Invest in Andorra or retire there? (2/2)

Whether you’re investing in real estate or retiring, the principality has a case to make for attracting investors.

Yesterday we began to look into the case of Andorra, a Principality of the Pyrenees, which has a very attractive tax system. If for entrepreneurs, then also for those who want to invest in real estate.

The real estate market in Andorra is limited: the country is small (468 km2), there are few new buildings, there are not enough rental properties, there is not enough vacant land… all this means that prices can be high.

A 126m2 penthouse (i.e. top floor) in a large new chalet in Escaldes-Engordany with 3 bedrooms, 2 bathrooms, terrace, two parking spaces and basement was recently offered for €1,250,000 (ie €9,900). per m2). There is a 55m2 2 bedroom ground floor apartment in Caniglio town center for €195,000 (just over €3,500/m2).

Renting has its advantages

Andorra receives 9 million tourists every year, especially for winter sports, and generates 30% of its GDP in tourism. Therefore, investing in real estate in this location makes sense, given that the rental yield is usually between 1% and 3%, but can be as high as 7% and even up to 15% for seasonal rentals.

Of course, the rental yield will depend on the purchase price, the quality of the property and its geographic location. Therefore, we can only advise spending a few days – even a few weeks – on site to fully appreciate the geography, amenities and local life, travel convenience (or not), etc.

We will not be surprised to learn that in Andorra property taxation is advantageous. The buyer will have to pay “notary fees”, which consist of notary fees, usually between €600 and €1,200 + 0.1% of the property’s value, and inheritance transfer tax (ITP) of 4% of the sale price. To this, of course, you can add the commission of the real estate agency (from 5% to 10% of the sale price).

Then you will have to pay local taxes every year, which will depend on the municipality and the area of ​​the home. On resale, you will have to pay capital gains tax which depends on the holding period of the property: 15% if the resale takes place within a year of purchase, 13% if the resale takes place after 2 years, 10% after 3 years, etc. The tax disappears completely after 10 years of imprisonment.

Retiring in Andorra?

Of course, Andorra, a mountainous country, is less of a dream than Portugal, Greece, Morocco or Mauritius. Still, of course, the principality offers tax advantages that are hard to ignore.

Tax benefits that are even more effective if you live in Andorra for tax purposes with the “passive resident” status reserved for those who do not engage in gainful professional activities.

It is necessary to have some money for this, as the local authorities ask to invest on the spot at least 350,000 euros, either in real estate, in a company, or simply by putting it in a personal account in an Andorran bank.

As with professionals working abroad, you will need to deposit €50,000 with the Andorran Financial Authority (AFA) and €10,000 for each dependent. You will also need to provide a clean record and undergo a medical examination with the Immigration Medical Service. Your income must be sufficient (300% of the national minimum wage) and you must prove that you have private health insurance. Finally, a minimum of 90 days per year is required for any passive resident in Andorra.

If your application is accepted, you will be able to receive your French pension into your bank account in Andorra. It will be taxed at local rates (between 5% and 10%), and you will exempt from CSG, CRDS and CASA (contribution of solidarity for autonomy). You do not pay real estate tax (IFI), the dividends you receive will not be taxed any more than your estate or your donations.

If you own real estate, it is advisable to create a company of inheritance (SPA), a local version of the French civil society of real estate (SCI), but with more favorable taxation.

A SPA not only allows you to keep property in Andorra – for example your on-site residence that you can rent out when you’re not living there – but also property abroad. Therefore, if you own a property in France, once placed in a SPA, it will not be subject to corporation tax (maximum rate of 10%) unless you rent it out. An SPA also makes it easier to transfer your assets to your heirs.

Use the advice of professionals

Of course, investing in Andorra, settling there to do business outside the principality, accepting passive resident status after retirement… is not done on a whim. It is important to surround yourself with local legal professionals – lawyers, notaries, companies specializing in expatriation, investment and entrepreneurship – to assess all the implications of your project. And of course, make sure that what you are considering is in line with the tax agreement signed between France and the Principality, otherwise tax optimization can quickly turn into recovery!

Placing your assets in an Andorran bank – it has a good reputation – can be a profitable strategy, again, provided you are a tax resident, the only way to benefit from the country’s favorable taxation.

Finally, it should be noted that different residence statuses – passive or active – do not give the right to obtain Andorran citizenship. To do this, it is necessary to live 20 years without a break in the principality, successfully pass an exam on the country’s language (Catalan) and its history, then renounce the previous citizenship, Andorra does not allow dual citizenship.