It is misleading to describe Andorra as ‘offshore’, not because it is landlocked, which it is, but because it does not particularly set out to offer such classical ‘offshore’ products as trusts (it doesn’t have any), international business companies (ditto) or specialised tax regimes for insurance, banking or investment funds. It doesn’t need to, because there isn’t any income tax anyway, for resident individuals or companies, indeed hardly any taxes at all except for customs duties, local property taxes, and corporate registration fees. Insistence on Andorran majority ownership of all business and trading activities is the key factor in understanding the development of the Andorran corporate sector, and accounts for the fact that, successful as Andorra is at attracting private client business for its banking sector, there is very little foreign involvement in financial services.
This could be about to change, however, with the introduction of the Taxation of Non-Residents Act, 2010, which came into force on 1 April, 2011, non-resident entities are subject to tax on local-source income at a rate of 10%. 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. 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.
In 2008 Andorra began a series of economic reforms as outlined in the “Andorra 2020” strategy, the objective of which is an ambitious programme designed to rejuvenate the economy by attracting foreign investors, increasing Andorra’s competitiveness, reinforcing the legal business framework, and diversifying and modernising the Andorran economy.
The Foreign Investment Law, which came into effect in 2008, allows the opening up of 200 sectors of the Andorran economy to entrepreneurs and businesses from other countries. This is viewed by the government as an important step in Andorra’s programme of reforms which are aimed at opening, modernising and diversifying the national economy. These reforms were driven through by the Head of Government Albert Pintat during his term of office.
The Foreign Investment Law completes the legislative package which also contains two laws that had already been adopted: The Law of Companies and The Law of Business Accounting. This package is intended to increase the international competitiveness of Andorra, attract foreign investors into high value added sectors and strengthen the legal framework for business.
As a result of the new legislation, foreigners can now 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%.
The government has set up a support programme, the Bureau for Business Innovation (OIE) (replaced by Andorra Development and Investment in 2009), to enable foreign investors to become established in the Principality and to encourage the development of new business sectors. In the latter half of 2008, the programme was providing support to more than ten foreign investors. The ADI can be contacted at:
Andorra Development and Investment C/ Prat de la Creu, 59-65, escala A, 1r pis AD500 Andorra la Vella Principat d’Andorra Tel: +376 81 20 20 Fax: +376 81 20 21 e-mail: oie@govern.ad Internet: http://www.adi.ad/en
Commenting on the reforms, Pinant said: “Andorra enjoys a number of advantages: a multicultural population with a high level of education, a flexible labour market combined with a good social security system, a legal framework which is appropriate for developing business activity, respect for international regulations on transparency, and a fantastic quality of life in the heart of the Pyrenees, close to Barcelona and Tolosa.”
The Head of Government added: “In addition, Andorra has a customs agreement with the European Union and bilateral agreements with France, Spain and Portugal for the free movement of people and for the social security systems. There is a high level of public security as well as political and institutional stability. For all of these reasons, we believe that business leaders and entrepreneurs will be interested in coming to our country. We are ready to welcome these people and support them in the development of their business activities in Andorra.
So all business in Andorra is low tax, and in Offshore Business Review we examine two ways in which investors can take advantage of the Andorran low-tax environment.