New law affecting the tax on foreign investment in real estate

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If you are interested in investment opportunities in Andorra, or have already taken the first steps, you are probably aware that there has been a significant change affecting the acquisition of Andorran property by foreigners. We refer to a new tax on foreign investment in property. Announced in September last year, this measure brings to an end a temporary moratorium and marks a turning point in the conditions for those wishing to take advantage of the country’s potential.
Find out how this latest change will affect your investment strategies and what you can do about it.


Table of contents:

  1. Tax on foreign investment in real estate
    Boosting the market for rented housing
    Advantages of investing and living in Andorra
    Investment options in Andorra
    Foreign investment in 2022
  2.  

Tax on foreign investment in real estate

The new law affecting this tax was approved at the beginning of February, 2024. It is regarded as a progressive indirect tax, is levied on the real value of the acquisition and consists of four tranches:
• 3% on the purchase of the first property.
• 5% on the second and subsequent purchases.
• 8% when at least six properties are purchased.
• 10% on the tenth and subsequent properties or for urban or property developments.

Who has to pay this tax?

Under the new law, any natural or legal foreign national who obtains authorisation to invest in property in Andorra is obliged to pay this tax.

How will it be applied and calculated?

The amount of the tax is determined when the foreign investment is notarised. For new construction projects, it is calculated when the new construction is registered. Once foreign investment status has been obtained, registration at the Foreign Investment Registry becomes obligatory, as do the generation and payment of the corresponding tax. One should note that if that foreign investment status is lost, the tax already generated and paid will not be refunded.

Tax reductions

The law provides for a 90% reduction in the tax payable if the property is used for letting. In order to take advantage of this, the taxpayer must register the property as a permanently and habitually rented property for at least 10 years. If this situation changes before the end of the 10-year period, the taxpayer will have to pay the full tax. In addition, the rebate will be limited by anti-abuse clauses.

Boosting the market for rented housing

Law 3/2024, which regulates the tax on foreign investment in real estate, was recently passed, and came into force on 29th February, 2024. Its main objective is to promote the market for rented housing. In September, 2023, a temporary suspension of foreign investment in the real estate sector was announced, a decision that was approved by the General Council of the Government of Andorra on 7th September, in order to halt the increase in purchases of property and ensure sustainable development. It was also proposed that the revenue generated by this tax would contribute to facilitating access to affordable rented housing. In order to discourage speculative investments, a moratorium was introduced while the tax on speculative investments was being finalised. The moratorium was in place until October, when the future implementation of the tax was made public.

• Future regulation of “co-working”

This year, the government has also announced the creation of the future “co-working” law, which will free up apartments for rent. This change will also benefit people who want to open a company in Andorra, as it will make it easier to set up a registered office in co-working areas. It should be noted that one of the requirements for opening a company in Andorra is to have a registered office. This step follows the application for the company name, the application for investment authorisation, the pre-opening of the company bank account and the incorporation and registration at the Trade Registry.

Advantages of investing and living in Andorra

Despite the new tax, Andorra stands out for several reasons that make it an attractive place in which to live and invest. First, its fiscal system is highly competitive, offering low tax rates for individuals and companies. In addition, the quality of life in Andorra is exceptional, with a stunning natural environment, a low crime rate and a first-class healthcare system. Discover all of these advantages here.

These advantages make Andorra an ideal place not only for those seeking a peaceful and secure home, but also for those who wish to minimise their fiscal burden and benefit from a favourable economic environment.

– New authorisation fees for residence in Andorra

A new general quota for residence and self-employment permits has been approved, of 125 permits. Of these, 25 are specifically reserved for the liberal professions. The remaining 100 are for residence and self-employment.

Investment options in Andorra

If you are an expatriate considering investing in Andorra, there are several options available to suit different interests and objectives. These include:

• Incorporation or participation in Andorran companies:

Investing in local companies can be an excellent way to enter the Andorran market.

• Investment in property:

Buying a property is an option, and even if there is a tax that regulates it, you can benefit from reductions as long as the property is intended for letting.

• Portfolio investments:

For those interested in diversification, Andorra offers portfolio investment opportunities, including shares, bonds and other financial instruments. This allows investors to benefit from the financial markets while enjoying the fiscal advantages that Andorra has to offer.

• Other forms of investment:

Andorra is also receptive to other forms of investment, such as foundations, co-operatives and joint-property communities. These options enable investors to contribute to the economic and social development of the country, while benefiting from a regulated and secure environment.

Foreign investment in 2022

According to data from the Statistical Office, foreign investment contributed 18.7% to Andorra’s GDP in 2021.
In 2022, of the 1,160 applications submitted, 925 were formalised, representing a volume of 388.9 million euros. Most of them were in the services sector. The countries of origin of the applicants were mainly Spain and France, followed by the United Kingdom and Germany, these latter two having far fewer applicants than the first two countries.
Properties purchased were valued at 181.4 million euros in total. In both 2021 and 2022 the number of such purchases was greater than in previous years.

Moving to or investing in Andorra can offer numerous benefits, from fiscal advantages to a high quality of life. With a variety of investment opportunities available, Andorra offers the perfect environment in which to achieve your financial and personal goals. Whether through participation in local companies, investment in property, portfolio investment or alternative forms of investment, Andorra becomes an attractive location for investors and prospective residents.
We invite you to take the next step.
Contact us for more information.