The principality, which has access to the sea between France and Spain, is not a tax haven, but it is far from a tax hell, especially for entrepreneurs.
Andorra. Its mountains, its authentic villages, its high mountain lakes, its winter sports resorts, its deep valleys. Its shops are also attractively priced, especially for cigarettes and alcohol. And now its tax optimization.
In recent months, many advertisements have appeared on the Internet, praising the soft taxation of the principality. What is it exactly? What is it legal to do? Are there pitfalls to avoid?
Andorra, a tax haven?
Wikipedia points out that the Principality of Andorra – a small landlocked country in the Pyrenees with a population of only 80,000 between France and Spain – “is often considered a tax haven”.
The country’s authorities deny this, pointing out that it is neither on the black nor the gray list of the FATF (Financial Action Task Force), an intergovernmental organization that fights money laundering and terrorist financing. It is also no longer on the OECD’s gray and black lists, as well as on the lists of non-cooperative tax jurisdictions of the European Union.
Thus, from the point of view of the international authorities competent in this matter, Andorra is not a tax haven.
On the other hand, income tax and corporate tax are limited to 10%, VAT is 4.5% for most goods and services, social security contributions are 15.5% and there is no double taxation (if the company has paid 10% of its profits, the shareholders are not taxed at queues), the principality can be considered a paradise for a Frenchman who often lives in a tax hell!
Under these conditions, it is easy to understand that investing in Andorra can be profitable. The Andorran government also wants to attract entrepreneurs, and this should not be difficult.
Entrepreneurs are invited
But is it relevant to open a business in Andorra? Let’s quickly remove the doubt: creating a business to work in the local market is not very interesting for a Frenchman. What, on the other hand, seems interesting is to establish yourself in Andorra to take advantage of favorable taxation and work outside the country. Obviously, not all activities lend themselves to this, but it is quite possible to imagine the creation of an Andorran company to develop a network of franchises outside the principality, for example.
The company could also engage in commercial brokerage, manage trademark or patent licenses, or even import-export. E-commerce activities are particularly suited to the situation in Andorra, and “web entrepreneurs”, influencers and other relationship marketing operators are among the targets of the public authorities.
It would also be advisable to create a holding company in Andorra that would hold the securities of companies located in France. They have the option of paying dividends to the Andorran holding company subject to reduced tax in France (5% according to the tax treaty signed between France and Andorra in 2013). Then the profits of the Andorran holding are not taxed, since the dividends received from the French companies are already taxed.
There is a status ad hoc for entrepreneurs whose company generates more than 85% of its turnover outside the Principality of Andorra, “passive residence for professionals with international activities”.
Several conditions must be met, such as:
- establish a company headquarters in Andorra;
- present a business plan viable;
- have an annual income equal to three times the Andorran minimum wage;
- prove that you have a sufficient level of qualification and professional experience in the field in which the activity is carried out;
- post a sort of bond of €50,000 plus €10,000 for each dependent;
- hire an employee on the spot;
- buying or renting housing;
- stay in Andorra for at least 90 days per year;
- contribution to private health insurance, disability and old age insurance.
Of course, the entrepreneur can choose the so-called “active residence”. In this case, he is forced to live at least 183 days a year in the principality and create his tax house there.
He will then take full advantage of Andorra’s reduced taxation and be forced to join the state’s social security system, which is considered one of the best in the world. Professional “active residence” also requires a deposit with the Andorran Financial Authority (AFA), but for a smaller amount (€15,000).
But if you don’t have (or don’t have) the soul of an entrepreneur, there are other options, as we’ll see tomorrow…