The landlocked principality 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 alpine lakes, its winter sports resorts, its deep valleys. Their stores are also at attractive prices, especially for cigarettes and alcohol. And now its tax optimization.
In recent months, many advertisements have appeared on the Internet praising the principality’s soft taxation. What exactly? What is legal to do? Are there pitfalls to avoid?
Andorra, tax haven?
Wikipedia points out that the Principality of Andorra — a small, landlocked country in the Pyrenees of just 80,000 between France and Spain — is “often considered a tax haven.”
The country’s authorities deny this, pointing out that it is neither blacklisted nor graylisted by 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 greylists, blacklists, and lists of non-cooperative tax jurisdictions in the European Union.
Thus, from the point of view of international bodies competent in this matter, Andorra is not a tax haven.
On the other hand, with income tax and corporate tax set at 10%, VAT at 4.5% on most goods and services, social security contributions at 15.5% and no double taxation (if the company paid 10% from their profits). , shareholders are not taxed in return), the Principality can be considered heaven for a Frenchman who often lives in tax hell!
It is easy to understand that under these conditions it is profitable to invest in Andorra. The Andorran government also wants to attract entrepreneurs, and it should not have any problems with this.
Entrepreneurs are welcome
But is it important to start a business in Andorra? Let’s quickly get rid of the doubt: the creation of a business focused on the local market is of limited interest to the Frenchman. What seems interesting, on the other hand, is to be based in Andorra in order to take advantage of favorable taxation and work outside the country. Obviously, not all activities are suitable for this, but it is quite possible to imagine the creation of an Andorran company, for example, to develop a network of franchises outside the principality.
The company may also engage in commercial intermediation, manage trademarks or patent licenses, or even import/export. E-commerce activities are particularly suited to the situation in Andorra, and “network entrepreneurs”, influencers and other relational marketing operators are among the targets targeted by government authorities.
It may also be advisable to set up a holding company in Andorra that will own the securities of companies located in France. They have the option to pay dividends to the Andorran holding company subject to a tax reduction in France (5% in accordance with the tax agreement signed between France and Andorra in 2013). The profit of the Andorran holding is not taxed, since dividends received from French companies are already taxed.
Have a status ad hoc for entrepreneurs whose company generates more than 85% of its turnover outside the Principality of Andorra, “passive accommodation for professionals with international activities”.
Several conditions are required, for example:
- open the company’s headquarters in Andorra;
- introduce business plan viable;
- have an annual income equal to three times the minimum wage in Andorra;
- prove that you have a sufficient level of qualification and professional experience in the industry in which you operate;
- post a sort of security deposit of €50,000 plus €10,000 for each dependent;
- hire an employee on the spot;
- buying or renting a home;
- stay in Andorra for at least 90 days a year;
- participate in private health insurance, disability and old age insurance.
Of course, an entrepreneur can choose what is called “active living”. In this case, he is forced to reside in the Principality for at least 183 days a year and set up his tax house there.
Then he will fully benefit from Andorran tax cuts and will be forced to join the state social security system, which is considered one of the best in the world. Professional “active living” also requires a deposit with the Andorran Financial Authority (AFA), but for a smaller amount (15,000 euros).
But, if you don’t have (or no longer have) an entrepreneurial soul, there are other options, as we’ll see tomorrow…