The natural bonding of the Internet and Offshore stems from the fact that both, of their nature, manage to avoid tax. Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore jurisdictions; while businesses that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.
By locating websites in offshore jurisdictions to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.
In many countries, the distribution of goods from a warehousing facility does not constitute the carrying on of a trade or business in that jurisdiction, so that even for physical goods, in many case it will be possible to avoid a permanent establishment (taxable presence) altogether in many high-tax jurisdictions where trading activities currently take place.
As a major 'low-tax' jurisdiction with tens of thousands of enterprises already installed, Andorra certainly has the opportunity to become a centre of e-commerce activity. The country's geographical location, its good telecommunications links and its modern business infrastructure add to its suitability as an entrepot.
The Andorran rules insisting on majority local ownership of enterprises and trading ventures acted as a disincentive to external e-commerce operations, but in November 2008, Andorra introduced the Foreign Investment Law, which has opened up 200 sectors of the Andorran economy to entrepreneurs and businesses from other countries. 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%.
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 intented 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.
In February 2009, Experiencr, an online seller of extreme and adventure sport gift experiences to the Andorran, Spanish and French markets, became the first foreign investment to be received by the Andorra's e-commerce sector. The investment has been managed by the Bureau for Business Innovation through its 'Welcome Plan,' which has been involved in almost sixty foreign projects.
For information about the impact of e-commerce on a number of the main activities that take place offshore, click on a link below to go to our specialist E-commerce site Offshore-e-com.com
To see an analysis of the current state of legal and tax issues surrounding offshore e-commerce, click here.