Overview

The Basics

Andorra is a small, land-locked country located in the Eastern Pyrenees between France and Spain. It has a mountainous landscape, which combined with its cold, snowy, and sunny winters, makes for excellent skiing. The summers are warm and dry.

The capital city is Andorra La Vella. The country has been divided into seven administrative parishes. Its main natural resources are hydropower, mineral water, timber, and iron ore. Although there is no international airport, Barcelona is only three hours away and there are good road connections to both Spain and France.

The official language of the nation is Catalan although both Castilian (Spanish) and French are common.

The population of Andorra was estimated at 71,201 in June of 2006. Thanks to a combination of an increase in natural resources and immigration, the population is growing slowly albeit steadily. The majority of the population is Spanish (44%) while Andorrans make up the second largest group with 32% of the population. The remaining population is split amongst various nationalities including French and Portuguese.

Andorra essentially has been an independent nation since 1278 when France and the bishop of Urgel agreed to be co-princes of Andorra. However, it was not until 1993 that Andorra made any significant efforts to become involved with the rest of the world. During this year, Andorra both wrote its first constitution and joined the UN. In theory, France and the bishop of Urgel continue to be responsible for Andorra’s defense and foreign.

Andorra is known for its well-preserved architectural heritage including Roman art in small churches and medieval bridges. In addition to its architectural heritage, Andorra is a popular tourist destination because of its combination of scenic beauty, resorts and freedom from customs and excise duties.

Economy & Government

Andorra is a parliamentary democracy with a 28 member single-house legislature called the Consell General de las Valls. A Cap de Govern (Prime Minister) is appointed by the co-princes based upon recommendations from the Consell General de las Valls. The newly appointed Prime Minister then appoints an executive cabinet.

Historically, Andorra’s agrarian economy was based on livestock as it only has a very small amount of arable lands. Today, animal farming as well as tobacco production is quite important. However, tourism clearly dominates the economy, accounting for at least 80% of the annual GDP. One of the main attractions of Andorra for tourists is the lack of duties and VAT. Andorra may lose this relative advantage in relation to their neighbors in the coming years as both France and Spain have begun to liberalize their markets. Both manufacturing and financial services account for roughly 5% of GDP.

As a result of minimal taxation and government involvement in business, Andorra is a prosperous nation. Its per capita GDP is $24,000, which is in the European middle range.

Andorra must import most of its goods and as such there is a structural trade deficit. Nevertheless, government finances are generally healthy and usually boast a primary surplus with only a small amount of national indebtedness.

Andorra tends to have a volatile growth rate that is largely influenced by Spain and France. Currently, its economy is healthy and in 2004 growth was reported at 4%.

Standard & Poor raised Andorra’s long-term sovereign credit rating from “AA-“ to “AA” in August of 2004. This improvement was based up Andorra’s improved fiscal position, which was the result of fiscal reforms designed to preserve the general government surplus and net creditor positions. The S&P analysis also referenced Andorra’s “wealthy economy, competitive services sector, and stable political and institutional framework.” In addition, reflecting upon Andorra’s healthy-medium term growth prospects, S&P affirmed its “A-1+” short-term sovereign credit rating.

Foreign Affairs

Andorra has been a member of the United Nations since 1993.

It is also a member of the EU Custom Union. It applies the common external tariff of the EU for non-agricultural goods, but is treated and acts as a EU member for trade of manufactured goods.

Passports are required for entry into Andorra; however, Visas are not required for tourist or business stays of up to 90 days. Anyone wishing to stay longer in Andorra must either have a work permit (which in turns guarantees the issue of a residence permit) or a Passive Residence Permit. A stay of more than 183 days in the year is considered permanent residence.

Generally speaking, work permits are difficult to obtain as they are usually only issued to EU and EFTA nationals upon receiving proof that no Andorran national is available for the job. Self-employed foreigners cannot obtain a work permit although a foreign national wishing to be self-employed may form an Andorran company and then hire him/herself.

Up to 200 new Passive Residence Permits may be issued per year to foreigners who neither work nor carry out professional activities within the principality. New entrants must:

• Illustrate a minimum annual income of 24,000 euros for the head of the household and 6,000 euros for each dependent;

• own or lease living quarters within the principality;

• pay a non-interest bearing refundable deposit of 24,000 euros plus 6,000 for each dependent to the government;

• prove good conduct in their previous home;

• provide proof of insurance and a pension plan.

The World of Business

With no corporate income taxes and only moderate annual fees and charges, the Andorran business environment is best describes as very liberal. There is little regulation and as there is no official currency, there are no capital or exchange controls.

There is a well-developed telecommunication system and Internet hosting is available.

Thanks in part to Andorra’s strict banking secrecy rules, the private banking sector is Andorra’s best-developed business sector. Aside from the well-developed banking sector, Andorra does not offer any other notably sophisticated financial services. However, the Government has encouraged the insurance sector in the past.

As of July 2005, Andorra was obliged to impose a 15% withholding tax on returns of savings paid to EU Member State citizens.

The Andorran government does not currently offer any incentives for foreign investments besides offering financial support for the development of tourist facilities. Foreign investment in domestic businesses is usually limited to minority stakes and foreign involvement in the financial sector is very complex.