Banking in Andorra
Banks and other financial institutions in Andorra are regulated by the Andorran National Financial Institute (INAF) under the Law Regulating the Financial System 1993.
Until recently, Andorran banks (there are eight of them) were, at least in theory, owned entirely by Andorran interests, although in practice some French and Spanish banks have minority shareholdings, often in connection with the marketing of asset management or investment products. The Andorran Government is preparing to admit four foreign 51%-controlled banks, under stringent conditions, which will have Andorran chief executives. In addition, a number of separate asset-management firms have recently been licensed, some of which are subsidiaries of international fund management companies. These moves do not by any means imply that Andorra intends to develop a substantial foreign-owned financial services sector.
Andorran banks are all members of the Agrupacio de Bancs Andorrans, which operated a system of self-regulation until the regulatory law was passed in 1993. The banks have very conservative policies, and high solvency ratios: depositors' funds are guaranteed under a 1997 law, but no Andorran bank has ever defaulted on its depositors.
The over-riding characteristic of Andorran banks that attracts foreign depositors and investors, apart from the absence of taxes, is secrecy. Numbered accounts, made available only to top-quality clients, are said to be known only to 'the customer, the banker and God'. General accounts, also secret under the law, are highly protected as well.
In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.
In response to international concern over money-laundering, Andorra introduced the 'Law of Protection of Banking Secrecy and of Prevention of Laundering of Money or of Assets Deriving from Crime' in 1995. This law requires financial institutions to report any suspicious money movements to the INAF; and the INAF is then entitled to pass on such information to foreign countries if an Andorran judge orders it. However, this will only be done if there is prima facie evidence of a crime (which in Andorra definitely does not include tax avoidance or evasion), and even then is only permitted to countries which have banking secrecy laws, thus excluding, for instance, the UK and the US. In most circumstances, the effect of the law is to strengthen secrecy, not weaken it.
In August, 2001, a Department for the Prevention of Money Laundering (Unitat de Prevenció de Blanqueig - UPB) was established. The UPB, which is equivalent to a Financial Intelligence Unit under Egmont Group rules, is authorized to carry out unannounced inspections and hands information to the public prosecutor's office or to the government.
The governing council of the UPB consists of two financial officials who are appointed by the Minister of Finance, a judge nominated by the Consell Superior de Justícia, and two police officers who are appointed by the Minister of the Interior.
Holding Companies in Andorra
The rules for Andorran majority participation and the absence of tax treaties with other countries mean that Andorra is not a suitable place in which to base international trading operations. That said, the absence of taxation, the high levels of secrecy (for companies as well as banks), and the liberal business environment in Andorra make it a good place in which to collect the proceeds of legitimate international business activity; and this is especially true if the ultimate beneficiary is living in Andorra.
A typical structure is triangular: trading, licensing or investment operations in high-tax countries are carried out from a jurisdiction which has reasonable double taxation treaties, but low withholding taxes on ongoing payments (eg Malta), and the proceeds are remitted to an Andorran company, which pays no tax at all. There are numerous permutations, and there are in fact many tens of thousands of Andorran companies formed for this type of purpose.
There is talk within Andorra of weakening the local ownership rules, which effectively limit Andorra's international business to small-scale operations which can tolerate a degree of legal uncertainty; but it is not thought likely that the powerful and very rich interests that dominate Andorran commercial life will be willing to accept much diminution (as they would see it) of their prerogatives. Draft legislation was published in March, 2004, which would allow 100% foreign ownership in certain sectors, including audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting.
Andorra Offshore Tax And Law
The term 'offshore' is not used in Andorran legislation or in describing company forms. Indeed there is no 'offshore' sector as such, since there is no significant direct taxation of Andorran entities in any event. See Direct Corporate Taxation for details of the few taxes that impinge on business; see Personal Taxation for details of taxes impinging on individuals.
In June, 2004, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.
Forms of Offshore Operation
The corporate forms available for external operations in Andorra are the same as those available for internal operations.
Fees Payable by Companies
The annual fee (tax) payable to the Government by a Societat Limitadad is 463 euros; and by a Societat Anonima is 1,000 euros.
Taxation of Foreign Employees of Offshore Operations
This section refers to the taxation of foreign employees in Andorra. See Domestic Personal Taxes for the general principles of individual taxation in Andorra, which also apply to the resident employees of foreign entities. There are in fact no personal taxes as such in Andorra and there is no distinction between the employees of resident or non-resident operations, because all employers have to be Andorran and resident.
Exchange Controls in Andorra
There are no exchange controls in Andorra; indeed there is no national currency. Most of the important world currencies are accepted freely.
Offshore Activities in Andorra
Since there is no offshore sector as such in Andorra, and all trading or business activity has to be carried on by entities which are majority-owned by Andorran nationals or long-stay residents. Other than the rules concerning ownership, there is very little legislation to restrain business activity, which takes place in a liberal environment. However, the Penal Code and the Law of Protection of Banking Secrecy and of Prevention of Laundering of Money and Assets Deriving from Crime 1995 contain severe penalties for criminal activity; and the Government is very watchful in this respect. (Tax avoidance and evasion do not count as crimes.)
Employment and Residence
All foreigners wanting to work in Andorra need work permits. These are obtained by employers, whether Andorran individuals or companies, on behalf of employees. Self-employment is not allowed until after 10 years' residence.or trade in Andorra.
A new immigration law finally passed in 2002 was highly contentious, but legalised the situation of about 7,000 'pink slip' long-term immigrant workers, as well as setting new rules for the issuance of work permit quotas which give preference first to citizens from Andorra's neighboring countries, then to citizens from the countries of the European Union, then to citizens of countries with which the principality has signed international agreements, and finally immigrants from third party states. Under the law, the government sets annual quotas for new issues of renewable work permits.
There are separate types of non-renewable work permit for temporary and seasonal workers, to which the quotas don't apply. The holder of such a work permit must leave the country within one month of expiry of the permit.
Renewable work permits are issued first for 6 months, extensible for a further year; then a temporary residence card is issued valid for a renewable 2 years; then, a 5-year ordinary residence card is issued; and finally a 10-year privileged residence card is issued. Fees are modest.
Tourist visas are issued freely, but for longer-term stay it is necessary to have either a work permit (which will ensure issue of a residence permit) or a Passive Residence Permit (PRP). Permanent residence means a stay of more than 183 days in the year.
The Law on Passive Residence Permits 1996 allows 200 new residence permits per year. Passive residents do not work or carry out professional activity in the principality. New entrants must:
- show minimum annual income of 24,000 euros for the head of the family and 6,000 for each dependent family member;
- prove good conduct in their previous domicile;
- produce health insurance and a pension plan;
- own or rent a house or apartment in the principality;
- pay a non-interest-bearing deposit of 24,000 euros plus 6,000 euros for each dependant to the Government, which is refundable on departure.