Moving to Andorra: French Tax Residency, Exit Tax and Restructuring

I. A departure is only effective if French tax residency genuinely ends — under domestic law and under the treaty

A. The alternative tests of Article 4 B CGI: a single connecting factor keeps you taxable in France

French law takes an expansive view of tax residency. Under Article 4 B CGI, individuals are treated as French tax residents if they have their household (foyer) or principal place of stay in France, if they carry on a professional activity there other than on an ancillary basis, or if France is the centre of their economic interests. These tests, household, principal stay, principal professional activity and centre of economic interests, are alternative, not cumulative: meeting any single one of them is sufficient to establish French residency and, with it, the worldwide tax liability of Article 4 A CGI.

Household and principal place of stay. The household is the place where the taxpayer normally lives and where the centre of his family interests is located, regardless of temporary stays elsewhere dictated by professional necessity (Conseil d'État, 3 November 1995, no. 126513, Larcher). An executive who settles alone in Andorra while his spouse and minor children remain at school in France will, absent special circumstances, retain his household in France. The principal place of stay, a subsidiary test applied when the household cannot be located, is typically evidenced by presence in France exceeding 183 days, although the courts also compare relative lengths of stay across jurisdictions when no threshold is crossed.

Professional activity and centre of economic interests. Retaining an effective corporate office in a French company, deriving predominantly French-source remuneration, or keeping the bulk of one's income-producing assets in France will each, taken alone, preserve French residency. The centre of economic interests is the most formidable test for departing taxpayers: it looks to the place where the taxpayer made his principal investments, where the seat of his business affairs is located and from where he administers his assets, but also to the place from which he derives the greater part of his income. A substantial French rental portfolio, or a French holding company retained after departure, can therefore fuel a challenge, which is precisely why the pre-departure restructuring discussed in Part IV is so decisive.

B. In a dual-residency situation, the France-Andorra treaty applies a strict cascade of tie-breaker tests

Where a taxpayer is simultaneously a French resident under Article 4 B CGI and an Andorran resident under Andorran law, the treaty specifying that Andorran residency is acquired, in particular, by spending more than 183 days in the Principality —, the convention between France and Andorra signed on 2 April 2013, in force since 1 July 2015 and modified by the Multilateral Instrument (MLI) signed by both states on 7 June 2017, breaks the tie. Its Article 4(2), in line with the OECD Model, sets out a strictly hierarchical cascade: the permanent home first; then, where the taxpayer has a permanent home in both states, the centre of vital interests, meaning the state with which his personal and economic relations are closer; then the habitual abode; then nationality; and finally, failing all else, a mutual agreement procedure between the competent authorities.

The order of the cascade is mandatory: one only moves to the next test if the previous one fails to resolve the matter. In practice, disputes crystallise on the first two rungs. A permanent home requires accommodation durably at the taxpayer's disposal in each state; keeping the use of a French residence, even a secondary one, is enough to establish a dual home and shift the analysis to the centre of vital interests, which is assessed globally and factually: location of the family, social ties, professional activities, income sources and assets. Our settled view as practitioners is that treaty residency is not argued after the fact, it is documented in advance, through a coherent body of physical evidence: an Andorran lease or purchase deed, children's schooling, transferred bank accounts, deregistration from French registers, and day-count records.

One limitation deserves particular emphasis because it is systematically underestimated: the 2 April 2013 convention covers income taxes only. The French real estate wealth tax (IFI) and gift and inheritance taxes fall outside its scope, so that an Andorran resident remains liable to IFI on French real estate assets (CGI, art. 964), and the territoriality rules of Article 750 ter CGI continue to govern estates and gifts, including, in certain configurations, by reference to the French residency of the heirs or donees. Moving to Andorra does not, in any way, extinguish French wealth-transfer taxation attached to assets kept in France.

C. Article 25 of the treaty: an atypical nationality clause, currently dormant but legally alive

The France-Andorra treaty contains a provision found in no other French tax treaty in force, and which nearly derailed ratification in the French Senate in December 2014. Article 25(1)(d) provides that France may tax individuals of French nationality who are residents of Andorra as if the convention did not exist, and that when French tax law permits the application of this provision, the competent authorities of both states shall settle its implementation by mutual agreement (France-Andorra treaty, 2 April 2013, art. 25(1)(d)). In other words, France has contractually reserved the ability to introduce citizenship-based taxation, on the American model, with respect to its nationals established in the Principality.

The current reach of this clause must be assessed rigorously, without either alarmism or complacency. As the law stands, it has no effect: Articles 4 A and 4 B CGI base tax liability on residency, not nationality, and the French government confirmed during the parliamentary debates that no project to tax French citizens abroad existed, the clause having been presented as a drafting precaution designed to accommodate a possible future evolution of French tax law. Its implementation would in any event require two cumulative steps: a domestic legislative reform passed by the French Parliament, followed by an agreement between the French and Andorran competent authorities on its practical operation.

We nonetheless consider that this clause deserves a measured place in any long-term plan. Its activation would require a double lock, a substantive reform of French tax law, followed by a mutual agreement between Paris and Andorra la Vella on its implementation, which makes it a contained and observable risk rather than an imminent threat. In practice, regular treaty monitoring and sufficiently flexible asset structures allow its potential effects to be anticipated, without this peculiarity calling into question the attractiveness of the Andorran destination. It is a singularity that any serious adviser discloses to the client before departure and tracks over time, which is precisely one of the purposes of the post-relocation monitoring we provide.

II. Relocating to Andorra after the 2026 reform: tougher but predictable entry routes

A. Residency without gainful activity: a €1,000,000 investment since Law 2/2026

Andorran immigration law, governed by Qualified Law 9/2012 as repeatedly amended, draws a fundamental distinction between residence permits without gainful activity, so-called passive residency, and residence-and-work permits. Law 2/2026, known as the "Omnibus 2" law, adopted on 22 January 2026 and in force since February 2026, has substantially tightened the economic conditions for passive residency, building on Law 5/2025 on housing and sustainable growth. The investment threshold, raised from €400,000 to €600,000 in 2022, now stands at €1,000,000 in Andorran assets, financial instruments, shareholdings in Andorran companies or Andorran public debt; where the investment is made in real estate, each property unit must be worth more than €800,000, and an alternative route remains available at €400,000 where the capital is committed to the Andorran housing fund (Fons d'Habitatge).

In addition to the investment, the passive resident pays a contribution of €50,000, increased by approximately €12,000 per dependant, to the Andorran government; the 2026 reform converted the former refundable deposit with the Andorran Financial Authority (AFA) into a non-refundable payment, which materially changes the economics of the status for a family. Applicants must further evidence annual income exceeding 300% of the Andorran minimum wage, plus 100% per dependant, hold or rent a home in the Principality, take out private health insurance, and maintain an effective physical presence of at least around 90 days per year. Applications filed before the reform's entry into force remain governed by the previous requirements, the law not being retroactive. Renewals, finally, are now tied to linguistic integration requirements, with proof of an official level of Catalan being progressively required.

One observation matters greatly to the tax adviser: the 90-day minimum presence required by Andorran immigration law falls far short of treaty tax-residency standards. A passive resident who spends only three months a year in the Principality while keeping his household, ties and assets in France would be highly vulnerable to a French challenge: an Andorran residence permit is not, in itself, an enforceable tax residency. We systematically recommend aligning the reality of one's life with the tax objective, above all through effective presence exceeding 183 days and a genuine transfer of the centre of vital interests, rather than relying on an administrative residence certificate.

B. Active residency routes: self-employment, salaried work and international remote work

An entrepreneur intending to carry on a business from the Principality will turn to the residence-and-work permit on a self-employed basis (residència i treball per compte propi). This status classically requires forming or acquiring an Andorran company in which the applicant holds more than 34% of the capital, serving as a director of that company, paying the €50,000 contribution, now extended to the self-employed and made non-refundable by Law 2/2026, and residing effectively and permanently in Andorra, assessed against the 183-day benchmark. Affiliation to the Andorran social security system (CASS) follows, with contributions markedly lower than French social charges.

Two further routes complete the framework. Salaried residency, subject to quotas (cupos) periodically set by the government, covers individuals hired by an Andorran employer. Law 42/2022 on the digital economy additionally created a residence permit for international remote work, allowing employees or freelancers working remotely for foreign principals to settle in the Principality without creating a local structure, subject to qualification and means requirements. The choice between these statuses is never tax-neutral: it determines where the activity is carried on, and therefore the risk of a residual French permanent establishment if functions continue to be performed in France, as well as the treaty characterisation of the resulting income.

Once residency is secured, the appeal of the Andorran tax system remains intact despite the tougher entry conditions: personal income tax (IRPF) is capped at 10%, with a nil band up to €24,000 and a 5% intermediate band up to €40,000; corporate income tax is set at 10%; the general indirect tax (IGI), Andorra's VAT equivalent, stands at 4.5%; and the Principality levies neither a wealth tax nor inheritance or gift taxes. For a French executive facing a combined marginal burden that can exceed 60% in France, the differential is considerable, strictly provided the departure is legally watertight.

C. The Andorran side entrusted to our partner MCA Andorra: a single coordinated team on both sides of the border

A relocation file to Andorra has, by construction, two inseparable faces: a French face, securing the loss of residency, the exit tax, pre-departure restructuring, exit filings, and an Andorran face, choice of permit, preparation of the immigration file, company formation, bank onboarding in a demanding compliance environment, property search, social security affiliation. Our firm has chosen not to improvise on Andorran law: we work in close partnership with MCA Andorra, a firm established in the Principality, which handles the entirety of the Andorran side of our files, from assembling the residency application to its filing with the immigration service, including local corporate structuring and banking support.

This binational organisation has one decisive advantage: the French and Andorran timetables are steered together, avoiding sequencing failures, a permit obtained before exit-tax security has been posted or, conversely, a tax departure consummated before the Andorran status is secured. The client keeps a single legal point of contact on the French side, Alphard Law, and benefits in Andorra from a team fully conversant with Law 2/2026 and local market practice.

III. The French exit tax: a move to Andorra requires posting security

A. Scope: unrealised gains, earn-out receivables and deferred gains

Article 167 bis CGI subjects to income tax and social levies, upon the transfer of tax residency out of France, the unrealised capital gains on shares, securities and similar rights held by the taxpayer, receivables arising from earn-out clauses, and capital gains previously placed in tax deferral, notably under the share-for-share contribution regime of Article 150-0 B ter CGI. As regards unrealised gains, the regime only applies to taxpayers who were French tax residents for at least six of the ten years preceding the transfer and who hold, on the departure date, either shareholdings carrying at least 50% of a company's profit rights, or a portfolio of securities whose aggregate value exceeds €800,000; deferred gains, by contrast, are caught without any threshold or residency-duration condition.

The taxable event is set on the day before the transfer of residency, on which date the unrealised gains are measured, as the difference between the fair value of the securities and their acquisition cost, and the tax assessed, in principle at the 12.8% flat tax plus 17.2% social levies, subject to a global election for the progressive scale with, where applicable, holding-period allowances for securities acquired before 2018. Valuing unlisted shares as of the departure date is a first-order issue: an under-documented valuation invites reassessment, while an excessive one needlessly inflates the security to be posted. We treat this point with particular care, supported by a formal valuation report.

B. No automatic deferral when moving to the Principality: the 2013 treaty contains no recovery-assistance clause

The tax so assessed is, in the generality of cases, not paid upon departure: it is placed under a payment deferral (sursis de paiement). But the deferral regime depends entirely on the destination state. The deferral is automatic, no formalities, no security, where the taxpayer moves to an EU member state or to any other state or territory that has concluded with France both a convention on administrative assistance to combat tax fraud and evasion and a convention on mutual assistance in tax recovery of similar scope to Directive 2010/24/EU, and which is not a non-cooperative jurisdiction (CGI, art. 167 bis, IV). Andorra, which belongs neither to the EU nor to the EEA, meets the first limb of the test, Article 26 of the 2 April 2013 treaty provides for OECD-standard exchange of information, but not the second: the France-Andorra treaty contains no mutual recovery-assistance clause.

The consequence is mechanical and too often discovered late: a move to Andorra falls under the elective deferral of Article 167 bis, V CGI, subject to three cumulative conditions. The taxpayer must report the gains on form no. 2074-ETD, filed in principle within the ninety days preceding the transfer of residency; he must appoint a tax representative established in France, authorised to receive communications from the authorities; and above all he must post, with the public accountant, security adequate to ensure recovery of the Treasury's claim, computed by applying a 12.8% rate to the gross amount of the gains and receivables concerned, with any supplement adjusted once the assessment notice is issued. In practice, that security takes the form of a bank guarantee, a pledge over securities or securities accounts, or a mortgage over French real estate, and negotiating its nature, basis and release with the administration is a workstream in its own right.

Once obtained, the deferral is not a vested right: it is maintained subject to annual reporting on form no. 2074-ETS, and it lapses, the tax becoming immediately payable, upon a sale for consideration, a buy-back, a redemption or a cancellation of the securities, as well as, for deferred gains, upon the events specific to that regime. Gifting securities during the deferral calls for specific care: for unrealised gains, a gift in principle triggers relief, unless the administration establishes, where the donor is established outside the EU, that the gift was made primarily for tax purposes. Reporting discipline is, here, a survival condition of the deferral, and non-compliance can cause its forfeiture.

C. Relief at the end of the holding period: two years or five years depending on portfolio value

The overall design of the regime, as reshaped by the 2019 Finance Act, rewards the patient taxpayer. If the securities are still held two years after departure, the tax on unrealised gains is automatically discharged; that period is extended to five years where the aggregate value of in-scope securities exceeded €2,570,000 on the transfer date (CGI, art. 167 bis, VII). The discharge entails the release of the security posted and the closure of the reporting cycle for unrealised gains; the same applies upon a return to France before any triggering event, the securities then being treated as never having left the ordinary tax net. Social levies follow the same regime as income tax.

It must be stressed, however, that this relief does not extend to gains placed in tax deferral, notably under Article 150-0 B ter CGI: those remain taxable upon the subsequent disposal of the securities, however long after the departure it occurs. A taxpayer whose holding company results from a contribution-and-sale (apport-cession) must therefore reason in two distinct layers, a dischargeable unrealised gain and an indelible deferred gain, and calibrate post-departure disposals accordingly. This point, frequently overlooked, changes the order of magnitude of the long-run tax exposure and must be mapped before any disposal decision is taken from Andorra.

IV. Restructuring before leaving: the order of operations dictates the tax outcome

A. Chronology is itself a tax parameter: what must be done before departure cannot be done after

Preparing a move to Andorra is an exercise in sequencing. The transfer of tax residency freezes a snapshot of the estate, exit-tax base, share valuations, identification of deferred layers, and switches the taxpayer into the non-resident regime, with its withholding taxes and territoriality rules. Every transaction therefore has two radically different tax faces depending on whether it occurs before or after that pivotal date. Dividends distributed before departure bear French resident taxation, while those paid afterwards fall under the withholding tax of Article 119 bis CGI, reduced by the France-Andorra treaty to a rate appreciably more favourable than domestic law; conversely, a sale of securities carried out after a properly executed departure escapes French capital gains tax, subject to the substantial-shareholding rule of Article 244 bis B CGI and to deferred layers, Andorra then holding the taxing right under its own rules.

Three sequencing rules structure our practice. First, clean up and simplify before leaving: bring the portfolio below the thresholds where relevant, realise latent losses to compress the base, and unwind ambiguous positions, shareholder current accounts, intra-group arrangements, liable to feed the centre-of-economic-interests test. Second, handle with the utmost care securities carrying gains in tax deferral, namely those arising from pre-departure contributions to a controlled company under Article 150-0 B ter CGI, any sale, capital reduction or assimilated transaction carried out from Andorra terminates the deferral and makes the corresponding tax immediately payable, with no benefit of the two- or five-year relief; the same discipline applies to the exit-tax payment deferral itself, whose forfeiture must be assessed before any transaction on the securities concerned. Third, file form 2074-ETD and finalise the security negotiation before crossing the border; otherwise the deferral election itself may be compromised and the tax immediately payable.

B. Transferring a company's registered office to Andorra: continuity of legal personality, taxation at company level only

An executive settling in Andorra frequently asks what should become of his French company: keep it, liquidate it, or transfer its registered office to the Principality? A cross-border seat transfer (redomiciliation) is legally feasible: Andorran law accepts the inbound redomiciliation of foreign companies, and French company law permits an outbound seat transfer by shareholder decision, in practice requiring unanimity for the usual corporate forms, the derogatory mechanism of Article L. 225-97 of the French Commercial Code presupposing a special inter-state convention of which France has signed none to date. Where both legal orders allow it, legal personality is maintained: the company is not dissolved, no liquidation occurs; it simply changes its governing law and its residence.

The tax consequences of the operation then concentrate at the level of the company. Since Andorra is neither an EU member state nor an EEA state bound to France by a recovery-assistance convention, the transfer of the seat out of France triggers the consequences of a deemed cessation of business (CGI, art. 221, 2): immediate taxation of the current period's operating profits, of profits held in suspense and of the unrealised gains embedded in the company's assets, except for assets that remain booked in a permanent establishment retained in France. The cost of this corporate exit charge must be computed line by line before any decision: for a holding company carrying highly appreciated participations it can be prohibitive, and may argue for keeping the structure in France or adopting a different architecture altogether.

At the shareholder's personal level, by contrast, the continuity of legal personality acts as a shield: absent any dissolution, there is no liquidation and no taxable liquidation surplus (boni de liquidation) in the shareholder's hands, and the seat transfer is not, in itself, a personal taxable event. That is the whole point of redomiciliation as against the alternative route, liquidating the French company and re-incorporating in Andorra, which would trigger shareholder-level taxation of the liquidation surplus on top of the corporate charges. This analysis naturally assumes that legal continuity is flawless on both sides of the border, which again calls for tight coordination between French and Andorran counsel, and it does not dispense with a case-by-case review of residual friction points, first among them the possible continuation of a French permanent establishment.

C. The cross-collateral trap: transferring the seat of a company whose shares secure the exit tax requires substituting the security

One friction point, in our experience rarely commented upon, deserves close attention because it arises precisely in Andorran files, where the exit-tax deferral is never automatic. Where the taxpayer obtained the elective deferral by pledging to the French Treasury the shares of his French company, those shares are the very substance of the security. A subsequent transfer of that company's seat to Andorra transforms the collateral: the pledged shares become shares in an Andorran-law company, outside French jurisdiction, whose value may moreover have been eroded by the corporate exit charge of Article 221, 2 CGI. A security resting on the shares of a now-foreign company no longer offers the public accountant the qualities required to ensure recovery of the claim.

The practical consequence is imperative: before implementing the seat transfer, the taxpayer must offer the administration a substitute security, a bank guarantee, a pledge over other financial assets remaining within cooperative jurisdictions, a mortgage over French real estate, and obtain its agreement, failing which the deferral may be revoked and the exit tax become immediately payable. The order of operations closes here like a loop: post-departure corporate restructuring cannot be designed independently of the security posted at departure, and the overall architecture, personal departure, security, redomiciliation, disposals, must be settled at the outset rather than improvised step by step.

Practical recommendations: anticipate rather than endure. Our method follows a tested sequence. The preliminary audit, twelve to eighteen months before the contemplated departure, maps the Article 4 B connecting factors likely to survive the move, quantifies the exit tax and identifies the deferred layers. Pre-departure restructuring deals with problematic assets, documents the share valuation and settles the security strategy. The departure itself is executed with an Andorran residency evidence file built from day one, the local side being handled entirely by our partner MCA Andorra. Post-departure monitoring, finally, secures the annual filings, manages the relief clock and vets any corporate transaction, seat transfer included, against the security in place. Our firm supports clients along this entire chain, from the first audit meeting to the final discharge of the exit tax.