Andorra: Offshore Business Sectors
It is misleading to describe Andorra as 'offshore', not because it is landlocked, which it is, but because it does not particularly set out to offer such classical 'offshore' products as trusts (it doesn't have any), international business companies (ditto) or specialised tax regimes for insurance, banking or investment funds. It doesn't need to, because until recently there was no income tax anyway, for resident individuals or companies, indeed hardly any taxes at all except for customs duties, local property taxes, and corporate registration fees. Insistence on Andorran majority ownership of all business and trading activities was the key factor in the development of the Andorran corporate sector, and accounts for the fact that, successful as Andorra is at attracting private client business for its banking sector, there is very little foreign involvement in financial services.
This began to change, however, with the introduction of the Taxation of Non-Residents Act, 2010, which came into force on 1 April, 2011, non-resident entities are subject to tax on local-source income at a rate of 10%. Resident companies and individuals engaged in business activities are subject to a 10% tax from January, 2013 (5% in 2012).
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.
In a move to attract investment into the country, a new law came into force in 2012. The Foreign Investment Law of July 2012 allows 100% ownership of any company or trading enterprise by foreign residents and non-residents alike. Any investment which is less than 10% of the capital or voting rights may be made freely and does not require approval by the authorities. Investments of 10% or above require permission from the Ministry of Finance and a decision should take no longer than six weeks to be obtained.
However, non-resident property development companies are not permitted to develop property in the country. Furthermore, non-resident companies are only permitted to buy property intended for their own business use, such as warehousing etc.
Investors, be they individuals or companies, must open an Andorran bank account to pay for their investments and will therefore be subject to due diligence carried out by the bank. Investments originating from a country suspected by the OECD to not be compliant with internationally recognised standards on money-laundering will not be approved.
The latest FDI Law further enhance the steps taken in 2008 when Andorra began a series of economic reforms as outlined in the “Andorra 2020” strategy, the objective of which is an ambitious programme designed to rejuvenate the economy by attracting foreign investors, increasing Andorra’s competitiveness, reinforcing the legal business framework, and diversifying and modernising the Andorran economy.
The Foreign Investment Law, which came into effect in 2008, allowed the opening up of 200 sectors of the Andorran economy to entrepreneurs and businesses from other countries. This was viewed by the government as an important step in Andorra's programme of reforms which are aimed at opening, modernising and diversifying the national economy. These reforms were driven through by the Head of Government Albert Pintat during his term of office.
The Foreign Investment Law completed the legislative package which also contained two laws that had already been adopted: The Law of Companies and The Law of Business Accounting. This package was intended to increase the international competitiveness of Andorra, attract foreign investors into high value added sectors and strengthen the legal framework for business.
As a result of the new legislation, foreigners were permitted 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%.
The government set up a support programme, the Bureau for Business Innovation (OIE) (replaced by Andorra Development and Investment in 2009), to enable foreign investors to become established in the Principality and to encourage the development of new business sectors. In the latter half of 2008, the programme was providing support to more than ten foreign investors. The ADI can be contacted at:
Andorra Development and Investment
C/ Prat de la Creu, 59-65, escala A, 1r pis
AD500 Andorra la Vella
Tel: +376 81 20 20 Fax: +376 81 20 21
Commenting on the reforms, Pinant said: "Andorra enjoys a number of advantages: a multicultural population with a high level of education, a flexible labour market combined with a good social security system, a legal framework which is appropriate for developing business activity, respect for international regulations on transparency, and a fantastic quality of life in the heart of the Pyrenees, close to Barcelona and Tolosa."
The Head of Government added: "In addition, Andorra has a customs agreement with the European Union and bilateral agreements with France, Spain and Portugal for the free movement of people and for the social security systems. There is a high level of public security as well as political and institutional stability. For all of these reasons, we believe that business leaders and entrepreneurs will be interested in coming to our country. We are ready to welcome these people and support them in the development of their business activities in Andorra."
So all business in Andorra is low tax, and in Offshore Business Review we examine two ways in which investors can take advantage of the Andorran low-tax environment.
For details of taxation of Andorran entities (or lack of it) see Offshore Legal and Tax Regime.