Andorra - for successful business and tax planning

Andorra is one of the most attractive destinations in Europe. Calling this direction offshore will be a mistake, as in Andorra, in contrast to classical offshore areas such as the Cayman Islands or the BVI, there is no separate “offshore” regime. The success and popularity of Andorra lies in a well-thought-out and business-oriented legislation.

The off-highwayization also touched Andorra. The government of jurisdiction strictly observes all European directives and actively fights for the transparency of international business. However, jurisdiction is still attractive for foreign investors.

Economy of the Principality of Andorra

Andorra’s growing financial services sector accounts for about 15% of the local economy. In addition to finance in Andorra, there are amazing ski resorts that bring the country 80% of annual GDP. Bankers of Andorra joke that you can visit the bank to open an account, you can directly move out of the ski slope.

Over the years, Andorra has flourished successfully. Yes, of course, the country had its own economic ups and downs, but this is a place where life is completely secured. In the post crisis Europe in 2011, Andorra managed to achieve a per capita GDP of USD37,200 at purchasing power parity.

The problems of Andorra are connected with the country's natural resources, which are very limited and only a small part of the mountain landscape, allows us to support agriculture in the country. Most of the goods and semi-finished products imported into the country.

In addition to geographical features, Andorra is very dependent on France and Spain, more precisely on the flow of tourists who annually visit Andorran resorts. At the time of the financial crisis that swept across Europe, Andorra experienced a budget deficit, and as a result, the government made a bold decision to implement the income tax. This allowed the country not only to stabilize finances, but also to reach agreements on OECD and EU requirements.

Andorra is a full member of the EU Trade Council and is regarded as an EU member for trade in manufactured goods, and also as an EU member for agricultural products. This allows the country to apply the EU common external tariff for non-agricultural products.

Foreign investment in Andorra

After the global financial crisis, a new law on foreign investment came into force. This law allows for 100% ownership of a company or a trading enterprise by residents and non-residents of the country in the same way.

Any investment in an amount below 10% of capital or voting rights can be freely exercised without the need to receive confirmation from government agencies. Investments of 10% or more require an appropriate permit from the Ministry of Finance, and it may take more than six weeks to get a solution.

However, real estate companies for non-resident real estate do not have the right to develop real estate in the country. In addition, non-resident companies are only entitled to purchase real estate for their own purposes, such as a warehouse or office.

Taxes in Andorra

Until 2011, there was no tax in Andorra for resident companies or individuals. The payment of the annual registration fee, the tax for the census of real estate, some small taxes and a rolling capital gains tax, adopted in 2007, was supposed.

According to the Minister of Foreign Affairs of Andorra, Gilbert Saboya Sunyé, the global crisis forced Andorra to implement “bold reforms”, and, most importantly, to build a completely new tax system.

Corporate tax

Non-resident companies are subject to corporate tax of 10% from April 1, 2011. Local companies and individuals conducting business activities are subject to the use of 10% tax since January 2013. The wound tax was 5%.

Reduced corporate tax rate of 2% is available for companies involved in trading and holding activities, and the management of intangible assets, such as patents, copyrights, trademarks and trademarks.

In order to qualify for a preferential corporate tax rate, international trading companies must ensure that goods are traded outside of Andorra, or, if the company's products are sold outside of Andorra, they must not be exported or imported into a jurisdiction.

Companies operating in the field of international intangible asset management must fulfill certain conditions for obtaining a special tax rate. Companies must be tax residents of Andorra, and the rights to the assets must belong to a resident of another jurisdiction.

A company must have an office of at least 20 square meters and hire at least one employee part-time to get a reduced tax rate. These requirements make Andorra an ideal place in Europe where to base an international trading company. This is the meaning of success in Andorra.

Personal tax

The personal income tax in Andorra (IRPF) was introduced on January 1, 2015. IRPF tax implies a flat rate of 10% on global income in excess of EUR 40,000. The reduced rate for income from EUR 24.001 to EUR 40,000 is 5%. The tax is not subject to interest income, and tax benefits for families, for disability and for the acquisition of a primary place of residence in excess of EUR 3,000.

Andorra VAT

Consumer taxes were abolished in favor of the value added tax (VAT) system, which was introduced in January 2013 and considers a wider range of goods and services at a standard rate of 4.5%, with a higher rate of 9.5% on banking and financial services. Reduced VAT rate of 1% applies to certain goods and services, such as food, water, books, newspapers and educational services.

Establishment of a company in Andorra

Andorra offers different legal forms, among which the most famous are Societat Limitadad (SL), Societat Anonima (SA), Societat Colectiva, partnership and private entrepreneurs. Branches are available only for insurance companies. The two main types of companies are SL and SA.

Societat Limitadad (SL) is mainly used for local trading and requires a share capital of EUR 3,000, and a minimum of two shareholders. In order to establish SL, the first step is to receive confirmation of the selected company name. The name of the company after its registration and confirmation is under local protection.

The charter and memorandum of the company (“estatuts” and “rao social”) are then submitted to the government in a petition for inclusion. After receiving confirmation from the government, the capital can be paid in and the notary will issue the establishment of the company, along with the “nominal” documents.

If real trade or other tangible activities are carried out in Andorra, the company will need to submit an application through “suplica” to the Commercial Register to obtain a trade license, or to obtain permission from ‘Registre de Comerc’. Further, the municipality must approve the premises proposed for use.

Societat Anonima is mainly established for large companies with many shareholders, and the minimum share capital should be EUR 60,000. The institution procedure is similar to the Societat Limitada procedure.

Obtaining a residence permit in Andorra

The law on living in Andorra was introduced in 2012 and applies to all applicants from June 27, 2012. From this point on, there are four ways to acquire a residence permit in Andorra:

Category A:

This category involves investments in the amount of EUR 400 thousand. The applicant must live in the country for at least 90 days a year and invest in bonds of the Andorran Institute of Finance (Andorran Institute of Finance) EUR 50 thousand for themselves and EUR 10 thousand for each dependent.

The amount of the bonds can be deducted from the total amount of the investment, and will be returned to the investor if he wishes to withdraw the permit. All applicants must provide proof of ownership or rental of real estate, a certified certificate of no criminal record and have a private health insurance.

Category B:

In fact, this is a business permit. Permits will be granted to companies that carry out at least 85% of their activities outside of Andorra. Instead of “top up” investments, category B owners are taxed at 10%.

Category C:

"Cultural Permission" for musicians, artists and other artists. Individuals must complete at least 85% of their activities outside of Andorra, and be able to provide proof of their international achievements. A refundable deposit of 50 thousand euros for the main applicant and 10 thousand euros for each dependent.

Category D:

Permission "Active Director". This permission is intended for those who are going to create a company and work in Andorra. A Category D permit gives you the right to reside in Andorra as long as they own a person, at least 10% of the company registered in Andorra, and the person holds an administrative position in the company.

One of the advantages in permitting an active director is that there are no requirements regarding minimum investment or deposit. But candidates must provide evidence that they have acquired or are renting property in Andorra. Spouses have the right to apply for a Category D permit, if both the husband and wife own 50% of the company. Spouses who do not have shares in the company can apply for accommodation as a dependent on the main applicant after 12 months. The rule of 12 months does not apply if the spouse is a director of the company, or owns at least 10% of the shares of the company.