Legal System

 

Under the 1993 constitution, Andorra has an independent judicial branch with a legal system based upon the French and Spanish civil codes. Although legal processes tend to become rather complex at higher court levels, Andorra is a very business-friendly jurisdiction.

 

More specifically, the judicial branch is supervised by the Superior Council of Justice. The council consists of five members appointed by the two co-princes, the head of government, the president of the general council, and members of the lower courts. Each member of the judiciary is appointed for a 6-year term.

 

The Andorran legal system is generally described as both fair and efficient. The 1993 constitution promotes liberty, equality, justice, tolerance, defense of human rights, dignity, and privacy as well as guarantees against arbitrary arrest and detention.

 

Corporations Act 1983

 

This act governs corporations formed in Andorra and defines three types of companies which may be set-up: the Societat de Responsabilitat Limitada and the Societat per Accions both of which have shareholders with limited liability, and the Societat Colectiva, whose partners have unlimited liability.

 

Two- thirds of any company with commercial or profit-seeking goals must be owned by Andorran citizens, i.e. people born in Andorra or Privileged Residents. The Andorran majority owner of a business, or a “titular” may legally be an Andorran citizen who is willing to give operation control of the business to a foreign “owner” by signing a share transfer in blank in return for a fee called a prestatanom. And so titular is a nominee in practical but not legal terms. It is important to remember that although this is a very common practice, legally speaking a titular can exercise considerable power. One may assume that his investment will remain safe using a well-established titular.

 

In 2004 discussions began that may lead to changes in the law which will allow up to 40% foreign participation in most types of companies, and 100% foreign participation in certain types of company, including: audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting. Later, other sectors may be opened up as well.

 

The new law also proposes that companies with turnover great than 5 million Euros annually will be subject to a compulsory audit.

 

Andorra Banking Law

 

As of the 1993 law regulating financial institutions in Andorra, the Andorran National Financial Institute (INAF) regulates all financial institutions in Andorra.

The Agrupacio Bancs, the bank that all Andorran banks are a member of, was self-regulated until the aforementioned 1993 law. The banks are known for their very conservative policies as well as their high solvency ratios. A 1997 law guarantees all depositors funds although no Andorran bank has every defaulted on its depositors.

 

In addition to the absence of taxes, foreign depositors and investors are drawn to Andorran banks for their tradition of privacy. It is said that numbered accounts, made available to elite clients, are known only to “the customer, the banker, and God.” General accounts are also secret under the law and highly protected.

 

Under the Andorran Penal Code, details of a bank account can only be disclosed to anyone, including authorities, with a court order.

 

The Law of Protection of Banking Secrecy and of Prevention of Laundering Money or of Assets Deriving from Crime was passed in 1995. Although this law requires financial institutions to report any suspicious financial transactions to the INAF who is then entitled to pass this information to foreign governments on the orders of an Andorran judge, this can only happen if there is prima facie, sufficient, evidence of a crime and Andorra does not define tax avoidance or evasion as a crime. Furthermore, evidence of questionable financial transactions may only be passed on to countries that have banking secrecy laws, which excludes both the UK and the US. Ultimately, this law protects and strengthens secrecy within the banking industry rather than weakening it and addresses the need to find ways to protect against money laundry without destroying banking secrecy.

 

More specific information on legal regulations relating to privacy can be found under the heading privacy/capital/currency.

 

Offshore legal and tax regimes

 

As there is no significant direct taxation of Andorran entities, the term “offshore” is neither used in Andorran legislation or in describing company forms.

 

Forms of Offshore Operation

 

There is no difference between the corporate forms available for external operations as those for internal operations. See incorporation for more details of the corporate forms available in Andorra.

 

Taxation of Foreign Employees of Offshore Operations

 

There is no income tax, capital gains tax, gift, inheritance, or capital transfer taxes in Andorra. Employees are, however, required to make national insurance contributions. Andorran law does not make a distinction between the employees of resident and non-resident operations as all employers must be Andorran.

 

Andorra Offshore Activities

 

Because all trading and business activities must be carried out by entities that are either controlled by Andorran nationals or long-stay residents, there is no traditional offshore sector in Andorra. However, there are very few laws to restrict business activity within Andorra other than the rules relating to ownership. As such the business environment is quite liberal. The government is quite vigilant in upholding both the Penal Code and the Prevention of Laundering of Money and Assets Deriving from Crime 1995, but neither tax avoidance nor evasion count as crimes.

 

Domestic and Corporate Taxes

 

The Andorran government does not tax profits, dividends, or income. Moreover, there are no withholding taxes, sales taxes, or capital gains taxes. Companies are only required to pay business license fees and property taxes and to make contributions to social securities. Corporations must also pay registration fees, which vary according to the status of the business.

 

Business License Fees

 

A trading license is required for any type of business that wishes to trade within the principality of Andorra. The trading license, or registration, varies according to the type of trade and may be obtained at the Registre de Comerc in the commune in which they are based. The registration costs 670 euros annually.

 

Holding companies are not required to obtain a trading license.

 

Andorran Payroll Taxes

 

The Andorran health and social security system is known as the CASS, Caixa Andorrana de Segueretat Social, and applies to all employees of Andorran individuals or companies. According to law, employers must contribute 13% of salaries while employees contribute between 6 and 9%; however, employers often pay the entire contribution.

 

Non-employed persons contribute between 200 and 400 euros per month.

 

Property Taxes

 

Businesses must pay property taxes to the municipality in which they are located. The amount of taxes that are levied depends in part upon whether the business owns or rents the property upon which they are located. A business that rents its premises is only liable for business rates. On the other hand, a business that owns or is constructing property will pay taxes in the amount of 2.5% of the agreed upon purchase price for the acquisition of said property as well as taxes for construction on top of the normal business rates. Business rates are based upon square meters of property.