ANDORRA: An Introduction to General Business Law

Introduction 

Andorra, a small country of 468 square km between Spain and France, is known for its richness and high quality of life. With a population of 81,000 and a density of 164 people per square km, it has a high GDP per capita (EUR33,312 in 2021) and one of the longest life expectancies at 83.7 years. Its currency is the euro, and Catalan, French and Spanish are commonly spoken.

The country’s 90% natural landscape, including a UNESCO World Heritage Site, offers outdoor activities such as skiing in the Pyrenees, hiking and more, complemented by entertainment and shopping. Its economy is one of Europe’s most developed, marked by low crime rates and a peaceful atmosphere.

Internationally, Andorra is involved with organisations such as the United Nations and is negotiating an EU Association Agreement. Its political stability and strategic location, with proximity to major cities such as Barcelona and Toulouse, make it attractive for residents and tourists alike.

Tax 

The tax system of Andorra, recognised as one of the most competitive in Europe, comprises various forms of taxation, including corporate tax (IS), personal income tax (IRPF), non-residents income tax (IRNR) and the general indirect tax (IGI). Key aspects of these taxes are as follows.

Corporate tax (IS) 

This applies to entities based in Andorra, with a general rate of 10% (among the lowest in Europe). The IS offers incentives such as deductions for real estate investments and benefits for new businesses, along with special regimes.

Personal income tax (IRPF) 

This affects Andorran residents. The maximum rate is 10%, applicable to incomes over EUR24,000, with a progressive structure. Various exemptions and reductions are available based on personal and familial circumstances.

Non-residents income tax (IRNR) 

This tax is levied on income generated in Andorra by non-resident individuals or entities. The standard rate is 10% for most types of income, including business profits.

General indirect tax (IGI) 

Functioning as a VAT equivalent, the IGI has a standard rate of 4.5%. It applies to the majority of goods and services, though reduced rates exist for certain items and activities.

Regarding capital gains from real estate, a general tax rate of 10% is applicable in various scenarios:

i) under corporate tax (IS);

ii) in personal income tax (IRPF), where it applies up to ten years post-acquisition and decreases over time; and

iii) in non-residents income tax (IRNR), a 15% rate applies to speculative gains, and a 5% withholding tax is also applicable.

Additionally, Andorra has entered into international agreements to prevent double taxation and to combat tax evasion and avoidance, covering income and wealth taxes. To date, Andorra has agreements with 14 countries, including Spain, France, Portugal, Luxembourg and Iceland, with negotiations ongoing for others such as the United Kingdom and Italy. These agreements specifically pertain to direct taxes such as IS, IRPF and IRNR.

Financial System 

Andorra’s financial system is recognised for its robustness and security, upheld by a stringent legislative framework that guarantees stability and transparency. Oversight of this system is the responsibility of the Andorran Financial Authority (AFA), which ensures adherence to both international and local standards. Notably, Andorra’s financial sector is characterised by a high solvency level, surpassing the average solvency of European banks.

Additionally, Andorra has enacted significant legislation pertaining to the regulation of emerging technologies in the financial and digital sectors. A primary goal of this legislation is to create a regulatory environment for the digital representation of assets using blockchain technology and other distributed ledger technologies (DLT).

Law 31/2018, passed on 6 December 2018, focuses on electronic commerce and information society services. This law establishes a legal framework that regulates electronic transactions, safeguarding consumer rights and ensuring transparency in e-commerce activities.

In the context of international relations, Andorra is currently engaged in negotiations with the EU. These discussions aim to forge a closer association with the EU, facilitating access to the European single market, enhancing economic and regulatory co-operation, and deepening ties between Andorra and EU member states.

Corporate 

Andorra presents an appealing environment for setting up commercial companies, characterised by a tax-friendly regime and policies designed to attract international capital. In recent years, measures have been implemented to allow non-residents to own shares or stakes in Andorran legal entities.

The framework governing the formation and operation of commercial companies in Andorra is outlined in Law 20/2007, issued on 18 October 2007. This law covers anonymous and limited liability companies, the two primary types of commercial entities in Andorra.

Anonymous companies (Sociedades Anónimas, or SA) in Andorra have their capital divided into shares. To establish an SA, a minimum capital of EUR60,000 is required.

Limited liability companies (Sociedades de Responsabilidad Limitada, or SL) have their capital divided into participations. A minimum capital of EUR3,000 is necessary for the establishment of an SL.

Prospective business owners must follow several steps to establish a company in Andorra:

i) reserve the company name;

ii) deposit the required share capital in a bank account with one of the country’s banking institutions; and

iii) sign the public deed of incorporation.

For non-residents looking to acquire more than 10% of the share capital in an Andorran legal entity, obtaining the requisite administrative authorisation for foreign investment is mandatory. This step is crucial for ensuring compliance with Andorra’s regulations on foreign investment and ownership in local businesses.

Residence 

Andorra’s residency legislation caters to a diverse range of individuals, including active workers, non-workers, remote professionals and those involved in international activities. The legislation outlines various types of permits, each with specific requirements and benefits, as follows. 

Active residency permits 

These are for individuals who are employed by an Andorran company, are self-employed, or own a business in Andorra with a significant capital investment. Family reunification is possible under certain conditions, which vary based on nationality. This category includes spouses, dependants and retired parents.

Passive residency permits 

Suitable for those not working in Andorra, these permits require a minimum annual stay of 90 days. Applicants must demonstrate sufficient financial resources and secure housing in Andorra, and must obtain local insurance. The terms can vary based on nationality, and there is a pathway for renewing these permits every ten years. Passive residents are often required to make a significant investment in Andorran assets and to deposit funds with the Andorran Financial Authority (AFA).

Residency for international professionals

This category includes professionals engaged in international activities, recognised experts in science, culture and sports, and individuals residing in private care centres in Andorra. They must maintain a 90-day residence per year, demonstrate financial stability, and have insurance coverage, along with meeting AFA deposit requirements.

Remote professionals 

Recent modifications in immigration law include specific provisions for remote professionals who work using telecommunications and technology. They must ensure health coverage and suitable housing in Andorra, commit to residing in the country for at least 90 days annually, and comply with all legal stipulations.

In terms of fiscal residency, individuals can establish their tax residency in Andorra by either spending more than half of the year in the country or having their primary business or economic activities based in Andorra.

Furthermore, Andorra has signed Double Taxation Avoidance Agreements (DTAAs) with several countries, including France, Spain, Luxembourg and the United Arab Emirates. These agreements aim to prevent the double taxation of individuals and businesses in multiple jurisdictions, adhering to models set by the OECD. These agreements specify rules and criteria to resolve conflicts regarding tax residency.

Health and Education 

Andorra’s health and social security system is globally acclaimed for its high competence and quality, offering residents a universally accessible, free and high-quality healthcare model.

Healthcare system 

Andorra’s healthcare system operates on the principle of free choice, allowing residents to choose their preferred doctor. It functions through a co-payment mechanism, where the State covers a major portion of healthcare costs and medical procedures. The remaining costs, not subsidised by the Caisse Andorrane de Sécurité Sociale (CASS), are the responsibility of the individual.

Residents have the option to purchase private complementary medical insurance to cover expenses not paid by the CASS.

Andorra has established health agreements with Spain and France. These agreements facilitate medical consultations with specialists not available in Andorra and provide for treatments, partially subsidised by the CASS.

Education system  

Andorra boasts coexisting public education systems: Andorran, Spanish, British, French and international.

These diverse educational systems offer a broad range of options and perspectives to students.

Higher education agreements 

Andorra maintains higher education agreements with Spain and France, enabling Andorran students to access universities in these neighbouring countries.

Degrees obtained from universities in Spain and France are recognised in Andorra, providing students with a seamless educational experience and international opportunities.

These features of Andorra’s health and educational systems illustrate the country’s commitment to providing high-quality services to its residents, ensuring both health and educational needs are met with excellence and efficiency.