New tax on foreign real estate investment in Andorra: Key points and implications

Andorra has experienced significant growth in foreign investment since its introduction in 2008. To ensure a sustainable growth model and contribute to public policies, Andorra has introduced a new tax on foreign real estate investment with the Act 3/2024.

Impact of Act 3/2024

Act 3/2024, applicable from February 29, 2024, establishes a progressive tax for foreign investors in Andorra's real estate market. This tax ranges between 3% and 10% of the real value of the property, depending on the number of properties and the type of investment.

Definition of foreign investor

Act 3/2024 modifies the definition of a foreign investor established in Act 10/2012 on foreign investment in Andorra. Consequently, foreign investors include:

Individuals not residing in Andorra;
Foreign individuals residing in Andorra with less than three years of uninterrupted residence.
Foreign legal entities;
Andorran legal entities with foreign participation of 50% or more, directly or indirectly, or entities financed by individuals or legal entities classified as foreign investors according to the law;
Andorran legal entities with foreign participation between 5% and 50%, directly or indirectly, engaging in foreign real estate investment.

Acquisitions made from February 29, 2024, must be declared in the Foreign Investment Registry and will be subject to the tax.

Exemptions to the new tax

Certain exemptions to the new tax include:

Donations between family members, according to their relationship and degree of kinship;
Contributions of real estate or real rights to companies where all shareholders have a close family relationship;
Acquisitions due to death (inheritances);
Free allocations in the dissolution of the matrimonial economic regime due to divorce;
Acquisitions of real estate or real rights resulting from the execution of real rights of guarantee or any other legal business granted by Andorran banks;
Acquisitions of real estate or real rights by non-residents or residents with less than three years of residence in Andorra, to develop commercial or industrial activities, provided that: (i) the activity is not real estate promotion or purchase and sale of properties; (ii) the property is held for more than 10 years; (iii) the properties were not initially intended for residential use; (iv) the investment creates jobs.

Tax rebate

If the investment aims at acquiring or constructing rental housing that constitutes permanent and habitual residence for a minimum period of ten years, a 90% tax rebate is established.

Procedures and deadlines

A fee of 300 euros per foreign investment application is established, payable at the time of application;
An advance tax payment is required before the favorable resolution of the foreign investment. Before the acquisition deed is granted, the foreign investor must demonstrate before the notary the fulfillment of the self-assessment and the tax payment corresponding to the formalized foreign investment;
The deadline to resolve foreign investment applications is extended to two months (extendable by another month), and in case of administrative silence, it will be considered negative, unlike the previous procedure where it was considered positive after one month without a response.

Conclusion

This new regulation does not consider different scenarios or specific situations that need to be analyzed for each case. Therefore, we consider it crucial that foreign investors are well informed and prepared to comply with these new regulations. This way, they can minimize their tax burdens and maximize their benefits within the legal framework.

This information is provided for informational purposes only and does not constitute any recommendation or legal advice. It is based on the regulations in force at the time of writing.

At Carlota Pastora Advocats, we will be happy to answer your questions about the taxation of foreign real estate investment in Andorra and everything that entails proper real estate tax planning.