Andorra is a European microstate located in the Pyrenees. For a good part of its history, it has been a country that, except for tourism, has lived discreetly, hidden from the spotlight and unnoticed by most. Today, things have changed and the principality looks more and more like a place full of opportunities and open to the world. How and why has Andorra gone from being a great unknown to a fashionable business and tax destination?
Change management has become a key factor in our time, for people, companies and countries. Society is going through an intense and constant transformation process, and for those not paying attention or unwilling to change, they risk being left behind.
In this context, a key word for maintaining competitiveness and success is adaptation. A concept that generates success stories such as that of Andorra, whose government was able to take agile steps to efficiently modify its positioning when they saw that the country and economic model needed to take a different route. Less than a decade ago, the Pyrenean country made the decision to leave opacity behind and integrate itself by adopting international standards of transparency and taxation. At that time, voices were heard predicting a collapse of the banking system and serious problems for the economic viability of the country.
Today, we can say that those predictions were very much mistaken, that the financial sector is in excellent health and Andorra is growing. All of this is thanks to a process that we know well at MoraBanc, since we follow a very similar one and have been a significant success story in our own right. Within a few months, we were able to rethink and carry out a transformation plan for the bank in record time. The result? Far from the times of opaque banking, we have generated other business lines and redesigned our range of products and services to achieve four years of growth in a row on a consolidated basis. Our subsidiaries in Switzerland, Miami and Barcelona (opened in 2020) are also contributing to this success. We maintain solvency levels well above the average for European banking. In short, as the country itself has done, we have repositioned ourselves by adapting to the needs of our society today, leveraging our competitive advantages.
Andorra has been able to adapt and has developed a fascinating appeal for individuals and companies to come and live here, all without losing its attraction as a tourist destination. Every year, eight million people visit this country of only 80,000 inhabitants.
If we want to list the attractions of Andorra for the investor, we must start with the country’s fiscal ecosystem. Andorra currently has a competitive tax framework that is standardised with the surrounding countries. It applies a balanced tax regime that on one hand is within the standards of international taxation, but on the other hand is sufficiently attractive.
The tax rates applicable to both natural and legal persons are a maximum of 10 percent. Andorra also has an indirect tax on consumption, through the taxation of the supply of goods and services by entrepreneurs or professionals, as well as the importation of goods, with a general rate of 4.5 percent. During 2010 and 2011, Andorra signed Tax Information Exchange Agreements (TIEAs), and no longer features on the list of tax havens in certain countries such as Spain. The ‘tax quarantine’ provision no longer applies when there is a change of tax residence to our territory. Andorra has a worldwide income tax system in which all income earned must be declared. This is very important for the purposes of signing double taxation treaties and being a fully comparable jurisdiction.
Andorra has a fiscal framework that is completely standardised with neighbouring and surrounding countries. This makes it attractive for new investors, with a network of agreements to avoid double taxation growing year by year. The principality is also a signatory to the common reporting standard, and has been exchanging information automatically with more than 70 countries each year, since 2017. In addition, it should be noted that the principality of Andorra is a member of the inclusive framework of the Base Erosion Profit Shifting (BEPS), having fully committed itself internationally to adapting its internal regulations to the provisions laid down in the action plans of the OECD project.
Virtually all investments or financial returns are exempt for non-residents. We have had a personal income tax since 2015 and it is a very competitive 10 percent. The first €24,000 is exempt on a general basis and the first €3,000 in savings is exempt, operating as reductions from the base. It is also a very powerful regime in relation to capital gains, which are generally exempt from taxation, as long as you do not hold more than 25 percent of the share capital.
Andorra does not have inheritance and gift tax, nor does it have wealth tax – like many European countries that have eradicated this tax from their internal regulations. The absence of this type of tax further enhances the appeal to investors and large estates.
The Andorran Sicavs and investment funds continue to be taxed at a reduced rate of zero percent in corporation tax and are generally recognised via double taxation agreements. In short, Andorra is a very attractive country fiscally that has been adapting and successfully passing all international and peer reviews.
Andorra currently has a competitive tax framework that is standardised with the surrounding countries
According to data from Actua.ad, foreign investment in Andorra has grown by 500 percent in less than a decade. With these favourable conditions as its calling card since the beginning of the economic opening process, Bradley Hackford recently ranked the principality as the second most attractive country in the world to invest in.
Andorra’s popularity in this respect would not be possible solely on economic grounds since a change of residence, or setting up a business in a place is also a life project. In matters such as education, health or security, the country is also at the forefront.
Geographically, Andorra is well connected with Barcelona and Toulouse, and meets basic needs with an excellent level of quality. It has free education with three educational models and international schools, a public health service recognised for its efficiency and good service, and a level of public safety that is among the highest in the world. It is a modern and digital country with 94 percent of homes connected to the internet via fibre optics.
In the last decade, the number of expats living in Andorra has grown by 35 percent and many top international artists and athletes have established themselves in the country. This is a figure that grows every year, as the level of recommendation among them is very high. Andorra’s positioning goes beyond attracting new residents and companies. The country is making its voice increasingly heard in international forums. Just recently the country’s entry into the International Monetary Fund became effective, and this now opens up new paths and opportunities for the country’s economy. Andorra is also currently negotiating an association agreement with the European Union.
The bank of the new Andorra
Andorra is a success story. It is the story of how a country has reinvented itself to seek an attractive international positioning that generates opportunities. As a bank and as a company, we see ourselves reflected in the new image of the country, and we believe in promoting openness, transparency, innovation and outstanding personal client service. Digital banking has played a key role in the transformation process of the bank, when it made a significant investment of resources and talented professionals to lead the digital banking sector in Andorra. As a result, this year’s World Finance awards have recognised us as the best online bank and best app in the country, for the fourth consecutive year.
We are closely connected with new companies coming to Andorra and with new passive residents. We know that the service offered by the financial sector is very important to the country’s standing, and to add value we work with the objective of making permanent improvements.
Just as the country has closed agreements with institutions such as the IMF, as a bank we also add partners, and have alliances with Goldman Sachs Asset Management, the Cuatrecasas law firm and with Pyrénées, the largest retailer in Andorra.