Company Formation and the Residency Options Available.
Please note that due to current bank and Government policy of dissuading Andorra to be used as a company base to enjoy lower taxes than neighbouring countries I am unable to proceed with requests for applicants who are not prepared to show commitment to Andorra. This commitment is normally by residency for one or more of the shareholder/directors to enable the company to be "resident" as opposed to "non-resident". If you are simply looking for an offshore company without commitment as a base here to receive client payments or dividends, then regrettably I am unable to help further.
Since Andorra opened its doors to foreign ownership of companies without the need for a local Andorran administrator and majority shareholder (known as a "prestanom") there remain some complications about which you should be aware before you take any steps to form a company. These are summarised as:-
- Prohibited areas include online gambling sites, sex sites, banking, finance and areas of other online businesses, there are many others.
- Restricted areas that the Government either will not approve or for which you will need to be professionally qualified and registered locally as a "liberal professionel", for example medical areas, estate agencies, architects and so on.
- Geographical considerations as to where any current businesses may be based. Other than obvious ones such as North Korea and Iran, many countries in Africa for example are on various watch lists and or blacklists .
- Geographical considerations of clients of the companies, are they or will they be based in restricted areas?
The first hurdle in getting approval in principle will be the banks. They are the institutions that by pressure from various global diktats must be seen to be vetting all of the above areas for an account to be allowed in Andorra. Without a company account (and some have been denied even in what is an acceptable trading area in other jurisdictions) then the next step for seeking company approval from the Government cannot take place. I am able to advise on this first step by email subject to some KYC that I can forward to the bank with whom after preliminary approval you can deal directly with to drill down into the documents that compliance will need to see.
With the above principles digested and understood then I would be delighted to explore further with you. If you have any doubt as to whether a red line may apply to you then please email me.
If you are happy that none of the above would apply in your circumstances then please read on....
How do I form a company in Andorra? What do I need to do?
Under the new regulations any person who owns 34% or more of a company in Andorra can then apply for Category D Active Residency or Category B Passive Residency (For example husband and wife jointly owning a company each with 34% or more). An applicant may also own 100% of an Andorran company (called an S.L.U), there is no need for more than one Director. In both cases the minimum share capital requirement is €3,000. It is important to discuss with me which residency option is the preferred route since the timing sequence for Category B and D is markedly different.
I work closely with local Accountants and a lawyer who are able to advise you and arrange everything for you, from approval of an investment by a foreigner (first step) to actual company formation and a trading license (second step). The accountants will complete the company formation stage and I complete the Immigration stage for whichever category of residency you may choose.
Please note that procedure for opening a company in Andorra differs from the norm as in most jurisdictions, for example there are no ready made shelf companies for purchase, each company application being subject to approval both for the applicant and for the area of business. That does not mean that there are no companies available for purchase but it does mean that the purchaser will be subject to the same investment approval and in most cases the statutes of the existing company will require to be changed. All things considered a new company formation is the best route. Fees are quite high compared to "off the shelf" packages and much of the expense is Government cost of registration.
What documents do I need and how do I get them?
In general the following documentation is required for each shareholder to commence Foreign Investment Approval for company formation:
- An Apostillised/Legalised Police Certificate from the country of birth and if the passport is different a second police report from the country of nationality of the passport. In some cases a third police report if the current country of residence is different again (please discuss as this can be dispensed with in most cases).
- An Apostillised/Legalised copy of the information page of your passport(s) or if in Andorra we can arrange to have your passport original notarised (a lot easier if you are planning to be here).
- A Curriculum Vitae to show you either have the experience of operating such a company in Andorra and/or are so qualified.
For guidance on the required documents, how to obtain them and get them legalised please refer to the Police Certificate and Apostille section.
Sequence Events of Company Formation.
To start the company formation it is best to arrange a short visit to discuss the best options for you and to discuss the business plan. I also recommend at this stage to meet with the lawyer and accountants and also the bank. I can arrange a schedule for you based on your requirements. Due to recent COVID disruption and travel restrictions most of the company formation can be done remotely so please let me know if you wish to start the process in the knowledge that the company will be ready as and when you are able to travel here and complete Immigration formalities.
If you have already obtained the certificates we can notarise in Andorra a copy of your passport and commence the process of foreign investment approval.
A company name can first be approved before we apply for foreign investment approval. The Government are required to respond within 30 days and may also do so to request further information or clarification. In general a simple application will receive approval within the 30 days. The applicant is then required to return to Andorra to go before the Notary to complete the company registration. The company stautes and registration are the available within 12 to 15 days from the date of the Notary signing.
At this stage and if residency Category D is to be requested we can then apply to Immigration.
The final stage of company formation is the local trading license called the "Obertura de Comerç". This involves an inspection of the registered premises, health and safety due diligence and an approval at Parish level to operate the company at that address. Please note that the address can be your residential address subject to some basic minimum requirements and the agreement fo the landlord.
What about CASS and company tax ? Is Andorra part of the CFC agreement?
As soon as residency is approved normally within a few days you will need to apply for CASS ( Local social security) which is obligatory for all shareholders. The monthly contribution is fixed at 502.463 EUR per shareholder/salaried director (2023). but there are means to vary this optionally down to a lesser % and obligatorally up. These percentages can vary from 25% of the standard CASS figure above to 137.5%. Please refer to the CASS page.
Company profits tax is 10% but the distribution of profits from an Andorran company is not then taxed at the personal level. IGI (or IVA, VAT etc) is 4.5%. Annual returns are required for accounts, tax calculation, IGI ( twice per year or more) and the accountants will be able to complete all of that for you. Please note the advantageous 2% tax rate formerly allowed is no longer available.
Andorra is not part of the CFC agreement
(Controlled Foreign Company Regime), but with regard to international tax, BEPS (from “Base Erosion and Profit Shifting”), the term that defines the strategies for tax planning to take advantage of the discrepancies and inconsistencies between the national tax systems where benefits are transferred to contries ( Andorra) with low or nil taxation and where the companies carry out little or no economic activity to obtain a lower overall burden of taxation. Hence my warning as above!!
Andorra is one of the signatory countries within the framework of BEPS and thus, it is acknowledged and accepted by the Andorran tax institutions as a guide to gradually update the tax regulation of the country and adjust it to the new international context as it develops.
Considering that Andorra is part of BEPS it should be understood that the Andorran tax administration will eventually base itself on these guidelines provided by the OECD.
Andorra rules as far as CFC is concerned
Controlled Foreign Companies (CFC): Dividends and capital gains are exempt of taxation in Andorra provided the profits of the subsidiary were subject to at least 4% tax (not the dividend) in its domiciled country, the share holding is a minimum 5%, and held for at least 1 year. If exemption rules do not apply, taxes paid abroad will be deductible against Andorra tax liability.
Also, a special tax regime can be obtained, which allows you to pay 0% tax on dividends and CGT, independently of the share % held by the subsidiary, provided the subsidiary has nominal shares (not bearer) and the subsidiary has paid at least 4% tax on profits.
OK, all the above looks fine, but what category of residency am I looking at?
Please refer to the webpage that deals with the Immigration requirements for company formation under Category D known as "Compte Propi" if you are considering active residency.
If you need an Andorran company, residency and flexibility of actually being in Andorra and developing your business here, then you may wish to consider Category B of passive residency suitable for where the majority of trading ( minimum 85%) will be outside Andorra.
There is also an option for Category A of passive residency to form a holding company to receive subsidiary dividends ( In most cases) tax free at the perosnal level.
The above procedures are markedly different when it comes to Immigration and residency. Please read both Category requirements and contact me if you have a basic plan in mind.