Analysis of the regulatory changes of Law 3/2024, of February 1st, on the tax on foreign real estate investment in the Principality of Andorra
Undoubtedly, foreign investment, in the various forms it is welcomed within the Principality, has been a fundamental element for economic growth, the attraction of entrepreneurship, talent, innovation, knowledge, increased productivity, and the efficient use of the country’s resources. This was already the case in 2008 with Law 2/2008, of April 8th, on foreign investments. Subsequently, Law 10/2012 was approved, which aimed to cover existing gaps and shortcomings, and which, like its predecessor, was a key tool to control the arrival of foreign investors in the Principality.
Recently, on February 27th, 2024, the new Law 3/2024, of February 1st, on the tax on foreign real estate investment in the Principality of Andorra (hereinafter Law 3/2024), has been published in the BOPA, which is generating certain controversies and diverse opinions regarding its application.
Leaving aside the real estate sector, what is the status of other operations subject to foreign investment under Law 3/2024? From Auge Legal & Fiscal, after analyzing the new legislation and its practical application, we can detail the following relevant implications of the reference law:
Firstly, it is necessary to take into account that its FINAL PROVISION FIRST amends Article 1 of Law 10/2012 with the aim of incorporating new obligated subjects. In this sense, the following are considered foreign investments in the Principality of Andorra, acquisitions, by any title, of assets located in the Principality of Andorra by:
a) Non-resident individuals in the Principality of Andorra.
b) Individuals residing in the Principality of Andorra for less than 3 years of uninterrupted residence, counted from the acquisition of the immigration permit or similar document, who make a foreign real estate investment.
c) Foreign legal entities, including public entities of foreign sovereignty.
d) Andorran legal entities with foreign participation in their capital or voting rights, direct or indirect, in a percentage equal to or greater than 50 percent jointly. Also considered foreign investments are those intended for branches or other types of permanent establishments in Andorra by 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, directly or indirectly, to any of the individuals or legal entities described in letters a), b), c), and d) of this article.
e) Andorran legal entities, with foreign participation in their capital or voting rights, direct or indirect, less than 50 percent but more than 5 percent, and that make a foreign real estate investment.
f) Andorran legal entities that are financed directly or indirectly by any of the persons described in letters a), b), c), and d) of this article.
Therefore, it is necessary to differentiate, in the first term, between individuals and legal entities. On the one hand, for the case of individuals, foreign investment will be required for the cases of (a) non-residents, and (b) residents with less than 3 years who make a foreign real estate investment. On the other hand, for the case of legal entities, foreign investment will be necessary for the cases of (a) foreign companies, (b) Andorran companies with foreign participation equal to or greater than 50% or foreign financing, and (c) Andorran companies with foreign participation equal to or greater than 50% that make a foreign real estate investment.
Furthermore, it is important to highlight the FOURTH FINAL PROVISION, which changes the administrative authorization regime of foreign investment by modifying Article 18.3 of Law 10/2012, moving from a system of positive silence to one of negative silence, so that if within the maximum period of 2 months (plus possible extension) the competent ministry has not expressly resolved, the authorization is understood to be denied.
In addition, a fee for the processing of the application for foreign investment is introduced through the FIFTH FINAL PROVISION, for an amount of 300.-€.
Regarding the novelties that Law 3/2024 brings in terms of foreign investment applications, leaving aside foreign real estate investment, we will have to consider whether this measure will truly be positive for the economy of the country, taking into account the increasingly notable difficulties that corporate investors have in being able to access and operate in the Principality and which, therefore, limits the entry of talent, entrepreneurship, and money from foreign investors.
