ANDORRA: ECONOMY AND INVESTMENT

On this page:

- GEOGRAPHY
- POPULATION LANGUAGE AND CULTURE
- GOVERNMENT
- ECONOMY AND CURRENCY
- ENTRY AND RESIDENCE
- BUSINESS ENVIRONMENT
- FOREIGN INVESTMENT REGIME

Andorra Geography

Andorra Population, Language and Culture

In July, 2005, the population of Andorra was estimated at 70,500; it is growing slowly through a combination of immigration and natural increase. Only 32% of the population is Andorran, while 44% are Spanish, 11% Portuguese, 7% French, and the remainder split among a variety of nationalities. The official language is Catalan although French and Castilian (Spanish) are also spoken.

Charlemagne is said to have given the Andorrans their independence in 748 as reward for fighting the Moors who invaded Spain in 711. During the middle ages, the counts of Foix in France and the bishops of Urgel in Spain squabbled over Andorra, but in 1278 the bishop and the count agreed to become co-princes of Andorra. The Count's rights ended up with France, but the bishopric still has its rights. In practice, Andorra has had de facto independence since 1278.

Finally, after 700 years of non-involvement in anything very much, Andorra gave itself a constitution in 1993, and is a member of the UN. Theoretically, the two 'co-princes', France and the bishop of Urgel, retain responsibility for defence and foreign affairs.

Andorra has a well preserved architectural heritage. Fine examples of Roman art can be seen throughout the country, in its many small churches and medieval bridges. Most of the festivals and popular traditions coincide with religious events and the earth's natural cycles.

The country's scenic beauty and resorts, together with freedom from customs and excise duties, attract more than 9m tourists each year. This apparently enormous number no doubt includes many day-trippers from France and Spain in search of cheap cigarettes.

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Andorra Government

Andorra is an independent European state with a democratically elected parliament; the titular heads of state are represented locally by officials called vergeurs. The uni-cameral legislature (the Consell General de las Valls) with 28 members is elected every 4 years, half directly by the parishes, and half through a national constituency list. The co-princes appoint a Cap de Govern (Prime Minister) on a recommendation from the Consell General, and the Prime Minister then appoints an executive cabinet.

The legal system is based on the French and Spanish civil codes, with an independent judiciary under the 1993 Constitution. Andorra is a business-friendly jurisdiction, but legal processes may become somewhat complex at higher court levels.

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Andorra Economy and Currency

With only a tiny amount of arable land, Andorra's agrarian economy was historically based on livestock, especially sheep, pigs and cattle. In modern times, animal farming is still important, along with tobacco production, but tourism has come to dominate the economy, accounting for no less than 80% of GDP. The main tourist magnet is the absence of duties or VAT, although Andorra's relative advantage vis a vis France and Spain has diminished as those countries have begun to liberalise their markets.

Andorran per capita GDP of $27,000 is in the middle European range. However, Andorra is prosperous, with minimal government and taxation. Manufacturing (much of it tobacco-related) and the growing financial services sector each account for about 5% of GDP. Most goods have to be imported, and there is a structural trade deficit. Government finances are healthy, with a primary surplus most of the time, and a small amount of national indebtedness. Growth rates have been volatile: Andorra's economy tends to be heavily influenced by its neighbours. Currently the economy is healthy, with growth at 5% or more.

In August, 2004, ratings agency Standard & Poor's raised its long-term sovereign credit rating on Andorra to "AA" from "AA-" following an improvement in the country's fiscal position. Noting a "a wealthy economy, a competitive services sector and a stable political and institutional framework,” the S&P analysis stated: "The upgrade reflects Andorra's improved fiscal position, supported by recent fiscal reforms aimed at preserving the general government surplus and net creditor position." Furthermore, the ratings agency affirmed its "A-1+" short-term sovereign credit rating on the principality whilst also maintaining a stable outlook. "The upgrade also reflects the principality's healthy medium-term growth prospects," said S&P.

Andora is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods and as a non-EU member for agricultural products. Therefore it applies the common external tariff of the EU for non-agricultural goods.

Andorra has no official currency, and a wide range of currencies are accepted internally. The Euro is now the most commonly used, and the national accounts are kept in Euros.

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Andorra Entry and Residence

Tourist visas are issued freely, but for longer-term stay it is necessary to have either a work permit (which will ensure issue of a residence permit) or a Passive Residence Permit (PRP). Permanent residence means a stay of more than 183 days in the year.

Work permits are not easy to get. In principle they are issued only to EU and EFTA nationals, and then only if there is no Andorran national available for the job. They are issued only to individuals working for an Andorran person or company, and not to self-employed foreigners. It may be possible to form an Andorran company and then employ yourself and others.

The Law on Passive Residence Permits 1996 allows 200 new residence permits per year. Passive residents do not work or carry out professional activity in the principality. New entrants must:

• show minimum annual income of 24,000 euros for the head of the family and 6,000 euros for each dependent family member;
• prove good conduct in their previous domicile;
• produce health insurance and a pension plan;
• own or rent a house or apartment in the principality;
• pay a non-interest-bearing deposit of 24,000 euros plus 6,000 for each dependant to the Government, which is refundable on departure.

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Andorra Business Environment

The business environment in Andorra is quite liberal. There are no corporate income taxes, but there are moderate annual fees and charges (see Types of Company, Direct Corporate Taxes and Offshore Legal and Tax Regimes). Regulation is light. Since there is no currency, there are no exchange or capital controls. Telecommunications are good, and Internet hosting is available.

Although there is some industrial and commercial activity, particularly around the tourist trade, the best-developed sector is banking, especially private banking, taking advantage of Andorra's strict banking secrecy rules. Other financial services are not particularly sophisticated, although the Government has encouraged the insurance sector.

In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% will be remitted onwards to the States concerned.

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Andorra Investments by Foreigners

The Andorran administration has no formal investment incentive schemes other than offering some financial support for the development of tourist facilities. Foreign investment into the financial services sector is highly circumscribed (see Offshore Business Sectors), and foreign involvement in domestic business (as opposed to offshore activity) is limited to minority stakes in most sectors.

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