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Andorra: Country and Foreign Investment

Executive Summary

Economy Based on Tourism

Tourism accounts for 80% of the economy one way or another. There is some local manufacturing (including tobacco processing) but Andorra is structurally import-dependent. There is low unemployment; inflation tends to mirror that in France and Spain. Andorra joined the Euro in January 2002, and signed a Monetary Agreement with EU in June 2011. There was a government deficit spanning 2006-2009 due to the economic crisis which affected tourist numbers significantly. The crisis also had an effect on other industry and a drop in population of around 7,000 inhabitants was recorded during those years. National debt is very low - estimated by Standard & Poor's rating agency to be around 2% in 2011. A further decline was during 2012. GDP per head at USD37,200 (2012 and 2011 est.) is among the highest in the world. Until recently, Andorra protected its domestic business sector with ownership restrictions, but now allows 100% foreign ownership of companies in a bid to help the economy.

Andorra's Lowtax Specialisations

Until 2011 there were no taxes in Andorra for resident companies or individuals other than modest annual registration fees, municipal rates, property transaction taxes, some minor sales taxes and a sliding scale capital gains tax introduced in 2007. 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 and non-resident companies and are now 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.

Andorra's Bank Accounts Are Very Secret

As a home for money, Andorra is hard to beat. Banks are solid, and there are no capital or exchange controls. Numbered accounts are said to be known about only to you, your banker and God. Strict anti-money laundering legislation stops criminal activity, but excludes tax avoidance which is no crime in Andorra. In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2008, imposed a withholding tax of 20%, which rose to 35% in July 2011, on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned. In March 2009, Andorra’s government announced that it would cooperate with OECD principles by reaching tax information exchange agreements, and in February, 2010, was placed on the OECD's 'white list'. At the time of writing, Andorra has signed 20 tax information exchange agreements.

Andorra has agreed to participate in talks with the rest of the European Union members on the issue of the savings tax directive. The talks are expected to commence in the autumn of 2013.

Immigration Controlled by Residence and Work Permits

To encourage immigration by high-net-worth individuals (often retired) the Government offers Passive Residence Permits, which are not cheap, and are subject to a quota which is determined periodically according to the “economic and social needs of the Principality of Andorra”. Long term residence under recently amended rules is also possible either through a 'B' (business) or a 'C' (cultural) permit.

 

 

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