Tourism, the mainstay of Andorra's tiny, well-to-do economy, accounts for roughly 80% of GDP. An estimated 9 million tourists visit annually, attracted by Andorra's duty-free status and by its summer and winter resorts. Andorra's comparative advantage has recently eroded as the economies of neighboring France and Spain have been opened up, providing broader availability of goods and lower tariffs. The banking sector, with its "tax haven" status, also contributes substantially to the economy. Agricultural production is limited - only 2% of the land is arable - and most food has to be imported.
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1) Presentation of the tax system in Andorra:
The Law of 19 December 1996 which governs the Andorran fiscal system establishes the general framework of taxes and organises 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.
2) 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 harmonised 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 harmonised 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 authorised to practise 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.
Tradespeople 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 authorised 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 onassets 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 favour of:
. the Conseil General (Parliament), the Government, Municipalities (town-halls) and Quarts (county-towns)
. spouses or the communal estate in favour 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 favour 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.
3) Local taxes:
The local authorities, the "Municipalities", of each parish are authorised 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.
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