INVEST WITH ANDORRA
ANDORRA AND ITS NEW ECONOMIC AND TAX MODEL:
ECONOMIC LIBERALIZATION, COMPETITIVE TAX BURDEN
AND INTERNATIONAL SCOPE
2015
In collaboration with:
“Beyond your expectations”
This is a document regularly updated
accordingly to the changes of the Andorran
normative legal base.
The latest version of the document is available
on the website of the CEA www.cea.ad
All rights in this document are reserved
by the CEA and Auge Grup. Any
manipulation, modification, partial
reproduction, reprography, computer
processing without the written permission
of the copyright holders are prohibited.
2
CONTENTS
I. Andorra. Strategic location
I. Initial view
II. Quality of life
II. Differential standardization
I. Towards a new fiscal framework
II. The new fiscal framework
III. Agreements on avoidance of double taxation, DTA
III. Foreign investment:100% liberalization
IV. Imminent structural changes
V. Immigration Reform: 3 new models of non-profit residency
VI. Practical aspects of the new tax and economic model
I. Two models of investment structures
II. Comparison with other European tax jurisdictions
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I. ANDORRA. STRATEGIC LOCATION
I. Initial view
Andorra, strategically located
between Spain and France, has
historically based its great economic prosperity on a competitive model based on tourism,
trade, construction and its capacity as an offshore financial
center. The emergence of strong
competition in the tourism sector, the relativization of the price
differential, the global crisis in
the financial and construction
sectors and the international
pressure to eliminate the offshore areas, have led to a significant decline of the classical
model and the urgent need to
create a new econòmic model.
Andorra has opted for standardization with Europe, but
modulating certain distinctive
features that not only make us
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more competitive in the services
we offer, particularly in trade
and tourism, but also enable us
to become one of the most attractive jurisdictions in Europe
with respect to the development
of investment projects and business initiatives worldwide.
Our new economic model,
based on the liberalization of
foreign investment, provides a
host of international strategic
opportunities at both corporate and individual levels, which
complemented by a competitive
tax framework and exceptional
living conditions which will certainly fulfill all expectations.
Within this context of changes
there are also great opportunities for those Andorran entre-
preneurs that wish to expand
their horizons. The new fiscal
framework, which not only has
permitted Andorra to cease being considered a tax haven but
has also created great expectations resulting from the impending double taxation agreements
(DTA), opens the path to other
jurisdictions where we have set
our future goals.
In summary, the particular and
attractive fiscal advantages of
our jurisdiction, integrated in an
international context, becomes
an opportunity of growth, optimization and expansion for
companies with a clear international vocation.
I. ANDORRA. STRATEGIC LOCATION
II. Quality of life
The main feature of Andorra in comparison with most countries in Europe is its exceptional quality of life. This is reflected in aspects such as:
High living standards: Privileged position in terms of income per capita: 47.314 U.S. USD in
2010, beating Spain (29.863 USD), France (42.503 USD), Germany (46.269 USD) or Italy (35.926
USD). It also exceeds the average of OECD countries (44.490 USD) and the European Union (35.551
USD). Andorra is surpassed by countries such as Luxembourg (110.697 USD), Switzerland (84.815
USD) or the U.S. (53.042 USD).
Low pricing: Low taxation allows the cost of living to be lower than in most European countries,
therefore our future citizens, investors and their families will enjoy lower prices for most products
and services which makes them much more competitive than prices in their home countries.
Proximity: One of the great virtues of Andorra is its limited territory. Proximity helps to solve
most issues that excessive bureaucracy tends to complicate.
Stability and security: Andorra is a socially stable country with
high security. The crime rate is one of the lowest in the world.
Natural environment:
surroundings.
Andorra has a protected environment and incomparable natural
Communications: Andorra is in the process of rethinking and improving communication routes
that will make it much more accessible by land and air.
Education: Andorra has three educational systems which are of both high quality and
free of charge, as well as a choice of private education and other specialised branches.
Health: The public health services are of excellent quality and allows through International
agreements to benefit from health care abroad.
Technology: Andorra is an innovative country, pioneer in the field of technology. The digital switchover has occurred and UMTS coverage too. Andorra has fiber optic in 100% of the territory.
Recreational and sports facilities: Andorra has ski resorts, sports facilities for high-level sport
practice and skill improving centres, spas and areas for extreme, adventure and mountain sports.
Cultural activities: National Auditorium, Congress Centre, events and festivals of all kinds.
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II. DIFFERENTIAL STANDARDISATION
I. Towards a new fiscal framework
The international pressure
The unfolding of the international economic and financial crisis and the G20 meeting held in
London on the 2nd of April 2009, clearly stated the international community’s will to move
forward towards the transparency of the financial activity.
The Declaration of the Principality of Andorra signed in Paris on the 10th of March 2009 by
the Andorran Prime Minister, Albert Pintat, acknowledged a strong commitment to establish
tax information exchange agreements upon request from the tax authorities, pursuant to the
OECD tax information exchange models.
Exchange of tax information upon prior request
As a result of the enactment of this new Law many different agreements have been signed.
As of today more than 21 Tax Information Exchange agreements have been subscribed:
1. France: signed on 22 September 2009 and published in the BOPA on June 9,
2010. Came into force on December 22, 2010.
2. Spain: signed on January 14, 2010 and published in the BOPA on May 13,
2010. Came into force on February 10, 2011.
3. Signed and in force: in addition to Spain and France, Portugal, San Marino,
Monaco, Liechtenstein, Austria, Faeroe Islands, Norway, Denmark, Sweden,
Finland, Netherlands, Germany, Poland, Iceland, Greenland. Australia and Argentina.
4. Signed but not yet in force: Belgium , Switzerland , Czech Republic and Italy.
With these agreements Andorra is no longer considered a tax haven and out of the gray list
of the OECD and the respective States.
These agreements affect the different countries that have subscribed them and consists of
an administrative procedure between financial authorities and their delegates (tax offices).
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These agreements are applicable to tax matters that have arisen on or after the date of entry
the agreements came into force.
Their application is not retroactive and affects the tax accounting periods applicable from the
date of entry into force.
There are certain legal procedures of appeal for those who are required information or are
investigated for tax matters.
These agreements will in due course be replaced by the Agreements on Avoidance of Double
Taxation
Tax information automatic exchange
Andorra is aware of the international trend towards transparency, and its response to it has
been to move in the same direction, understanding the fact that the automatic exchange is an
unavoidable future for all jurisdictions.
Currently, a total of 51 countries have signed the multilateral agreement on the automatic
exchange of tax information in relation to certain financial accounts held in Andorran banks
by individuals and legal entities which are non-tax residents in Andorra.
Most of the adhering countries will start applying this agreement in 2017, Andorra will do so in
2018. At the start of 2015, only four countries have not expressed their commitment to adhere
to this agreement nonetheless, everything indicates that the international pressure will be a
decisive factor in this respect.
It is important to state that even though the tax information automatic exchange in Andorra
won’t come into force till 2018, the agreement foresees a one year retroactive effect.
What is unknown as of today are the financial accounts that will be reported and the general
application of this automatic exchange.
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The new fiscal frame
• Objective: To facilitate political and economic relations between Andorra and its
neighbouring countries through the standardisation of the taxation framework.
• Need: Approval is necessary to reach agreements to avoid double taxation.
• New: Income taxation of business and professional origin: resident individuals,
nonresidents and legal entities.
• Simplification and unification of the indirect taxation: Impost General Indirecte, IGI.
• Concision and creation of 4 new types of taxes:
On the one hand, 3 laws have been approved to regulate the direct taxation, adopted on
29 December 2010 and came into force on January 27, 2011.
1. Tax on Income of Nonresident: Effective from April 1, 2011. General rate of 10%.
2. Corporate income tax: Effective from January 1, 2012. General rate of 10%.
3. Personal Income Tax (IRPF): the fiscal framework has been complemented with a tax
treatment for individuals under a very competitive tax rate and which under no circumstances
surpasses a 10%. Law 5/2014, of 24th of April, in force from the 1st of January 2015.
On the other hand, the law that regulates the indirect taxation:
4. The General Indirect Tax similar to Value Added Tax (IGI). The general rate is 4,5% as
the Law 11/2012 indicates, approved on 21 June 2012, came into force on 1 January 2013.
Corporation Tax
The taxpayers under this type of tax are all those companies operating in Andorra and
people having their residency or registered office in the Principality of Andorra be it by
having been incorporated in Andorra or as a result of a change of the jurisdiction.
This new tax leads to a highly attractive tax model, which has created a treatment that
combines the best virtues of jurisdictions like the Netherlands, Luxembourg, Switzerland,
Ireland and Cyprus. Depending upon the nature of the company there are:
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• Traditional Andorran companies
The tax rate is 10% on the income obtained by the company for a tax accounting year with
important reductions making the tax amounts to be paid lower.
• International operating companies of intangible assets
The result is an ideal international position improving the traditional model of the
Netherlands. The taxpayers can benefit from an 80% reduction in the following cases:
1. Authorization for the use, sale or license of patent rights, industrial forms and designs,
trademarks, domain names and other distinctive signs of enterprise and the industrial
property rights.
2. License for use of drafts, formulas or procedures, industrial, commercial or scientific
rights as well as the use of industrial, commercial or scientific equipment.
3. Assignment of copyrights, artistic and scientific rights as well as audiovisual productions,
computer programs and systems.
Moreover, the exemption operates whether there is a business premise or office of minimum
20m2 and a part-time employee at least.
• Companies that take part in international commerce
Taxpayers can benefit from an 80% reduction on the taxation base if the trading of goods
is made at an international level or when a realtor or an intermediary executes the sale
and purchase of properties abroad, also if the activity of a commission agent is done from
Andorra, and if the commercialised product does not enter nor leave Andorra.
Business premise or offices of a minimum of 20m2 and at least one part-time employee are
requirements needed for the exemption to operate.
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• Management and Investment Companies
Taxpayers benefit from an 80% reduction on the tax base. These types of entities are
those tax residents in Andorra whose business consists of receiving loans from related
companies or third parties, which added to its own share capital are used for entering into
loans with related entities not possessing tax residents’ status. In order to carry out this
business, a company must have a minimum share capital of 250,000 €, should also have its
own staff in the Principality of Andorra, at least one employee, even as a part-time worker
and an office space specifically dedicated to carry out this type of activity.
• Holding Companies
Holding companies are companies with shares in other companies located in foreign
countries. These companies are tax-exempt on received dividends and capital gains in the
following cases:
1. A non-resident company whose shareholder is an Andorran company should be subject to
paying taxes in its own country, i.e. paying taxes similar to the Andorran income tax.
2. The percentage of participation, be it direct or indirect, in the share capital, equity
and assets of the enterprise, the patrimony or voting rights should be at least 5%; this
participation must be held without interruption for at least one year preceding the day
on which the profit is to be distributed, or if the profit is not distributed, the participation
must be maintained for the necessary time to complete this period.
Income tax for non-residents
Non-resident individuals and legal entities in the Principality of Andorra that obtain incomes
in Andorra are obliged to pay this tax. The standard rate is 10% with some exceptions.
This tax is not applied to dividends from non-real estate assets earned by non-residents in
Andorra (there is a tax cost for citizens of the European Union).This is an important issue
for assessing incomes from bank accounts.
Income obtained in the Andorran territory is considered to be the income from activities within
this territory, from property in Andorra or exercisable rights arising or usable in the Principality.
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The new law of general indirect tax IGI
The tax called IGI (similar in nature to the European VAT) combines and encompasses most
of the indirect taxation types of tax. The law was adopted on the 18th of July 2012 and came
into force on 1 January, 2013.
With the entry of the IGI, indirect taxation is comprised of the following:
1. The IGI that taxes the transfer of new real estate and the rendering of services.
2. Property Transfer Tax (ITP) which taxes the second and subsequent transfers of real estate.
Nonetheless, in first transfers of real estate and those transfers managed by authorized real
estate agents, the IGI tax rate of 4,5% will be applied. In all other real estate operations a 4%
ITP tax is applied.
It is important to underline that the IGI tax rates under both the general and the reduced rates, are
at levels below those neighbouring countries and adapt to the needs of the Andorran economy.
According to the new law, all operations are subject to a general tax rate of 4.5% except for those
products and services considered of first necessity to which a reduced tax rate of 1% applies, or even
a super reduced tax rate of 0%. An increased rate of 9.5% will be applied to banking and financial
services.
Personal Income Tax
The personal income tax is the figure that as of 1 January 2015 completes the new fiscal framework
of the Principality of Andorra. Its structure is identical to that one of Spain and other neighbouring
countries, but with the peculiarity of a 10% fixed rate. It includes important exemptions such as those
applicable to employment income up to € 24,000 and movable assets up to € 3,000 or a total exemption
on dividends from Andorran companies.
Exemptions and deductions that substantially reduce the effective tax rate along with the absence
of tax on net wealth or property, inheritance and gifts, have made Andorra become one of the most
competitive and lax jurisdictions on individuals’ taxation in Europe.
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II. DIFFERENTIAL STANDARDISATION
II. Agreements on avoidance of double taxation, DTA
The existence of agreements to avoid double taxation (DTA) is essential to promote foreign
investment in Andorra or Andorran investment abroad, as they provide legal certainty to
investors and reduce the tax burden of those investments.
All agreements to exchange tax information foresee their replacement by agreements of
avoidance of double taxation and the commitment to start negotiations after their entry into
force.
The agreements to avoid double taxation are the key to international competitiveness of the
companies that eventually settle in Andorra.
The agreement to avoid double taxation between Andorra and France has already been signed
(April 2013), the agreement to avoid double taxation between Andorra and Spain has already
been signed too (January 2015) and finally, the DTA between Andorra and Luxembourg was
entered into on the 2 of June 2014.
And now, the government has already started negotiations and / or contacts with Portugal,
Belgium, Switzerland and Austria, with whom it is expected to sign separate agreements at
the beginning of 2015.
Furthermore, the campaign throughout 2013 on this matter is expected to be very important
towards the signing of other agreements to avoid double taxation with other countries which
have already signed agreements to exchange tax information and those that are strategic for
the international relations of Andorra.
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III. FOREIGN INVESTMENT: 100% LIBERALIZATION
In terms of Foreign Investment, a new Law
10/2012 was approved on the 21st of June 2012
which came into force on the 19th of July 2012.The
Law permits 100% liberalization of investment
in all sectors and simplifies the process of
incorporating companies to accelerate the
market in the short term and open the doors
to talent and foreign investment, revivint and
strengthening the economy of Andorra by way
of diversification, competitiveness, promoting
innovation initiatives and a wise use of tax
differential.
This new competitive model as a strategic tax
platform, has been created to attract foregin
investment start-ups, create jobs and wealth,
focusing on sectors and recruitment to those
businesses that generate higher added value
and growth. This is intended to:
• Provide a good service to established
investments and potential investors, providing
suport to potential investors at all stages: preinvestment, investment and post-investment.
• Promote an adequate investment climate that
encourages investment, identifying the needs
of potential investors and investors already
established and suggesting measures to meet
those needs, strengthening relations with
associations and institutions related to foreign
investment.
• Disseminate and promote a competitive
country image associated to Andorra, including
a modern and innovative view, increasingly
internationalized and provided with adequate
human and technological resources to the
process of globalization of markets and the
economy.
• Establish lines of collaboration with all
institutions in the State (and also at a local
level) which are focused on the promotion and
attraction of investments to establish a network
of leverage to achieve the above objectives.
It should be noted that for new external
investments an investment project shall be
submitted and will be analyzed by the Andorran
government who will assess its suitability. If
it fulfills all the necessary requirements, the
investment will be authorized.
However, this requirement does not exist for
projects launched by residents in Andorra,
whatever their category (active or non-profit)
and country of origin is.
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IV. IMMINENT STRUCTURAL CHANGES
All these social and legislative changes involve a number of structural changes that have
already begun to develop:
Heliport
The Government is working on the project of construction, management and operation of the
national heliport in order for it to be operative in the near future, and operating it with various
regular lines connecting Andorra, Barcelona, Toulouse, Lleida (Alguaire) or La Seu d’Urgell.
Commercial Boulevard
Andorra wishes to offer its tourists, visitors and citizens commercial offer of excellent quality
and well positioned on a level with the major capitals of the world. In this regard, Andorra
wishes to attract the leading international retail brands. Thanks to the new fiscal framework
and its economic openness, once those leading brands are established in Andorra, it will
become a hub of top level shopping in Europe.
Tourism infrastructure (hotels and restaurants)
The new economic model and future demands of tourists, visitors and new citizens, calls
for transformation and improvement of tourism infrastructure and the process analysis and
boost has already begun. These initiatives also involve changes to the technical training of
people linked to these improvements.
Elite Healthcare
One of the new goals of the Andorran Government is driving Andorra towards the top of
medical excellence emulating the Swiss model of implementing the most Advanced medical
technology with no waiting lists and having at its disposal a network of technology.
Training and educational elite
Promotion of new training centres and high level international scope centres.
Promotion of research, development and technology
in all areas.
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Development of the leisure and gambling in particular
Alongside initiatives to promote the development of multiple leisure options, special emphasis
has been put on gambling so it brings added value. The first step was the Decree of 7 March
2012 which sets up the Agency of the Interministerial Commission of Gambling and which in
turn has led to the creation of the Office of Gambling. Its aim is to analyze the strengths and
weaknesses of this new activity and move on to a new law that includes gambling options like
casinos, lotteries, online gambling and betting offline. The project of the gambling Law will
be submitted to parliament during this year 2013.
Other initiatives
Additionally, the development of international exhibitions and conferences will be promoted,
as well as various initiatives and events related to sports, culture, music, art, science, etc.
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V. IMMIGRATION REFORM:
3 NEW MODELS OF NON-PROFIT RESIDENCY
In terms of active residency in Andorra, membership in the Andorran Social Security (CASS)
is mandatory for all employees, and similar workers performing an activity on their own
account. Employees are subject to a tax rate of a 5.5% up to 10.5%, the employers will be
subject to a 14.5%. Self-employed employees will have to pay between a 20% to 25%.
All foreigners working in the Principality must have a work permit.
Once an employee is hired by a national company, this company should apply to the Ministry of
Home Affairs for a permit. The granting of permits by the Ministry is subject to an immigration
quota.
Foreign investors and professionals who channel their investments through Andorran
companies have the right to request a Residence and Work Permit under the Self-Employment
regime. This permit can be obtained by complying with two specific conditions, these being
becoming a shareholder of the Andorran entity (participation of >10%) as well as being
appointed to the Board of Directors of the company. This kind of permit requires the permanent
and effective residence in Andorra of the holder and the corresponding contribution before
the Andorran public health system (CASS). As a result, the new resident will have access to
the Andorran public health system as well as to a subsequent family reunification if required.
In respect of the residency without the right to work status, with the legislative changes
operated during the year 2012, there are three types of residency immigration permits
without work: residency without lucrative activity, residency permits for professionals with
an international outlook and residency permits for reasons of scientific, cultural and sporting
interests (all directed to the promotion of this type of residency among the High Net Worth
Individuals). The característics and minimum requirements for obtaining these permits aret
he following:
1. Non-profit resident: the person who does not have the Andorran citizenship and establishes
their main residence in the Principality for at least 90 days per year, without exercising any
professional activity. The holder of a Non-profit Residence Permit is required to invest at least
16
four hundred thousand euros (400.000 euros) in one of the many types of Andorran assets. It
is compulsory to deposit a non-remunerated fifty thousand euros (50.000 euros) bond before
the Andorran National Finance Institute (INAF) for the main holder and a ten thousand euros
(10.000 euros) bond for each dependent person who will also obtain a Non-profit Resident
profile. The deposit made before INAF is deducted from the 400.000 euro investment.
2. Residence permit for professionals with an International Outlook: the person who does not
have the Andorran citizenship and establishes their main residence in Andorra for at least
90 days per year, in order to develop a professional activity with an International Outlook.
The center of the professional activity must be located in Andorra, the holder has the right to
recruit up to a maximum of one person and at least 85% of the income must come from the
clients located abroad.
3. Residents for reasons of scientific, cultural and sporting interests: the person who does
not have the Andorran citizenship and establishes their main residence in Andorra for at least
90 days per year, thus establishing the center of their professional activity in Andorra, in the
following fields: science, culture and sports. At least 85% of the income must come from the
clients located abroad.
The main holder of a Residence permit for professionals with an International Outlook, as
well as the residents for reasons of scientific, cultural and sporting interests, must deposit
a non-remunerated fifty thousand euros (50.000 euros) bond before the Andorran National
Finance Institute (INAF) for the main holder and a ten thousand euros (10.000 euros) bond
for each dependent person who will also obtain the same residence status. Moreover, in both
cases, they must submit a business plan to be evaluated and approved by the Government.
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VI. PRACTICAL ASPECTS OF THE NEW TAX AND ECONOMIC MODEL
I. Two models of investment structures
a. Model of individual investment in Andorra
International company
Unilateral investment
Andorra
Trading
company
Company-owner
of intellectual
property
Intragroup
finance
company
Production
company or service
provider
Taxation 2%
Taxation 2%
Taxation 2%
Taxation 10%
In
vo
i ce
Inv
oic
e
Holding
company
Company of
country B
Company of
country A
goods
*Necessity of Avoidance of Double Taxation Agreement
18
Producer
Services
provider
No DTA
Necessity of DTA*
International company
Unilateral investment
Andorra
Holding
company
Dividends and capital gains exemption
Country A
Country B
Country C
These countries have their respective
tax rates Necessity of DTA*
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VI. PRACTICAL ASPECTS OF THE NEW TAX AND ECONOMIC MODEL
I. Two models of investment structures
b. Joint Venture model : International company – Andorran company
International company
Andorran company
Investment A
Investment B
Andorran Holding with
equity participation.
Headquarters of the
group
Subsidiary A
in Spain
Andorran
alternative
Trading
Company
20
Projects in
North
Africa
Company
owner of
intellectual
property
Intragroup
finance
company
Projects in
Middle
East
Production
company or
service
provider
Dividends and capital gains
exemption.
Need of DTA
Subsidiary B
in France
Other
European
projects
Projects
in
the USA
VI. PRACTICAL ASPECTS OF THE NEW TAX AND ECONOMIC MODEL
II. Comparison with other European tax jurisdictions
Andorra
Spain
Portugal
France
Corporation Income Tax
10%
30%
25%
33,33%
Capital Gains Tax
0-15%
30%
25%
33,33%
Royalties
5%
24,75%
15%
33,33%
Interests
0%
21%
25%
-
Dividends
0%
21%
25%
25%
Variuous Fees
-
21% - 24,75%
15,% - 21,5%
33,33%
4,5%
21%
23%
21,20%
Taxation of Companies
Withholding
Tax-Non Treaty
(for non-residents)
Indirect Tax (VAT)
Value Added Tax
(Equivalent)
Indirect Taxation (IGI)
21
Andorra
Lietchestein
Monaco
Corporation Income Tax
10%
12,5%
33,3%
17%
Capital Gains Tax
0-15%
-
33,3%
17%
Royalties
5%
-
-
15%
Interests
0%
-
-
13%
Dividends
0%
-
-
-
Variuous Fees
-
-
-
15%
4,5%
8%
19,6%
0% - IGI
17% - Import
Tax
San Marino
Taxation of Companies
Withholding
Tax-Non Treaty
(for non-residents)
Indirect Tax (VAT)
Value Added Tax
(Equivalent)
Indirect Taxation (IGI)
22
Andorra
Ireland
Netherlands
Luxemburg
Switzerland
Malta
Cyprus
Taxation of Companies
Corporation
Income Tax
10%
12,5%
20%
22,05%
8,5%
35%
10%
Capital Gains Tax
0-15%
30%
20%
22,05%
8,5%
35%
10%
Royalties
5%
20%
-
-
-
0%
-
Interests
Excento
20%
-
-
35%
0%
-
Dividends
Excento
20%
15%
15%
35%
0%
-
Variuous Fees
-
-
-
-
-
35%
10%
4,5%
23%
19%
15%
8%
18%
18%
Withholding
Tax-Non Treaty
(for non-residents)
Indirect Tax (VAT)
Value Added Tax
(Equivalent)
Indirect Taxation
(IGI)
23
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