two main categories of residence to foreigners wishing to settle in the Principality: passive residence (known as 'without gainful activity') and active residence (known as 'with gainful activity'). This fundamental choice determines your rights, obligations, taxation and way of life in Andorra. Understanding the differences, advantages and constraints of each status is essential to making the right decision. This detailed comparative guide helps you see things clearly.

What is passive residence in Andorra?

Andorran passive residence is designed for individuals who wish to live in Andorra without carrying out any professional activity there. It is intended for investors, annuitants, affluent retirees and all persons with sufficient income from abroad (dividends, rental income, pensions, investment returns).

This type of residence was created to attract high-net-worth individuals (HNWIs) who wish to benefit from Andorra's exceptional quality of life and advantageous taxation without necessarily developing an economic activity there.

Conditions for passive residence

To obtain passive residence in Andorra, several conditions must be met simultaneously.

The minimum investment required is 600,000 euros in Andorran assets. This investment may take several forms: property acquisition in Andorra, investment in Andorran companies, deposit with the Andorran Financial Authority (AFA), or a combination of these options. The most common form is the acquisition of real estate, which allows one to combine investment and personal accommodation.

In addition to this investment, the applicant must deposit a non-interest-bearing bond of 47,500 euros with the AFA, increased by 9,500 euros per dependant. This deposit is refundable upon departure from Andorra.

The applicant must also demonstrate sufficient annual income, generally exceeding 300% of the Andorran minimum wage (approximately 40,000 euros per year), from foreign sources. A clean criminal record and private health insurance covering Andorra are also required.

The minimum physical presence for passive residence is 90 days per year in Andorra. This relatively modest presence requirement allows considerable flexibility for persons with an international lifestyle.

What is active residence in Andorra?

Active residence is intended for persons wishing to carry out a professional activity in Andorra, whether as an employee, self-employed worker or company director. It is the most common status and the one that provides the most complete attachment to the Andorran system.

Conditions for active residence

The conditions for obtaining active residence differ and, in certain respects, are more financially accessible.

The minimum investment required is significantly lower: one must create or acquire an Andorran company with a minimum share capital of 3,000 euros (for an SL). In practice, to have sufficient working capital and demonstrate the viability of the project, an initial investment of 30,000 to 50,000 euros is recommended.

The applicant must deposit a bond of 47,500 euros with the AFA (identical to passive residence), plus 9,500 euros per dependant.

Active residence requires physical presence in Andorra of at least 183 days per year. This requirement is more demanding than for passive residence and means that Andorra must become one's genuine centre of life. The active resident must effectively carry out their professional activity from Andorra.

A viable business plan must be presented to the authorities, demonstrating that the proposed activity will contribute to the Andorran economy. The applicant must also hold at least 34% of the company's share capital if they are its director, and the director or administrator of the company must reside in Andorra.

CASS: a major difference between the two statuses

The Andorran social security system (CASS) represents one of the most significant differences between the two residence statuses.

Active residents are automatically affiliated to CASS as employees or self-employed workers. They contribute to the system (22% of gross salary, split between employer and employee contributions) and in return benefit from 75% healthcare coverage, pension rights and social benefits. Active residents and their families are fully integrated into the Andorran social protection system.

Passive residents, by contrast, are not automatically affiliated to CASS. They must take out private health insurance covering Andorra. Following recent reforms, passive residents have the option of contributing voluntarily to CASS, which gives them access to the Andorran public healthcare system. This voluntary contribution amounts to approximately 500 euros per month, which remains moderate relative to the level of coverage provided.

Tax residence vs administrative residence

It is crucial to distinguish between administrative residence and tax residence, as the two do not necessarily coincide.

Administrative residence is the residence permit issued by the Andorran government (passive or active). It authorises you to live legally in Andorra.

Tax residence determines in which country you are liable to tax on your worldwide income. To be considered Andorran tax resident, you must generally spend more than 183 days per year in Andorra and have your centre of vital interests there (family, principal assets, economic activity).

Here lies the delicate point: a passive resident who spends only 90 days in Andorra (the administrative minimum) may not be considered Andorran tax resident, and may remain subject to tax in their country of origin. To take full advantage of Andorran taxation, it is generally necessary to exceed 183 days of presence, even with a passive residence status.

This subtlety is fundamental and must be anticipated with the help of specialist tax advisers. Aurea Gestoria Group supports each client in analysing their personal situation to determine the most suitable status and ensure tax compliance.

Who is passive residence suited to?

Passive residence is ideal for several profiles. Investors and annuitants living from investment income (dividends, interest, capital gains) find an optimal tax framework. Retirees with comfortable pensions appreciate the Andorran quality of life without professional constraints. HNWIs wishing to diversify their residence and optimise their wealth taxation are also natural candidates.

Passive residence also suits persons with a highly international lifestyle, dividing their time between several countries, who wish to have a fiscally advantageous European base. Professional sportspeople, artists and content creators whose income is not tied to a specific geographical location may also benefit.

Who is active residence suited to?

Active residence is the natural choice for entrepreneurs wishing to create or develop a business in Andorra. Consultants, freelancers and digital professionals working remotely for international clients find an ideal environment. Company directors wishing to relocate their company headquarters to Andorra generally opt for this status.

Families wishing to settle permanently in Andorra, benefiting from the school system and healthcare system, also choose active residence, which offers more complete integration. Liberal professionals (lawyers, architects, doctors, accountants) who wish to practise in Andorra must necessarily obtain active residence.

The application process: timeline and stages

For passive residence, the typical process takes 3 to 6 months. The first step is to gather all required documents (apostilled criminal record, proof of income and assets, health insurance certificate). The 600,000-euro investment must be made (generally in the form of a property acquisition). The application is then submitted to the Immigration Service. The guarantee deposit with the AFA is made simultaneously. After processing (6 to 12 weeks), the residence permit is issued for an initial period of two years, renewable.

For active residence, the process generally takes 2 to 4 months. The first step is the creation of the Andorran company (SL or SA) and the opening of a professional bank account. The business plan is prepared and submitted. Personal documents are gathered (criminal record, qualifications, medical certificate). The application is submitted to the Immigration Service. The work authorisation and residence permit are issued jointly, initially for one year, then renewable in two-year periods.

In both cases, Aurea Gestoria Group handles the entire administrative process, from compiling the dossier through to obtaining the residence permit. Our thorough knowledge of procedures and our direct relationship with the Andorran authorities enable us to streamline and accelerate each stage.

Comparative advantages and disadvantages

Passive residence has several distinctive advantages. The flexibility of presence (90 days minimum) allows one to maintain an international lifestyle. There is no obligation to carry out any professional activity in Andorra. Access to Andorran taxation is possible for substantial wealth.

In return, the disadvantages include a high initial investment (600,000 euros minimum), no automatic affiliation to CASS, and the risk of not obtaining tax residence if actual presence is insufficient.

Active residence offers a more accessible initial investment, full integration into the Andorran social system (CASS), and easier establishment of tax residence thanks to the 183-day obligation. Professional activity generates local income and strengthens one's anchoring in Andorra.

Its disadvantages are the mandatory presence of at least 183 days, the need to create and manage a viable business, and the administrative obligations associated with the activity (accounting, tax returns, social contributions).

Can the two statuses be combined?

It is not possible to hold both types of residence simultaneously. However, it is possible to switch from one status to the other. A passive resident who wishes to develop an activity in Andorra may request the conversion of their permit to active residence. Conversely, an active resident who ceases their activity may, under certain conditions, switch to passive residence.

The choice between the two statuses is therefore not definitive, but it is strategic. It determines your initial settlement, your taxation and your social integration. It merits thorough consideration in advance.

Conclusion: how to choose?

The choice between passive and active residence depends on your profile, your objectives and your lifestyle. If you have substantial wealth, live from investment income and wish to retain considerable international mobility, passive residence is made for you. If you are an entrepreneur, freelancer or professional wishing to practise in Andorra and settle there permanently with your family, active residence is the natural choice.

In all cases, a personalised analysis of your situation is indispensable. The tax, wealth and social implications of the choice of residence are major and must be assessed by professionals.

The information provided is for guidance purposes only. Contact Aurea for personalised support.