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PRINCIPALITY OF ANDORRA

 

COMPANY FORMATION

INCORPORATING IN ANDORRA
COUNTRY PROFILE


THE PRINCIPALITY OF ANDORRA
The Principality of Andorra is situated on the Mediterranean side of the eastern Pyrenees between France and Spain, with an area totalling 468 square kilometres. It is divided into three valleys in the form of Y, the highest point in the country being the Peak of Coma Pedrosa at 2,942 metres and the lowest, the confluence of the Valira River with the Runer River at 840 metres.

The climate is mountainous-Mediterranean with the characteristic of cold winters and heavy snowfalls followed by hot summers. These distinct climate features and the diversity of the landscape, have facilitated the existence of diversified fauna and flora.

As for the administrative structure of the Principality, Andorra is made up of seven townships: Canillo, Encamp, Ordino, la Massana, Escaldes-Engordany, Andorra la Vella (the capital) and Sant Julià de Lòria.

The official language is Catalan, but the historical relationships with France and Spain, and the increasing residing population from these countries, has meant that French and Spanish have been adopted by the society as a whole. It is precisely for this reason that there are three educational systems: the Andorran, the Spanish and the French.

Since Andorra does not have its own currency, all transactions are made in Euros.

Moreover, the majority of the visitors come from the neighbouring countries, attracted by the opportunities to do winter sports offered by the five ski resorts and wide range of leisure and cultural activities.

The political system of Andorra is a parliamentary Co-Principality, composed by a General Council and by the two Co-Princes: the Bishop of Urgell and the French Republic President, which were assumed historically with the head of the elected Government.

In 1993, the Constitution was approved after being submitted to a public referendum. The elaboration of the text alone took two years of intensive negotiations between the General Council representatives and a delegation from each of the Co-Princes. This established Andorra as an independent state by right and democracy. The Constitution enabled Andorra to establish an independent judicial power, to carry out its own foreign policy and join international organisations. Andorra was admitted to the United Nations Organisation (UNO) in 1993. The Co-Princes remain as Head of State, a similarly to the Queen of England with respect to, for example, Australia.


 

GOVERNMENT AND TOWNSHIPS
During 715 years, Andorra was governed by two Co-Princes, the Bishop of Urgell, in Spain, and the Count of Foix, in France; the rights of the latter being passed on successively to the French Kings and later to the French Republic President.

The responsibility for internal aspects was delegated to the elected General Council; the judicial, external and defence aspects remained in charge of the Co-Princes. On January, 1982, the legislative and executive functions were separated, and the Government (the executive power) was established, presided by the head of government which is elected by the General Council (legislative power chamber). On March 14, 1993, the Constitution was approved which established Andorra as an independent state, by right and democracy. The Constitution enabled the country to establish an independent judicial power, implement its own foreign policy and join international organisations. Andorra was admitted to the United Nations (ONU) in 1993. The Co-Princes remain as Head of State, a similarly to the Queen of England with respect to, for example, Australia.

FINANCIAL SYSTEMS
The main characteristics about the Principality of Andorra financial market:

SOLVENCY – DISCRETION – POLITICAL STABILITY
The Principality of Andorra has had its own political and social identity for more than a thousand years, and in the second half of the twentieth century has developed its own banking system with great solvency, based on efficiency and discretion principles.

The social and political stability, historically have been characteristics of this thousand-year-old country, as well as, the strict regulation of solvency coefficients, appropriately met by the eight entities existing on the market, underline the immense prestige of the Principality of Andorra as a financial market, able to provide services of private banking at the highest international level.

The excellent rating “Aa2” given by Moody’s Investors Services to the Principality of Andorra, accredits without a doubt its solvency, political stability and prestige as a financial market.

In 1960 the Andorran Bank Association, ABA, was created and under its supervision an agreement was signed in 1990 in regards to the diligence obligation from the Andorran banking establishments, which included a series of resolutions to be assumed:

(A) Application of the established criteria by the Basle Committee on banking regulations and supervisory practices, known as the "Cook Committee"

(B) The obligation to submit their financial statements for review by independent external auditors and send these financial statements to the public authorities

(C) The obligation to ensure the identity of their customers is accurately verified

(D) Maintain the principle of banking secrecy and security to ensure that the financial system is not used for money laundering resulting from serious criminal offences according to the Andorran Law provisions.

During the year 2000, the North-American authorities recognized Principality of Andorra as a country conforming to the “Qualified Intermediary” regulation, which enabled to apply for “QI” status the 8 financial entities to form the present Andorran banking system.

In recent years, and with the development of the financial markets, the number of investment funds managed in the Principality has experienced substantial growth: rising from 25 investment funds in 1994, to 103 in 2002. During 2000, two new investment fund managers were set up, both with the most modern analysis technology.

These facts consolidate the high quality and financial prosperity of the financial services of the Principality of Andorra and have recently been backed up from a legal viewpoint by very important Laws:

1989 Constitution Act of the National Andorran Finance Institute
1993 Provisional measures Act for the organization and regulation of the financial sector
1993 Modification Act of the National Andorran Finance Institute (INAF) Constitution law
1993 Organizational Act of the Financial System
1994 Regulatory Act of mandatory investments’ coefficient
1995 Banking secrecy and prevention of money laundering Protection Act, founded on the Andorran Constitution
1995 Regulatory Act of the reserves to guarantee deposits and other operational obligations to maintain and deposit into the entities included in the financial system
1996 Amendment Act to the regulatory act of the financial entities’ solvency and liquidity criteria
1996 Regulatory Act for the operative faculties of the diverse components of the financial system
1996 Regulatory Act of the financial entities’ solvency and liquidity criteria
1997 Regulatory Act of the disciplinary regime of the financial system
1998 Regulatory Act of the constitution of new banking entities under Andorran law
1998 Regulatory Act of the minimum share capital of the banking entities under Andorran law
1998 Act of the basic administrative regime of the banking entities
1999 United Nations convention against illicit traffic of narcotics and psychotropic substances
1999 Convention regarding the laundering, discovery, appropriation and confiscation of products derived from criminal activity - Strasbourg, November 8, 1990
2000 Regulatory Act of the measures to guarantee the Principality’s transition into the Euro
2001 Act on the international penal cooperation and the fight against the laundering of capital or securities arising from international delinquency, which came into effect on July 24, 2001, following its approval by the Andorran Parliament last December 29th, and regulatory act of the international cooperation, and the fight against money laundering or securities arising from international delinquency (2002)

With the approval of the last Act, Andorra is within the leaders in regards to judicial cooperation, in maintaining inviolable the guarantee of its client’s confidentiality and the professional secrecy of the banking sector.

Empirically, it has been demonstrated for a long time, the duty of discretion and protection of banking information is perfectly compatible with the fight and cooperation against organised crime.

700 years without conflicts and with no connection to criminal businesses along its history, combined with the clarity demonstrated in international cooperation in the fight against organised crime, the control and supervision exercised by INAF (Andorran National Institute of Finance), and the broad sector’s legislative provisions, all constitute irrefutable evidence and values of this reality.

Presently, the Andorran financial system is formed by:

6 banking entities
10 Financial investment entities
5 Patrimony management entities
1 non banking financial entity of specialized credit

Andorra does not have its own currency, but the national budget is prepared in Euros. Moreover, all currencies circulate freely in the country and the money exchange is also unrestrained.

In 2000 Andorra adopted the Euro, according to the law, integrating into the legal framework the basic principles which are to regulate the introduction of the Euro into the Principality, as to make the transition with sufficient guarantees for all the financial agents and for consumers.

ANDORRA ECONOMY AND CURRENCY
With only a tiny amount of arable land - about 2% of its total area - Andorra's agrarian economy was historically based on livestock, especially sheep, pigs and cattle. In modern times, animal farming is still important, along with tobacco production, but tourism has come to dominate the economy, accounting for no less than 80% of GDP. The main tourist magnet is the absence of duties or VAT, although Andorra's relative advantage vis a vis France and Spain has diminished as those countries have begun to liberalize their markets.

Andorran per capita GDP of $24,000 is in the middle European range. However, Andorra is prosperous, with minimal government and taxation. Manufacturing (much of it tobacco-related) and the growing financial services sector each account for about 5% of GDP. Most goods have to be imported, and there is a structural trade deficit. Government finances are healthy, with a primary surplus most of the time, and a small amount of national indebtedness. Growth rates have been volatile: Andorra's economy tends to be heavily influenced by its neighbors.

Currently the economy is healthy, with growth at 4% in 2004.

In August, 2004, ratings agency Standard & Poor's raised its long-term sovereign credit rating on Andorra to "AA" from "AA-" following an improvement in the country's fiscal position. Noting "a wealthy economy, a competitive services sector and a stable political and institutional framework,” the S&P analysis stated: "The upgrade reflects Andorra's improved fiscal position, supported by recent fiscal reforms aimed at preserving the general government surplus and net creditor position." Furthermore, the ratings agency affirmed its "A-1+" short-term sovereign credit rating on the principality whilst also maintaining a stable outlook. "The upgrade also reflects the principality's healthy medium-term growth prospects," said S&P.

Andorra is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods and as a non-EU member for agricultural products. Therefore it applies the common external tariff of the EU for non-agricultural goods.

Andorra has no official currency, and a wide range of currencies are accepted internally. The Euro is now the most commonly used, and the national accounts are kept in Euros.

DEMOGHRAPHICS AND TERRITORY
The Principality of Andorra is a European micro-state located in the Central Pyrenees between France and Spain.

It has 96.5 km of main roads and 181.9 km of secondary roads covering a total surface area of 468 sq. km. 96% of the population is urban.

The Capital is Andorra la Vella.

The total population is 67,159 habitants (according to information from the year 2002).

The Principality is composed of 7 parishes:
Canillo
Encamp
Ordino
La Massana
Andorra la Vella
Sant Julià de Lòria
Escaldes - Engordany

TERRITORY
It is a region of narrow valleys and Steep Mountain peaks; the highest point being Coma Pedrosa (2,946 m). Numerous watercourses unite to form the river Valira, which flows to the south and into Spain. The water used to generate hydroelectric energy is one of the few significant natural resources of the Principality. There are small deposits of iron and lead. Andorra has no railway system or airport (negotiations are in progress with the Spanish Government for the reopening of the airport in La Seu d’Urgell, just 14 Km from the Andorran border), but there is an excellent network of roads. Presently, the nearest international airports to the Principality are those of Toulouse (France) and Barcelona (Spain), both cities two hours away by car.

POPULATION
Native Andorrans amount to 34% of the total population, Spanish (42%), French (7%) and Portuguese (7%) immigrants make up almost all the remainder. The official language is Catalan, although the majority of the inhabitants also speak Spanish and French. Life expectancy is 83.5 years and the population growth rate is 2.94%.

ANDORRA OFFSHORE BUSINESS ACTIVITIES
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 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.

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.

ANDORRA BUSINESS ENVIRONMENT
The business environment in Andorra is quite liberal. There are no corporate income taxes, but there are moderate annual fees and charges. Regulation is light. Since there is no currency, there are no exchange or capital controls.

Telecommunications are good, and Internet hosting is available.

Although there is some industrial and commercial activity, particularly around the tourist trade, the best-developed sector is banking, especially private banking, taking advantage of Andorra's strict banking secrecy rules. Other financial services are not particularly sophisticated, although the Government has encouraged the insurance sector.

In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and from July, 2005, imposed a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.

ANDORRA INVESTMENTS BY FOREIGNERS
The Andorran administration has no formal investment incentive schemes other than offering some financial support for the development of tourist facilities. Foreign investment into the financial services sector is highly circumscribed (see Offshore Business Sectors), and foreign involvement in domestic business (as opposed to offshore activity) is limited to minority stakes in most sectors.

ANDORRA BANKING
Banks and other financial institutions in Andorra are regulated by the Andorran National Financial Institute (INAF) under the Law Regulating the Financial System 1993.

Until recently, Andorran banks (there are eight of them) were, at least in theory, owned entirely by Andorran interests, although in practice some French and Spanish banks have minority shareholdings, often in connection with the marketing of asset management or investment products. The Andorran Government is preparing to admit four foreign 51%-controlled banks, under stringent conditions, which will have Andorran chief executives. In addition, a number of separate asset-management firms have recently been licensed, some of which are subsidiaries of international fund management companies. These moves do not by any means imply that Andorra intends to develop a substantial foreign-owned financial services sector.

Andorran banks are all members of the Agrupacio de Bancs Andorrans, which operated a system of self-regulation until the regulatory law was passed in 1993.

The banks have very conservative policies, and high solvency ratios: depositors' funds are guaranteed under a 1997 law, but no Andorran bank has ever defaulted on its depositors.

The over-riding characteristic of Andorran banks that attracts foreign depositors and investors, apart from the absence of taxes, is secrecy. Numbered accounts, made available only to top-quality clients, are said to be known only to 'the customer, the banker and God'. General accounts, also secret under the law, are highly protected as well.

In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.

In response to international concern over money-laundering, Andorra introduced the 'Law of Protection of Banking Secrecy and of Prevention of Laundering of Money or of Assets Deriving from Crime' in 1995. This law requires financial institutions to report any suspicious money movements to the INAF; and the INAF is then entitled to pass on such information to foreign countries if an Andorran judge orders it.

However, this will only be done if there is prima facie evidence of a crime (which in Andorra definitely does not include tax avoidance or evasion), and even then is only permitted to countries which have banking secrecy laws, thus excluding, for instance, the UK and the US. In most circumstances, the effect of the law is to strengthen secrecy, not weaken it.

In August, 2001, a Department for the Prevention of Money Laundering (Unitat de Prevenció de Blanqueig - UPB) was established. The UPB, which is equivalent to a Financial Intelligence Unit under Egmont Group rules, is authorized to carry out unannounced inspections and hands information to the public prosecutor's office or to the government.

The governing council of the UPB consists of two financial officials who are appointed by the Minister of Finance, a judge nominated by the Consell Superior de Justícia, and two police officers who are appointed by the Minister of the Interior.

ANDORRA – FORMS OF COMPANIES
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.

Companies with commercial or profit-seeking goals must 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 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 March, 2004, discussions began of 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.

Under another new law, it is proposed that companies with turnover in excess of Euros 5m annually will be subject to compulsory audit.

ANDORRA SOCIETAT LIMITADAD (SL)
The Societat Limitadad (SL) is commonly used for local trading and requires a minimum paid up share capital of 6,000 Euros, with a minimum of two shareholders. In order to set up an SL, the first step is to obtain approval of the proposed name (some generic words are banned). The name once approved and registered, will have local protection.

The company's Memorandum and Articles ('estatuts' and 'rao social') are then presented to the Government ('Andorra Govern') in a petition ('suplica') for incorporation. This step is straightforward when a holding company is being created for local assets, but if local trading or complex external financial situations are involved, the Government may look closely, particularly if the foreign party (who is being given 'rights' by the titular) is a newcomer or non-resident.

Once the Government's approval is given, the capital can be deposited and a notary will formalize the incorporation, along with the 'nominee' paperwork.

If there is to be actual trading or other tangible activity in Andorra, the company will need to apply via a 'suplica' to the Commercial Register in the appropriate commune for a trading license, or 'Registre de Comerc' permission. Finally, the Commune has to approve the premises proposed to be used, which requires further paperwork . . .

Once everything is in place, the Government becomes involved once more (another suplica) to approve the formal opening of the business.

It can be imagined that this whole process will take some months even if everything goes smoothly; if not, it can take a year or more. However, for a straightforward holding company, it may be only two or three months.

The Government's annual fee (tax) for the registration of an SL is 463 Euros, and if a Registre de Comerc is needed, a further 670 Euros is due annually. It can be imagined that professional fees will add substantially to these costs due to the formality and complexity of the process.

ANDORRA SOCIETAT ANONIMA (SA)
The Societat Anonima (SA) is usually created for larger types of company, or those with many shareholders, and must have a minimum paid up share capital of 30,000 Euros.

The formation procedures for an SA are the same as for a Societat Limitada (see above) except that Governmental checks will be more stringent; and the annual fee (tax) for registration is 1,000 Euros.

ANDORRA SOCIETAT COLECTIVA
The Societat Colectiva is a company whose capital is shared between partners with unlimited responsibility. Its formation procedures are similar to those of the SA and SL.

ANDORRA PARTNERSHIPThere are no limited partnerships in Andorra. Civil companies can be created by two or more persons to incorporate a partnership with unlimited liability by private contract or deed. In order to trade, it will need a Registre de Comerc permission from its local commune, at a cost of 670 Euros annually.

This is a form that can be used by a foreigner wanting to set up in business locally, say as a restaurant; the usual rules about 67% local ownership will apply, and the Andorran titular will need to sign contracts giving the foreigner day-to-day management rights, and control over finances. It suffers from the obvious difficulty that the unlimited liability of a partner under the law cannot be signed away so easily.

ANDORRA SOLE PROPRIETORSHIP
A citizen or an individual who has exceeded ten years residency is permitted to establish a business as a sole trader; however he will need a trading license from his local Registre de Comerc, at an annual fee of 670 Euros.

This form also could be the basis of a foreign/Andorran business relationship; the Andorran in this case owning 100% of the business, but signing away operating and cash-flow rights to the foreigner. The difficulties are obvious; the advantage is that the Government doesn't have to become involved.

ANDORRA BRANCH
Only insurance companies can established branch offices in Andorra.

ANDORRA HOLDING COMPANIES
The rules for Andorran majority participation and the absence of tax treaties with other countries mean that Andorra is not a suitable place in which to base international trading operations. That said, the absence of taxation, the high levels of secrecy (for companies as well as banks), and the liberal business environment in Andorra make it a good place in which to collect the proceeds of legitimate international business activity; and this is especially true if the ultimate beneficiary is living in Andorra.
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.
There is 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 is 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. Draft legislation was published in March, 2004, which would allow 100% foreign ownership in certain sectors, including audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting.

ANDORRA – CORPORATE TAXATION
In Andorra there are no taxes on profits, dividends or income; there is no capital gains tax, no withholding tax and no sales tax. The taxes impinging on companies are business license fees, social security contributions, and property taxes.

Corporate entities pay registration fees to the Government.

ANDORRA BUSINESS LICENSE FEES
All businesses in Andorra, if they are going to trade in the principality, whether constituted as companies, individual proprietorships of partnerships, need to obtain a trading license, or in other words to register for a particular type of trading, and this must be done at the Registre de Comerc in the commune (Comu) where they are based. The annual cost of this registration is 670 Euros. A holding company not involved in business activity as such does not require a trading license.

ANDORRA PAYROLL TAXES
There is a health and social security system in Andorra known as the CASS (Caixa Andorrana de Seguretat Social) which applies to all employees of Andorran individuals or companies. The rates of contribution are 13% of salary by the employer, and between 6% and 9% by the employee. In practice, the employer often pays the lot. Contribution rates for non-employed persons range from 200 to 400 Euros per month.

ANDORRA PROPERTY TAXES
Property taxes are levied by the municipality in which a business is located; a business renting its premises will be liable only for business rates; a business owning or constructing property for its own use will pay taxes on the acquisition of property and its construction in addition to business rates. There is a Property Acquisition Tax of 2.5% of the agreed purchase price payable to the Government (that in turn passes on half of this amount to the respective commune). This is payable by the purchaser, separately from the payment to the seller, at the Notary Public's office at the time of the transaction. All communes charge a small property rate in addition to the local rates and services charges. Business rates are charged on a square meter basis. There are also small percentage charges on rental income.


PRESENTATION OF TAX SYSTEM IN ANDORRA
The Law of 19 December 1996 which governs the Andorran fiscal system establishes the general framework of taxes and organizes the sectors that are subject to tax. Although this law establishes the framework for the implementation of tax related legislation, it does not define the different categories of taxes existing in the Principality of Andorra.

This law stipulates that the different categories of national taxes in Andorra can only be established by means of legislation enacted by the “Conseil Général” (the Andorran Parliament).

On the other hand, regional bodies, "Municipalities" are competent to develop and regulate taxes at local level (local taxes).

At the current time in the Principality of Andorra there is no system of direct taxation on the income of natural persons, on trading profits or on assets.

However, the government is planning to introduce a inheritance tax, an indirect tax on services provided as well as an ecotax to protect the environment.

The Andorran system is based on indirect taxes which represent approximately 12.6 % of the Gross National Product.


THE SCOPE OF NATIONAL TAXES
The Law on the Taxation of Indirect Goods (IMI) establishes a general system of indirect taxation on the production, development and importation of all products (tangible property) located in Andorra that is to say for goods included in chapters 1 to 97 of the harmonized Community system. The law stipulates four different rates which apply on the value of goods. These rates vary from 1 to 12 % according to the products; the majority of products are taxed at 4 %.

In addition to this amount, there are other taxes according to the type of products in question, such as an excise tax, which applies solely to agricultural products.
. The Law on Excise Taxes of 30 December 1985 establishes an excise tax which, since the Trade Agreement signed in 1990 with the European Community, applies only to the importation of agricultural products which are included in chapters 1 to 24 of the harmonized system. The rate of this tax varies from 2 to 60 % according to the goods.

. There are other government imposed taxes which apply to:
- electricity and telephone bills
- vehicle owners
- individuals who want to register a brand.
. Moreover, people carrying on a business activity are subject to the payment of a flat-rate tax, payable when they register on the Trade Register and then subsequently each calendar year between1st April and 30 June.

This tax concerns three professional categories:
- People owning a Société Anonyme (a Public Limited Company) or a Société à Responsabilité Limitée (a Private Limited Company) registered on the Corporate Register,
- People carrying on a business activity registered on the Trade Register,
- People authorized to practice as a member of one of the professions.

People who are registered on the Corporate Register must pay a tax of 330 Euros at the time of registration and subsequently a tax of 670 Euros every calendar year in the case of a Private Limited Company.

In the case of a Public Limited Company, the tax at the time of registration is 495 Euros and the annual tax is 735 Euros.

Other than these taxes, people wanting to create a company must pay what corresponds to a Registration Tax.

The amount of this tax is 661 Euros for a Public Limited Company and 463 Euros for a Private Limited Company.

Trades people registered on the Register of Commerce must pay a tax of 170 euro annually for every business premise registered.

The professions must pay a tax of 330 Euros annually, from the third year following their registration as a member of one of the professions.

. The Law on legal taxes of 20 December 1995 established a system of taxation by way of excise stamps for court proceedings. The value of these excise stamps varies according to the estimated amount of the case brought before the competent Court.
. Finally, the Law of 28 November 1996 taxes authorized bingo halls.
. The law on transfers of assets: (applicable to assets located in Andorra)

The Law of 29 December 2000 regulates indirect tax imposed on transfers of real estate inter vivos, as well as on the creation or transfer of rights in rem on assets located in Andorra.

As regards local taxes, they depend on the municipality in which the assets are located.

There is no Inheritance Tax in Andorra.

However, assets located outside the Principality of Andorra and belonging to foreigners who are residents of Andorra will be subject to the rules of the countries in which such assets are located.

This law also applies to:
. shares and participating interests in trading companies, the creation or transfer of rights in rem over these shares or participating interests if at least 50% of the assets of these companies are composed of personal property or rights in rem over real estate.
. contractual commitments or options if these contracts concern real estate or rights in rem over real estate.
In addition, in the case of a cancellation of a contract with the agreement of both parties, this cancellation is considered as a new transfer and is therefore subject to tax.

EXCEPTIONS:
Transfers and the creation of rights in rem over real estate are exempt from tax when they are made in favor of:
. the Conseil General (Parliament), the Government, Municipalities (town-halls) and Quarts (county-towns)
. spouses or the communal estate in favor of the other spouse, or as part of the dissolution or liquidation of the marriage
. between spouses and natural persons having direct blood ties as forbears and descendants and/or lateral ties up to the third degree
. shareholders of a company or between companies if the shareholders have direct blood ties as forbears or descendants and/or lateral ties up to the third degree
. and also for the transfer and creation of real guarantee rights
The amount of taxes to be paid by the acquirer or by the persons in whose favor a right in rem is created or transferred is as follows:
. Government tax: 1.25%
. Local tax: the minimum rate is 0.50% and the maximum rate is 1.25%

The tax to be paid will therefore be equivalent to a maximum of 2.50% of the value of the assets transferred.

LOCAL TAXES
The local authorities, the "Municipalities", of each parish are authorized by the Parliament to apply a general tax, and also to establish, administer and apply additional taxes.

Even if tax regulations are not unified between the different parishes, it is possible to identify the most important taxes in this regard:

1. Service taxes: taxes on hygiene, lighting services, drinking water, urban contribution, etc.
2. Taxes on permits and planning permission, changes of corporate names and registration of addresses, installation of signs.
3. Taxes on commercial and industrial activities, rents, the ownership or acquisition of real estate, transfers of property and assets.

I) DIRECT TAXATION:
There is no direct taxation in the Principality of Andorra on the income of persons residing in Andorra or on the individual and commercial profits of companies established in Andorra. Neither is any taxation on income from stocks or incomes from credits, deposits and guarantees, capital gains tax, inheritance tax.

II) INDIRECT TAXATION:
There is an import duty in the Principality of Andorra on goods imported for commercial purposes. This is collected by the Andorran customs service and calculated on the customs value at rates which depend on the type of goods imported, going from 1% (foodstuffs and non-worked products) through 4% (minerals, building material, household goods, glass, leather, pharmaceutical articles, woodwork, stationery, textiles, carpets, clothes, video games ...) and 7% (cosmetics, perfumes, pearls, precious stones, limousines, motorcycles, boats, watches, firearms ...) to 12% for among other things, jewellery and silverware. A tax of 2,5% of the real value of the property assigned when there is a capital transfer of real estate or the assignment of real rights on real estate.

The indirect tax on the supply of services (ISI) is levied on services supplied by businessmen or professionals, whether individuals or companies, whether habitually or occasionally, while carrying out business or professional activities. The payer of this tax is the businessman who provides the service, who will pay tax according to a module system or according to a system of direct calculation based on the reality of operations carried out and noted in an accounting system. It is a tax which is imposed of the end consumption of the service; consequently the businessman has to formally pass on the tax to the client making him or her pay 4% of the value of the payment for the service. This tax was initially applied with its specifics (tax rate, calculation of the quota) to services provided by banks and insurance company and starting on 1 January 2006 it has been generalized to all sectors of the Andorran economy.

III) CUSTOMS DUTY ON IMPORTS:
Consumer tax collected by the Andorran customs only in the case of the importing of goods not included in the customs union with the European Community (goods listed in chapter 1 to 24 of the harmonized system for naming and codifying goods). This goes from a minimum of 1% up to a maximum of 3%. The application (since the signature of the agreement on a customs union with the EC) of the same Common Custom Tariff as that in force on its territory and direct collection by Andorran customs on imports of goods coming from non-EC third party countries which are not in free circulation on the territory of the EC. One should note the application of the system of external and internal community transit (respectively T1 and T2) and of certain customs economic systems such as customs depot and active perfection. One should also note that there are exceptions made in favor of the Principality of Andorra in the matter of contingents in force in the European Community governing textile imports from non-EC third party countries.

IV) OTHER TAXES:
Government taxes on the use of electricity, telephones, vehicles and registration of commercial brand names.

Single sum government taxes on the economic activity of non-wage earners.

ANDORRA – PERSONAL TAXATION
In Andorra there is no income tax, capital gains tax, gift, inheritance or capital transfer taxes. Employees pay national insurance contributions, and there are municipal taxes on property. There are customs duties on some imported goods (Andorra applies the common external tariff of the EU), and a number of sales taxes on various classes of goods, typically at single digit rates' although higher on alcohol, tobacco and cars.

In June, 2004, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.

ANDORRA ENTRY AND RESIDENCY
Tourist visas are issued freely, but for longer-term stay it is necessary to have either a work permit (which will ensure issue of a residence permit) or a Passive Residence Permit (PRP). Permanent residence means a stay of more than 183 days in the year.

Work permits are not easy to get. In principle they are issued only to EU and EFTA nationals, and then only if there is no Andorran national available for the job. They are issued only to individuals working for an Andorran person or company, and not to self-employed foreigners. It may be possible to form an Andorran company and then employ yourself and others.

The Law on Passive Residence Permits 1996 allows 200 new residence permits per year. Passive residents do not work or carry out professional activity in the principality. New entrants must:

• show minimum annual income of 24,000 Euros for the head of the family and 6,000 Euros for each dependent family member;
• prove good conduct in their previous domicile;
• produce health insurance and a pension plan;
• own or rent a house or apartment in the principality;
• pay a non-interest-bearing deposit of 24,000 Euros plus 6,000 for each dependant to the Government, which is refundable on departure.

ANDORRA RESIDENCY AND LIABILITY FOR TAXATION
Andorran residents as such do not have liability to Government taxation, other than to municipal property taxes (see below).

Permanent residence means a stay of more than 183 days in the year. Non-Andorran nationals can become resident only by having a work permit (which will ensure issue of a residence permit) or by obtaining a Passive Residence Permit.

Employees of an Andorran enterprise (which means all employees since there is no provision for foreign companies to operate other than through an Andorran entity) must pay social security contributions (see below). The self-employed (only possible with more than 10 years' residence) also pay social security contributions.

Other Andorran taxes or duties are related to events, rather than residence status.

ANDORRA PAYROLL TAXES
There is a health and social security system in Andorra known as the CASS (Caixa Andorrana de Seguretat Social) which applies to all employees of Andorran individuals or companies. The rates of contribution are 13% of salary by the employer, and between 6% and 9% by the employee. In practice, the employer often pays the lot. Self-employed individuals pay 18% of earnings.

'Employers', ie individuals who own companies or who register as traders and employ others, cannot join the CASS.

ANDORRA MUNICIPAL TAXES
A resident of Andorra registers with the parish (Comu) where he rents or owns the property in which he lives. This entails liability to taxes and property rates imposed by the parish. Percentages charged vary according to the parish.

There are a number of headings under which charges are imposed:
• 'Foc i Lloc' (meaning hearth and home) and 'Serveis' (services) rates are general rates payable by heads of household, may vary according to the size of the household, and may be more for absentee owners; on average, they amount to 150 euros per year;
• Property ownership tax is levied on each property owned (flat, house or chalet) and averages around 100 euros per property;
• Rental tax is levied by some parishes on rental income received at around 3%;
• Property acquisition tax is payable when property is bought (not inherited) and varies quite widely: often it is 1% or 2% of acquisition cost, but is sometimes levied per square metre.

ANDORRA – OFFSHORE TAX AND LAW
The term 'offshore' is not used in Andorran legislation or in describing company forms. Indeed there is no 'offshore' sector as such, since there is no significant direct taxation of Andorran entities in any event.

In June, 2004, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.

ANDORRA FORMS OF OFFSHORE OPERATIONS
The corporate forms available for external operations in Andorra are the same as those available for internal operations.

ANDORRA FEES PAYABLE BY COMPANIES
The annual fee (tax) payable to the Government by a Societat Limitadad is 463 euros; and by a Societat Anonima is 1,000 Euros.

ANDORRA TAXATION OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
Taxation of foreign employees in Andorra is ruled by the general principles of individual taxation in Andorra, which also apply to the resident employees of foreign entities. There are in fact no personal taxes as such in Andorra and there is no distinction between the employees of resident or non-resident operations, because all employers have to be Andorran and resident.

ANDORRA EXCHANGE CONTROLS
There are no exchange controls in Andorra; indeed there is no national currency. Most of the important world currencies are accepted freely.

ANDORRA OFFSHORE ACTIVITIES
Since there is no offshore sector as such in Andorra, and all trading or business activity has to be carried on by entities which are majority-owned by Andorran nationals or long-stay residents. Other than the rules concerning ownership, there is very little legislation to restrain business activity, which takes place in a liberal environment. However, the Penal Code and the Law of Protection of Banking Secrecy and of Prevention of Laundering of Money and Assets Deriving from Crime 1995 contain severe penalties for criminal activity; and the Government is very watchful in this respect. (Tax avoidance and evasion do not count as crimes.)

ANDORRA EMPLOYMENT AND RESIDENCE
All foreigners wanting to work in Andorra need work permits. These are obtained by employers, whether Andorran individuals or companies, on behalf of employees. Self-employment is not allowed until after 10 years' residence or trade in Andorra.

A new immigration law finally passed in 2002 was highly contentious, but legalized the situation of about 7,000 'pink slip' long-term immigrant workers, as well as setting new rules for the issuance of work permit quotas which give preference first to citizens from Andorra's neighboring countries, then to citizens from the countries of the European Union, then to citizens of countries with which the principality has signed international agreements, and finally immigrants from third party states.

Under the law, the government sets annual quotas for new issues of renewable work permits.

There are separate types of non-renewable work permit for temporary and seasonal workers, to which the quotas don't apply. The holder of such a work permit must leave the country within one month of expiry of the permit.

Renewable work permits are issued first for 6 months, extensible for a further year; then a temporary residence card is issued valid for a renewable 2 years; then, a 5-year ordinary residence card is issued; and finally a 10-year privileged residence card is issued. Fees are modest.

Tourist visas are issued freely, but for longer-term stay it is necessary to have either a work permit (which will ensure issue of a residence permit) or a Passive Residence Permit (PRP). Permanent residence means a stay of more than 183 days in the year.

The Law on Passive Residence Permits 1996 allows 200 new residence permits per year. Passive residents do not work or carry out professional activity in the principality. New entrants must:

• Prove an income of not less than three times the minimum annual salary level stipulated by Andorran Social Security regulations, (about 9,402 euros per annum). This amount is increased by a factor of one for each dependent.
• Prove good conduct in their previous domicile;
• Produce health insurance and a pension plan;
• Own or rent a house or apartment in the principality;
• Pay a non-interest-bearing deposit of 24,000 euros plus 6,000 euros for each dependant to the Government, which is refundable on departure.

RESUME
COMPANY FORMATION & TAX RATES

 

Societat limitada (SL) *1

Societat anònima (SA) *1.1

Company law

The Corporations Act 1983

The Corporations Act 1983

Company purpose

commercial

commercial

Founders

at least two *2

at least two *2

Capital requirements

3,100 EUR

31,000 EUR

Liability

limited by shares

limited by shares

Incorporation

Register of Merchant Companies, Register of Commerce and Industry and Register of Liberal Professions.

Register of Merchant Companies, Register of Commerce and Industry and Register of Liberal Professions.

Company name

free + company form

free + company form

Formalities

low

moderate

Credit / funds

possible

possible

Accounting obligation

yes

yes

Management

at least one director

board of directors

Nationality

free

free

Image

good

good

M. B.: Municipal Business Tax

 

Income Tax

Corporate Tax

Profit Tax

M. B. Tax

VAT

Tax rate

-

-

-

-

4 % *3.1

 

*1 Limited Liability Company
*1.1 Stock Corporation
*2 At least two thirds of the capital of companies not defined as being of public or social interest must be Andorran. By Andorran capital is understood capital of individuals or companies of Andorran nationality or of foreign individuals who have continuously resided in the principality for at least 20 years.
*3 The Andorran tax system contains no direct tax on business profits, individual income or capital comparable to those in force in surrounding countries.
• 650.30 EUR / 714.60 EUR annual contribution payable if the company is not entered in the Register of Commerce and Industry within three months of being entered in the Register of Merchant Companies.
• 325.75 EUR annual contribution payable starting with the third year of being entered in the Register of Liberal Professions.
*3.1 The Law on the Taxation of Indirect Goods (IMI) establishes a general system of indirect taxation on the production, development and importation of all products (tangible property) located in Andorra, that is to say for goods included in chapters 1 to 97 of the harmonized Community system. The law stipulates four different rates which apply on the value of goods. These rates vary from 1 to 12 % according to the products; the majority of products are taxed at 4 %.
In addition to this amount, there are other taxes according to the type of products in question, such as an excise tax, which applies solely to agricultural products.
The Law on Excise Taxes of 30 December 1985 establishes an excise tax which, since the Trade Agreement signed in 1990 with the European Community, applies only to the importation of agricultural products which are included in chapters 1 to 24 of the harmonized system. The rate of this tax varies from 2 to 60 % according to the goods.
There are other government imposed taxes which apply to electricity and telephone bills, vehicle owners and individuals who want to register a brand.

LINKS OF INTEREST
Official Bulletin of Andorra (Butlletí Oficial d’Andorra)
Chamber of Commerce, Industry and Services of Andorra (Cambra de Comerç, Indústria i Serveis d'Andorra)
CASS (Andorran Social Security)
CNIA (National Computing Centre of Andorra)
Commission for the Information Society
Andorran Police
Telecommunication Services of Andorra (STA)
Hotel union

 

EMBASSIES

SPANISH EMBASSY
C. Prat de la Creu, 34
Andorra la Vella
Tel: 800 030
Fax: 868 500
e-mail: embaesp@andorra.ad

FRENCH EMBASSY
C. Les Canals, 38 - 40
B.P. 155
Andorra la Vella
Tel: 820 809
Fax: 860 132
Web: www.ambafrance-ad.org
e-mail: andorre@diplomatic.fr

SWISS CONSULATE
C.Prat de la Creu, 88
Crowne Plaza Hotel
Andorra la Vella
Tel: 874 444
Fax: 874 445

GENERAL PORTUGUESE CONSULATE
C. del Fener, 11 3r
Edifici Eland, despatx 3 - 4
Andorra la Vella
Tel: 805 305
Fax: 869 555
e-mail: mail@dgaccp.cgand.pt

GERMAN CONSULATE
C. Dr. Vilanova, 9
Ed. Thaïs
Andorra la Vella
Tel: 862 860
Fax: 804 321

BRITISH CONSULATE
Casa Jacint Pons, 3r 2a
Av. Sant Antoni
La Massana
Tel: 839 840
Fax: 839 840
e-mail: maestro@mypic.ad


 

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