Andorra: Types of Company
The Corporations Act 1983 governs corporations formed in Andorra. There are three types of company, the Societat de Responsabilitat Limitada and the Societat per Accions both having shareholders with limited liability, and the Societat Colectiva, whose partners have unlimited liability.
UNTIL 2008, Companies with commercial or profit-seeking goals had to be owned at least two-thirds by Andorran citizens; this means, people born in Andorra, or Privileged Residents - those with more than 20 years' residence (in the case of Spanish and French nationals, the period of continuous residence is reduced to a minimum of 10 years). In practice, the Andorran majority owner of a business (called a 'titular' in Catalan) can be an Andorran individual or professional adviser who is willing to cede operational control of the business to the foreign 'owner', and sign a share transfer in blank, in return for a fee (called 'prestanom' in Catalan). In practical terms the titular is a nominee; but not in legal terms. Although this system is in everyday use in thousands of companies, and even though formal contracts are entered into between the parties, the inescapable legal fact remains that the titular can wield considerable power if he wants to. Presumably one is on fairly firm ground with a established, professional titular.
In 2007 the parliament unanimously approved a Law on Business Accounting under which accounting is obligatory for all companies, and any business with turnover of EUR100,000 or more annually will have to file accounts with the government. A new Law on Companies was also passed, regulating the behaviour of the companies in the Principality, regardless of whether they are Limited Companies or Plcs.
In addition, discussions took place on proposed changes to the law under which the limit on foreign participation would be raised to 40%, and non-Andorrans would be able to own 100% of certain types of company, including: audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting. Further sectors may also be opened up. This process crystalised into the Foreign Investment Law, which came into effect on November 7, 2008, and allows the opening up of 200 economic sectors to entrepreneurs and businesses from other countries. As a result of the new legislation, foreigners can now hold 100% - until now the limit was 33% - of the capital of a business in any of the designated sectors.
The package of three laws is intended to increase the international competitiveness of Andorra, attract foreign investors into high value added sectors and strengthen the legal framework for business.
The government introduced legislation providing for a corporate income tax, initially on non-resident entities, at a rate of 10% as of April 1, 2011. From 2012, resident entities were subject to 5% corporate income tax. Also from 2012, individuals operating a sole propriertorship or any type of business activity were subject to a 5% tax. These rates rose to 10% in January, 2013. A Value-Added Tax regime was introduced in 2013 with the main rate being 4.5%.