A typical structure is triangular: trading, licensing or investment operations in high-tax countries are carried out from a jurisdiction which has reasonable double taxation treaties, but low withholding taxes on ongoing payments (eg Malta), and the proceeds are remitted to an Andorran company, which pays no tax at all. There are numerous permutations, and there are in fact many tens of thousands of Andorran companies formed for this type of purpose.
For many years there has been talk within Andorra of weakening the local ownership rules, which effectively limit Andorra’s international business to small-scale operations which can tolerate a degree of legal uncertainty; but it was not thought likely that the powerful and very rich interests that dominate Andorran commercial life will be willing to accept much diminution (as they would see it) of their prerogatives.
In November 2007, the Foreign Investment Law was introduced, enabling foreigners 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%.
Government 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. The introduction of a Value-Added Tax regime, to be followed by the extension of the income tax regime to resident individuals and corporations are forthcoming. While details are not as yet confirmed, special tax-privileged regimes are expected for companies involved in international trade, entities holding rights to intangible sources of income, and some financial institution classes. A new regime for holding companies is also forthcoming.
Other legislation, not yet brought into force includes: The Corporate Tax Act 2010 and the draft VAT law.
To phase out the existing consumption tax, the Value-Added Tax rate will be imposed on a broader spectrum of goods and services, at an anticipated 5% rate. A concessionary rate of 1% is expected to be available on a number of healthcare goods and services; on basic living essentials, such as rent and water; and welfare goods and services.