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

Whether investing in real estate or vacationing there, the Principality has the arguments to attract investors.

Yesterday we started to get interested in the case of Andorra, the Principality of the Pyrenees, which has a very attractive tax system. If it’s for entrepreneurs, it’s 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 properties for rent, there is not enough free land … all this means that prices can be high.

Recently for 1,250,000 € (t. per m2). In the center of Canillo there is a 55 m2 ground floor apartment with 2 bedrooms for 195,000 euros (just over 3,500 euros/m2).

Renting has its advantages

Andorra receives 9 million tourists every year, especially for winter sports, and generates 30% of its GDP from tourism activities. Therefore, investing in real estate here may make sense, given that rental income 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 geographical location. Therefore, we can only advise spending a few days – even a few weeks – on the spot to fully appreciate the geographical location, the amenities and local life, the convenience (or not) for travel, etc.

We will not be surprised to learn that Andorran property taxation is beneficial. The buyer will have to pay “notary fees”, which consist of the notary fees themselves, usually between 600 and 1200 euros + 0.1% of the value of the property, and a heritage transfer tax (ITP) of 4% of the sale price. To this, of course, you can add commission real estate agencies (from 5% to 10% of the sale price).

Then you will have to pay local taxes every year, which will vary depending on the municipality and area of ​​​​housing. When reselling, you will have to pay capital gains tax, the amount of which depends on the period of holding the property: 15% if the resale occurs within a year after purchase, 13% if the resale occurs after 2 years, 10% after 3 years, etc. The tax disappears completely after being detained for 10 years.

Retirement in Andorra?

Of course, Andorra, a mountainous country, is not such a dream as Portugal, Greece, Morocco or Mauritius. However, it will be understood that the Principality offers tax advantages that are hard to ignore.

Tax benefits that become even more effective if you reside in Andorra for tax purposes with a “passive resident” status reserved for those who are not engaged in a profitable professional activity.

To do this, you need to have some money, as the local authorities ask you to invest at least 350,000 € on the spot, either in real estate or in a company, or simply by depositing them into a personal account in an Andorran bank.

Like professionals working internationally, you need to pay a deposit of 50,000 euros to the Andorran Financial Authority (AFA) and 10,000 euros for each dependent. You will also need to show that you have no criminal record and undergo a medical examination by the immigration medical office. Your income must be sufficient (300% of the national minimum wage) and you must prove that you have private health insurance. Finally, a minimum stay of 90 days per year is required for any passive Andorran resident.

If your case is accepted, you will be able to receive your French old-age pension to 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 (solidarity contribution for autonomy). You will not pay real estate tax (IFI), the dividends you receive will not be taxed more than your property or your donations.

If you have real estate assets, it may be wise to set up a heritage company (SPA), the local version of the French real estate civil society (SCI), but with more favorable taxation.

SPA allows you to own not only real estate in Andorra – for example, your residence on the spot, which you can rent when you do not live there – but also real estate abroad. Thus, if you own a property in France, once placed in a SPA, it will not be subject to corporate tax (maximum 10%) unless you rent it. The SPA also facilitates the transfer of its assets to heirs.

Get professional advice

Of course, investing in Andorra, settling there to do business outside of the Principality, becoming a passive resident after retirement… this is not done on a whim. It is imperative that you surround yourself with local lawyers—lawyers, notaries, immigration, investment, and entrepreneurship firms—to assess the full implications of your project. And of course, check if what you are considering is in line with the tax agreement signed between France and the Principality, otherwise tax optimization can quickly turn into a recovery!

Placing your assets with an Andorran bank – they have a good reputation – can be a profitable strategy, provided, again, that you have tax resident status, the only way to benefit from the country’s preferential taxation.

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