Andorra: Offshore Business Sectors
A typical structure is triangular: trading, licensing or investment operations in high-tax countries are carried out from a jurisdiction which has reasonable double taxation treaties, but low withholding taxes on ongoing payments (e.g. Malta), and the proceeds are remitted to an Andorran company, which pays no tax at all. There are numerous permutations, and there are in fact many tens of thousands of Andorran companies formed for this type of purpose.
For many years there has been talk within Andorra of weakening the local ownership rules, which effectively limit Andorra's international business to small-scale operations which can tolerate a degree of legal uncertainty; but it was not thought likely that the powerful and very rich interests that dominate Andorran commercial life will be willing to accept much diminution (as they would see it) of their prerogatives.
In November 2007, the Foreign Investment Law was introduced, enabling foreigners to hold 100% of a business in one of the 200 designated economic sectors, including among others, industrial production, research and development, e-commerce, audiovisual production, plastic surgery and education and training. Previously the limit was 33%.
Government legislation providing for a corporate income tax, initially on non-resident entities, at a rate of 10% came into force as of April 1, 2011. New rules applicable as of January 1, 2012 include a corporate income tax on resident legal entities set at 5% (which rose to 10% from January, 2013). Special tax-privileged regimes are in place for companies involved in international trade, entities holding rights to intangible sources of income, and some financial institution classes. A new regime for holding companies provides for tax exemption for dividends distributed by non-resident entities.
The Value-Added Tax regime came into force in January, 2013. To phase out the existing consumption tax, the Value-Added Tax rate is imposed on a broader spectrum of goods and services, at a rate of 4.5%. A concessionary rate of 1% is available on food, books, newspapers, and magazines. A rate of 0% applies to a number of healthcare goods and services; on basic living essentials such as rent; and welfare goods and services.