On March 6, the Consell General approved Law 5/2025, for sustainable growth and the right to housing (also known as the “Omnibus Law”), marking a significant milestone in regulatory efforts aimed at addressing the current social and economic challenges of the real estate market, immigration policies, and foreign investment in Andorra. This legislation aims to ensure sustainable access to housing, curb real estate speculation, and foster fair economic development.

The Omnibus Law was published on March 26, 2025, in the Official Bulletin of the Principality of Andorra (BOPA) and will enter into force 15 days after the day following its publication, i.e., from April 10, 2025. Below is a comprehensive overview of the various reforms:

1. Measures regarding foreign investment

The Omnibus Law introduces significant changes to Law 10/2012 of June 21 on foreign investment, by implementing new restrictions aimed at protecting local resources and ensuring more balanced access to the real estate market for Andorran residents.

Redefinition of the concept of foreign investment

The concept of foreign investment has been redefined for both natural and legal persons, with a distinction made between foreign real estate investments and direct foreign investments (Art. 2 of Law 5/2025, of March 6, 2025).

Two distinct categories are now recognized:

  • Foreign real estate investment: covers any acquisition of ownership or other real rights over real estate, through property development or via administrative concessions involving private use of real property.

  • Direct foreign investment: refers to taking a stake in Andorran commercial companies, as well as the creation, expansion, or modification of branches or other types of permanent establishments in Andorra.

Limitations on foreign real estate investment

Starting from April 10, 2025, the date the Omnibus Law comes into effect, foreign investors will be subject to the following limitations concerning real estate investments in Andorra (Art. 9 of Law 5/2025 of March 6, 2025):

  • Regarding the number of properties allowed for acquisition

Foreign investors may only acquire one of the following types of property:

    • Either a plot of land for the construction of a single-family house or an existing single-family house.
    • Or a maximum of two residential units (apartments or studios) with their annexes, limited to three parking spaces and three storage units per unit. By exception, this limitation does not apply to housing intended for affordable rental as a primary and permanent residence, provided a rental commitment of at least 10 years is made.
    • Or six parking spaces.
  • Specific restrictions on foreign investment

Foreign investments in real estate development for speculative purposes are prohibited. However, an exception is made for developments intended exclusively for rental housing for habitual and permanent residence, provided that at least 50% of the units are offered at affordable prices and the rentals are maintained for a minimum of 10 years. This exception also includes investments related to common areas, parking spaces, and storage rooms associated with the rental units.

Furthermore, real estate investments intended for tourist housing or accommodations are also prohibited, as are lease agreements with purchase options or leases entered into between a company and related individuals, and other legal acts that may constitute a circumvention of the law.

2. Tax measures to reduce real estate speculation and facilitate access to housing

The Omnibus Law introduces targeted tax reforms to reduce real estate speculation, encourage affordable rentals, and promote the acquisition of housing for use as a primary residence.

Corporate Tax (IS)

  • Surtax on speculative real Estate gains – legal persons:

Gains realized within less than 5 years of the acquisition of the property are considered speculative. In such cases, profits from property sales within the first 2 years are subject to a 10% surtax. If the period between purchase and sale is between 2 and 5 years, the surtax is reduced to 5% (Art. 78 of Law 5/2025 of March 6, 2025).

  • Enhanced tax reduction – applicable to rental income:

This has been increased from 5% to 10% for rents collected on housing located in Andorra, used as a primary and permanent residence. This reduction remains subject to certain conditions: the rent must not exceed €9/m² (previously €8/m²), and a monthly cap of €1,250 applies (Art. 77 of Law 5/2025 of March 6, 2025).

Personal Income Tax (IRPF)

Incentives are introduced for individuals

  • Surtax for speculative real estate gains: As with corporate tax (IS), a surtax applies to speculative gains from the sale of real estate in Andorra when the holding period is less than 5 years (see the same surtax rates as listed above for IS) – Art. 79 of Law 5/2025 of March 6, 2025.
  • Enhanced deduction for moderate-priced rentals: Landlords may apply an additional 10% deduction on their rental income (under the same caps as above under IS), if the property is used as a primary residence (Art. 79 of Law 5/2025 of March 6, 2025).
  • Deduction for Investment in a Primary Residence: Increased to 50% of the invested amounts, up to a limit of €5,000 per year. This reduction also applies to the purchase of properties intended for affordable rental (Art. 79 of Law 5/2025 of March 6, 2025).

Non-Resident Income Tax (IRNR)

The tax rates for Non-Resident Income Tax (IRNR) have been revised for income derived from the sale of real estate. Thus, a rate of 25% applies when the sale takes place within 2 years from the date of acquisition. For a holding period between 2 and 5 years, the rate is reduced to 20%, and to 15% for a holding period between 5 and 10 years (Art. 80 of Law 5/2025 of March 6, 2025).

Property Transfer Tax (ITP)

Andorran residents may benefit from an exemption from property transfer tax when purchasing their first residence, provided the value does not exceed €600,000. This exemption is subject to several conditions, such as having income below a certain threshold and occupying the home as a habitual and permanent residence for at least 4 years (Art. 81 of Law 5/2025 of March 6, 2025).

Tax on Foreign Real Estate Investment

  • Modification of the scope of persons subject to the tax

The scope now includes, among others, Andorran residents without Andorran nationality who have not lived in the country for at least 3 years within the 10 years preceding the investment (Final Provision Three of Law 5/2025 of March 6, 2025).

  • Modification of the tax rates on foreign real estate investment

Tax rates have been revised to align with the new restrictions on foreign real estate investment indicated above (Final Provision Three of Law 5/2025 of March 6, 2025):

    • For the first residential unit (whether a plot for constructing a house or an existing property – house, apartment, or studio with annexes and up to three parking spaces and three storage rooms per unit): the tax rate is 3% of the actual investment value.
    • For the second residential unit, the rate increases to 5%.
    • Any acquisition exceeding these limits is taxed at 10%.
  • Specific tax rebate on the foreign real estate investment tax

A 90% tax rebate is now available on the foreign real estate investment tax if the investment is used to acquire or construct affordable rental housing for primary and permanent residence, for a minimum duration of ten years. This reduction also applies to annexes directly related to this use (parking, common areas, etc.). In the event of a change of use within this period, the full tax benefit must be repaid with interest (Final Provision Three of Law 5/2025 of March 6, 2025).

3. Immigration-related changes

New conditions have been introduced in the Omnibus Law regarding active and passive residence permits. These new rules amend Law 9/2012 of May 31, which modified the Qualified Immigration Law.

Active residence:

  • Residence as an employee: Workers must remain in the economic sector for which the residence permit was issued during the first year, except for workers in the healthcare or education sectors, where a personnel emergency justifies it, and provided prior authorization has been obtained. During this time, they may not engage in self-employed activities. Failure to comply with these conditions may result in the cancellation of the work and residence permit (Art. 24 of Law 5/2025 of March 6, 2025).

  • Residence for self-employed workers: To apply for this type of permit, applicants must reserve a spot before submitting the final authorization request. The maximum deadline to complete the process is six months, during which the applicant must provide the necessary documents to the Immigration Service (Art. 28 of Law 5/2025 of March 6, 2025).

Passive residence (non-lucrative):

  • Modification of eligible investments in Andorran assets: Investments in financial assets of Andorran entities are no longer accepted as a qualifying criterion. Eligible investments now include: real estate in Andorra, equity in Andorran companies, debt securities issued only by Andorran public authorities, life insurance products taken out with Andorran entities, and non-interest-bearing deposits with the Andorran Financial Authority (Art. 37 of Law 5/2025 of March 6, 2025).

  • Increase in minimum investment threshold in Andorran real estate: Raised to €600,000 per acquired unit (previously €400,000) - Art. 37 of Law 5/2025 of March 6, 2025.

  • Increase in non-interest-bearing deposit to the AFA: The required deposit has been increased from €47,500 to €50,000 for the main applicant, and from €9,500 to €12,000 per dependent (Art. 37 of Law 5/2025 of March 6, 2025).

  • Extension of deadline for mandatory Investment in Andorran assets: Previously, the investor had 6 months to prove that the minimum eligible investment had been made. Now, an additional 6-month extension is possible in the case of force majeure or third-party delays. After this period (6 or 12 months), proof of the investment must be submitted, or the residence authorization will be revoked.

This new regulation does not account for all possible scenarios or specific situations, which must be assessed on a case-by-case basis. Therefore, it is crucial that foreign investors are well-informed and prepared to comply with these new regulations. Doing so will help minimize their tax burden and maximize their benefits within the current legal framework. Legal and tax expert guidance will be essential to adapt to these new rules and make the most of the opportunities brought by these reforms.

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