Law 3/2024, dated February 1st, on the tax on foreign real estate investment in the Principality of Andorra, newly in force, recognizes the need to implement a tax that burdens foreign real estate investment, which is evident at the time of investing in the territory of the Principality of Andorra.
Mar 22, 2024
The tax on foreign real estate investment in the Principality of Andorra is an indirect tax that levies on foreign real estate investment in the territory of the Principality of Andorra, whether it is manifested directly or indirectly.
As for the tax base, a model has been chosen according to which this base is calculated based on the real value of the foreign real estate investment that is formalized as a result of the authorization of the foreign investment granted, without prejudice to the established obligation of an advance payment calculated on the declared foreign investment. The tax rate is progressive depending on the number of real estate units on which the investment is materialized.
At the same time, a tax allowance is established in the case that such foreign investment is materialized in real estate intended for the rental market for habitual and permanent residence for a minimum term of 10 years, limiting this bonus through anti-abuse clauses.
The tax settlement and payment regime is based on an advance payment prior to the delivery of the favorable resolution for the authorization of foreign investment, and the subsequent self-assessment and prior to the formalization of such foreign investment before the public notary who instruments the investment, which incorporates the authorization, the self-assessment and the entry in the matrix of the public document for verification purposes.
Exempt from the tax are:
Acquisitions, by cause of death, of real estate or real rights over these by a non-resident natural or legal person.
Contributions of real estate or real rights of use over these made in favor of companies in which all shareholders and natural persons who transfer the mentioned goods or real rights over them have a blood or adoption relationship in a descending, ascending and/or collateral line up to the second degree, or are spouses or cohabitants in stable partnerships.
Gratuitous acquisitions of real estate or real rights of use over these, concessions, participation in companies or other legal entities that have rights over these properties, made between spouses, between cohabitants in a stable partnership, or those made between natural persons who have a degree of consanguinity or adoption in a descending, ascending and/or collateral line up to the second degree.
Gratuitous awards of real estate or other real rights of use over these, participation in companies or other legal entities that have real estate or rights over them, made in the context of the dissolution of the marital economic regime by divorce.
Acquisitions of real estate or real rights of use over these, concessions, participation in companies or other legal entities that have real rights over these properties that result from the enforcement of real rights of guarantee or any other legal business transferring ownership or other real rights on real estate that involve the total or partial extinction of a financing, provided that the acquirer is the same entity that granted the financing.
Acquisitions of real estate or real rights of use over these, concessions, participation in companies or other legal entities that have real rights over these properties, resulting from the enforcement of real rights of guarantee or any other business transferring ownership or other real rights over real estate, which involves the total or partial extinction of a financing granted by a banking entity or a non-bank financial entity originating from a loan granted by an Andorran bank.
Acquisitions of real estate or real rights of use over these, concessions, participation in companies or other legal entities that have rights over these properties, by non-resident natural persons or residents with less than three years of residence or by non-resident legal entities, to develop a commercial, professional, commercial or industrial activity by the acquiring natural or legal person, provided that all of the following conditions are cumulatively met:
That the activity is different from real estate development or the purchase and sale of real estate;
That the ownership of the real estate or the rights or the participation in companies and other legal entities is maintained for a minimum period of ten years; and
That it is not real estate initially intended for residential use or dwelling according to the authorization of the construction license of the corresponding Comú, in which case they are subject to tax.
That the investment is linked to the creation of jobs. In the event that the property of the real estate, the title of the real right or the participation is not maintained for the minimum period set in this clause, the operation will be subject to tax.
The tax obligation falls upon natural or legal persons obtaining a foreign real estate investment authorization in the Principality of Andorra:
Non-resident natural persons in the Principality of Andorra.
Natural persons residing in the Principality of Andorra with less than 3 years of uninterrupted residence, counted from the obtaining of the immigration permit or similar document, who make a foreign real estate investment.
Foreign nationality legal entities, including foreign sovereign public entities.
Andorran nationality legal entities with foreign participation in their capital or in their voting rights, directly or indirectly, in a percentage equal to or greater than 50 percent together.
Foreign investments are also considered those aimed at branches or other types of permanent establishments in Andorra of non-residents; and those made by other Andorran legal entities when at least 50 percent of the voting rights of their decision-making body belong.
Andorran nationality legal entities, with foreign participation in their capital or in their voting rights, directly or indirectly, less than 50 percent and more than 5 percent, and that make a foreign real estate investment.
Andorran nationality legal entities, which are financed directly or indirectly, by any of the persons described in letters a), b), c) and d).
It is understood that foreign participations are those held by natural persons who are not residents or who have less than 3 years of uninterrupted residence, counted from the obtaining of the immigration permit or similar document.
The tax is triggered at the time of the formalization of the foreign investment in the Principality of Andorra before the Notary. In the case of urban or real estate developments, the tax is triggered when formalizing the declaration of new construction, in the case of new buildings, or the urban planning, in the case of a new urbanization, before the public notary.
The tax base consists of the real value of the foreign real estate investment that is formalized as a result of the authorization of the foreign investment.
The tax rates for the tax are as follows:
In the case of foreign real estate investments made by persons, whether natural or legal, not residing in Andorra, residents with less than 3 years, and companies with Andorran members participated by foreigners.
The tax rate is 3% on the real value of the foreign real estate investment made, with the maximum limit of investment in a single plot of land to build a single-family home, or a flat, apartment or studio, and up to two storage rooms and two parking spaces.
The tax rate is 5% on the real value of the foreign real estate investment made, if it corresponds to an investment in a second single-family home, or a second flat, apartment or studio, along with two storage rooms and two parking spaces; and up to a limit of five single-family homes, flats or apartments, along with the two respective storage rooms and parking spaces; or alternatively, up to ten parking spaces.
The tax rate is 8% on the real value of the foreign real estate investment made, if it corresponds to an investment in a sixth single-family home, or a sixth flat, apartment or studio, along with two storage rooms and two parking spaces; and up to a limit of nine single-family homes, flats or apartments, along with the two respective storage rooms and parking spaces; or alternatively, up to eighteen parking spaces.
The tax rate is 10% on the real value of the foreign real estate investment made in the case that the foreign real estate investment does not fall within any category or exceeds the real estate investment limits established in the preceding sections; or in case of investments in more than one plot of land indicated in the first section; or in the case of urban or real estate developments.
In the case of foreign real estate investments made by Andorran nationality legal entities with direct or indirect foreign participation in its capital or with its right to vote, less than 50% and more than 5%, the tax rate corresponds to the one detailed —based on the number of real estate units— but applied to the amount of investment proportional to the social participation corresponding to the foreign capital.
If the foreign investment aims at the acquisition or construction and placement on the market of rental housing for habitual and permanent residence, for a minimum period of ten years, a bonus of 90% is applied to the tax fee. This bonus is applied to the investment really destined for rental housing for habitual and permanent residence or directly linked to this use, such as common areas, parking lots and storage rooms assigned to the aforementioned rental properties.
If bonuses have been granted on the tax fee due to the use of the investment in rental housing for habitual and permanent residence, and the tax obligor changes this use within the period of ten years following the date of the first rental contract formalized, the tax obligor must return the applied bonus. The amount to be reimbursed is the full bonus plus late payment interest.
If the taxpayer changes the use of any real estate unit that makes up his investment in housing, the amount to be reimbursed is proportional to the bonus applied to that real estate unit.
Investments in real estate intended to carry out lease-purchase contracts, leases between legal entities and other related persons or entities already described, and other legal transactions that may constitute fraud are excluded from this bonus.
The obligated taxpayers must make a payment on account prior to delivery of the favorable investment foreign resolution.
The payment on account is deducted from the liquidation fee to obtain the differential fee. When, as a result of the payment on account, the differential rate is negative, the ministry responsible for finances refunds the excess.
Obligated taxpayers must present and sign a return for this tax, determining the corresponding tax debt and paying it. In any case, the payment must be made before the granting of the public deed of foreign real estate investment and must be accredited to the notary granting the act.
