Andorra: a Tax reform to face the future with guarantees!

A few months ago, the President of the Principality of Andorra announced several measures to modify direct taxation, specifically the corporate tax and real estate capital gains. Tax Reform! An alarm that rang out loudly! The plan was about not modifying the tax rate, but to eliminate some deductions that, at a practical level, made the tax meaningless and thus make companies that have profits pay taxes on them, helping to provide more resources to the State, clearly weakened by the effects of the never-ending Covid crisis. In contrast, new deductions to promote digitization, cultural and sports patronage and the hiring of vulnerable personnel will be established. A Good initiative! In any case, we must bear in mind that the 10% rate is still one of the most competitive in Europe!

Obviously, the entrepreneurship and employer sector quickly raised a cry and pointed out that it wasn’t the best time to talk about a tax reform. This was due to the incidence in the construction and real estate development sector, especially housing rental. Although, the President of the Government announced the contribution of 10 million euros from the State budget to the Housing Fund, which suggests that the initial project of Andorra la Vella and others that are on the way will finally start getting developed. Andorra reacts!

It should be noted that not raising the 10% rate is very important regarding the international image that we project as a model of tax competitive jurisdiction, that it is probably one of the most attractive tax frames in the world. Notwithstanding this, the experience in the application of taxes can logically lead to corrections such as the one projected. These corrections can get justified if we consider the 59 million euros spent on ERTOs and the “crèdits tous”(loans to the companies) from which the Government guaranteed up to 149 million euros! More resources are needed for the Government, but they will precisely come from the recovery of the local companies’ health and from the taxes satisfied by international initiatives that are considering Andorra as a strategic solution.

Even so, the best new is that all the measures taken will be discussed in a working group for the tax reform where the Government and the rest of the public institutions will be represented. Anyway, for an optimal and consensual solution, the private sector should also be invited to participate (as it has been the one that has been hit harder and that has specially struggled to overcome the Covid crisis). In this sense, the Andorran employers’ association CEA has offered dialogue, and in fact nothing would be better than a permanent dialogue table between the public and private sector.

In addition, the introduction of the green hydrocarbon tax and the tourist tax has been announced. It would be two more tools, on the one hand, to preserve our environment and fight against climate change and, on the other, to be able to allocate resources to a future multifunctional space, to promote international events, exhibitions, and congresses.

The recovery is now an evidence, and the good intentions of our leaders remain intact. Indeed, they seem reinforced by the announced measures. In fact, the process of economic diversification began years ago, which is proceeding apace. This is possible because it seems clear that the differential value of our country, compared to other countries around us, is that, in Andorra, people want to come to live, to develop new initiatives, to carry out and manage their investments. In the countries surrounding us, especially after the Covid, people have the desire to quit and search a place with a better quality of life! Well, Andorra has precisely made this attractive vision its standard to face the future! Andorra is doing it well with a public-private strategy that seriously considers making the brand his late motive! The government/business mission at the Dubai World Expo in January 2022 is one example, but there will be many others in the future!

The Management

Augé Legal & Fiscal