Andorra: Executive Summary

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- ANDORRA EXECUTIVE SUMMARY

Andorra Executive Summary 

Charlemagne Made Andorra Independent in 748 . . .

. . . but in practical terms Andorra became independent in 1278. Its co-princes are the French president and the Spanish Bishop of Urguel, but they don't interfere! Andorra is a parliamentary democracy. Squeezed between France and Spain in the Pyrenees, with 467 sq km and a population of almost 84,825 (July 2011 est.), Andorra has an amazing 11.6 million visitors annually. The skiing is excellent, but the valleys are warm enough in summer to grow tobacco, the dominant agricultural activity. There's no airport but the roads to France and Spain are good. The language is Catalan.

Economy Based on Tourism

Tourism accounts for 80% of the economy one way or another. There is some local manufacturing (including tobacco processing) but Andorra is structurally import-dependent. There is low unemployment and growth is around 5%; inflation tends to mirror that in France and Spain. Andorra joined the Euro in January 2002, and signed a Monetary Agreement with EU in June 2011. There is a budget surplus; national debt is very low. GDP per head at USD46,700 (2009 est.) is among the highest in the world. Until recently, Andorra protected its domestic business sector with ownership restrictions, but now allows 100% foreign ownership of companies in 200 economic sectors in a bid to help diversify the economy.

Andorra's Lowtax Specialisations

Until 2011 there were no taxes in Andorra for resident companies or individuals other than modest annual registration fees, municipal rates, property transaction taxes, some minor sales taxes and a sliding scale capital gains tax introduced in 2007. 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. Plans are afoot for 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 but subject to political stability.

Andorra's Bank Accounts Are Very Secret

As a home for money, Andorra is hard to beat. Banks are solid, and there are no capital or exchange controls. Numbered accounts are said to be known about only to you, your banker and God. Strict anti-money laundering legislation stops criminal activity, but excludes tax avoidance which is no crime in Andorra. In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2008, imposed a withholding tax of 20%, which rose to 35% in July 2011, on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned. In March 2009, Andorra’s government announced that it would cooperate with OECD principles by reaching tax information exchange agreements, and in February, 2010, was placed on the OECD's 'white list'. At the time of writing, Andorra has signed 18 tax information exchange agreements.

Immigration Controlled by Residence and Work Permits

To encourage immigration by high-net-worth individuals (often retired) the Government offers Passive Residence Permits, which are not cheap, and are subject to a quota which is determined periodically according to the “economic and social needs of the Principality of Andorra”. Otherwise, long term residence is only possible to those with work permits, which are controlled by quotas. It is possible to get around this system by owning a nominee company, which is relatively expensive, but the Government watches closely, and any kind of doubtful activity (or competition against locals) will bring rapid expulsion.

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