BUSINESS ACTIVITIES IN ANDORRA

 



We do not usually recommend Andorra as a place to incorporate for aliens!

Although most people imagine that having a company in Andorra where taxes are negligible would be a good idea most often this is not the case. Anyone continually using an Andorran trading entity to deal with fixed service clients in EU will quickly find out that withholding taxes apply. A taxable client in EU continually paying invoices for services to an Andorran enterprise will be required by his local tax authorities to deduct tax at source because Andorra has no double taxation treaties with any country. If you are primarily interested in trading goods, there will be less tax scrutiny in the receiving country, but Andorra has been limited by the EU in its ability to export goods not manufactured within Andorra.

There are more possibilities in Andorra for licensing deals, intellectual property and software companies and other service businesses as well as for international triangular dealings in goods. But any structure should be carefully thought out before committing to it. In essence Andorran trading entities are best for trading within Andorra. Andorra is pretty ferocious in controlling unauthorized trading. It is not an offshore environment as many people imagine. Andorra is most definitely onshore country – it just happens to be a non-tax jurisdiction. Anyone trying to purport to trade from Andorra by means of a foreign trading enterprise and accommodation address in Andorra will be quickly run out of town and no Andorran bank will accept a foreign corporate account. Not even foreign trusts are recognized in Andorra as qualified persons – mainly because there is no necessity for them in Andorra since the individuals pay no tax. To sum up, Andorra offers significant advantages to individuals but us not usually suitable for offshore trading structures. So what's the hidden benefit? Because trading structures are not ideal in Andorra, but bank privacy is, your quest for asset protection and privacy is literally forced into a greater realm of protection because you'll need to use multiple jurisdictions in order to operate. For more education on the value of using multiple jurisdictions, please contact our representatives for resource materials.

Incorporation in Andorra

Should you be new to Andorra and be contemplating a new business in Andorra there are two main options since it is unlikely an Andorran will involve himself with you with a simple Registre de omerc name that implies possible unlimited liability.

Option One

The first, known as an S.L. – Societat Limitada is the simplest form of limited liability company in Andorra. First of all a company name must be chosen. The name proposed may not have words like: International, Andorra, Principat, or other component that would have an effect of giving the enterprise a supposedly official or dubiously up-market or old-established status. Company logos are similarly restricted in Andorra. Acronyms are often given in addition, such as: CISA – meaning Construtoria Immobilaria S.A. Once both name and acronym have been checked for availability with the central register of business names, one seeks permission from Andorra Government by means of a suplica for incorporation.

The ‘estatus' ( articles of association) and ‘rao social' ( aims of the company) are normally written by a lawyer in Andorra, who may or may not be the proposed titular, and submitted at the same time in one packet of documents to the government for approval. This approval is not necessarily a formality and the articles can either be sent back for revision or refused completely . There are relatively few problems with this stage in case a non-trading company is set up for holding Andorran property, for instance. However with a proposed company where it is obvious that the non-Andorran party is intending to operate the company, permission would be more difficult. As a general rule the authorities like to know with whom they are dealing and a lack of proficiency in the language and a reasonable grounding in the customs of Andorra would be black marks. In other words if a sole non-Andorran party had not held an Andorran work permit before it is most unlikely that a company would be authorized quickly.

Once the articles of association for an Andorran company have the stamp of approval from the Andorra Government, the minimum capital should be deposited in a bank, and the parties must formally incorporate the company in front of a notary. At this time a suitable fiduciary contract must be agreed upon and signed, as must a full power of attorney in favor of the non –Andorran party which allows him to act for-and-in the name of the company in all daily matters. Once this has been achieved, an application for the opening of the business must be made to the relevant Comu (Town Council) who will check the proposed trading premises and charge their local taxes. The application must be accompanied by a certificate from the landlord. Once the Comu has approved everything, a final ‘suplica' must be made to Andorra Government for the public opening of the enterprise. The whole process can take anywhere from 3-4 months to a year. When the company trades in Andorra, as opposed to just being a holding company, the company must apply for the Registre de comerc and pay the applicable annual tax.

Option Two

The second easiest option to incorporate a company in Andorra is to incorporate Societat Anonima – S.A.

This solution is good for substantial business investments and multiple shareholder situations. The S.A. obviously has a bit more class than S.L., and many well-known and highly profitable enterprises have never upgraded. Basically the same processes apply as described for the S.L. but with even stiffer conditions.

General Trading of Andorran Companies

Once registered, incorporated, and in the possession of the ‘Registre de Comerc' permission, an Andorran company can trade in any terms for which it is authorized. With limited companies it is requireed for trading accounts to be maintained, but there is no formula to which one should adhere. In other words, as long as you behav, no rules apply. It is not necessity for accountants or other high-priced advisors, and there are no taxes to pay currently, except for the regular and fixed annual tax.

The only formal requirement that impinges on normal trading is registration at ‘Caixa Andorrana de Seguretat Social', the C.A.S.S. as it is known in Andorra, for employers. All new work permits applied for are taxable, and the employer must pay 13% of the employee's salary as an ‘employers' contribution' monthly. The real rate of the contribution is set at 18% of salary, but 5% is paid by the employee. It is quite normal for companies in Andorra to pay the employee's contribution as well, but this is not mandatory. Employers should note that Andorra enforces is a minimum wage.

Once these minor matters are attended to, trading in Andorra is easy. Ethics amount to behaving yourself carefully and whether you are able to pay bills and conduct a proper business, so you are advised to ensure that sufficient funds are available to cover all trading difficulties in the first few years. Nothing gets around quicker in Andorra than a rumor that, ‘XYZ Company is unable to pay on demand, and we strongly advise not to count on anymore than an absolute maximum of 30 days credit from their trade accounts.' It is better to pay cash, and take whatever discounts are offered. Please note that there is no sanction in Andorran law against disregarding other countries' fiscal or legal arrangements; re-invoicing is commonplace for international trading. However, this is not to be considered for the physical importing of goods into Andorra.

The golden rule of trading in Andorra is to: use one's common sense, and as long as you do not indulge in any business contrary to the very basic set of crimes in Andorra (Codi Penal), everything should be all right. Of particular interest to companies in this respect are the very stiff penalties against such things as fraud and abuse of confidence by directors or employees. Telling any third-party about any matters concerning a company, or its private dealings with clients, is prohibited. Even in the case of very serious suspected crimes, it is exceedingly difficult for any authority in Andorra to openly investigate the details of a business . In the case of ‘suspicion of crime' the police are, of course, able to solicit the suspension or closing of a business immediately. Felons are normally persuaded easily to volunteer information.

Note that it is inadvisable to rely too heavily on supplier's or customer's accounting systems. Since you are automatically expected to pay creditors on demand, old-school Andorrans, whose accounts may well be in their back pocket, tend to be a bit haphazard about charging. They are quite likely to forget to send a bill for a few months or have better things to do. Then suddenly they will surface and send a debit note or ‘lletre de canvi' for immediate settlement to your bank for a slew of bills from the last 3 months and 18 days which could bear no relation to your own allotted budget. Obviously, this could lead to total confusion, not to mention a cash–flow trauma.

Again, be warned that approval for a limited company incorporation does not imply the right of any person involved to actually work in Andorra without the necessary permit from Andorra's Oficina d'Immigracio . It is forbidden to trade in Andorra in any manner which could be considered ‘acting as an unregistered Andorran branch' of some foreign registered enterprise. Those who try to set-up mail drops and invent fictitious Andorran trading names, or otherwise abuse Andorran commercial paradise, quickly find that the mail does not arrive, and the police ensure that the perpetrator departs. Acting as a consultant outside Andorra, whilst formally being a passive resident of Andorra is perfectly acceptable, and encouraged, though it is not advisable for mail to be addressed in any name other than the consultant's own name- to avoid any suspicion of illegality.

The other point in doing business in Andorra is to note that it is inadvisable to rely too much on supplier's or customer's accounting system. Since one is automatically expected to pay creditors on demand old school Andorrans whose accounts may well be in their back pocket tend to be a bit haphazard about charging. They are quite likely to forget to send a bill for a few months or have better things to do. Then suddenly they will surface and send a debit note or lletre de canvi for immediate settlement to your bank for a whole slew of bills for the last 3 months and 18 days which may bear no relation to your own precise money summaries and lead to total confusion not to mention your cash – flow trauma.

Again it should be noted that approval for a limited company incorporation does not imply the right of any person involved to actually work in Andorra without the necessary permit from the Oficina d'Immigracio. It is forbidden to trade in Andorra in any manner which could be taken to be acting as an unregistered Andorran branch of some foreign registered enterprise. Those who try to set up mail drops and invent fictitious Andorran trading names or otherwise abuse Andorran commercial paradise quickly fin that the mail does not arrive and the police ensure that the perpetrator departs. Acting as a consultant outside Andorra whilst formally being a passive resident of Andorra is perfectly acceptable and encouraged though it is not advisable that mail should be addressed other than in the consultant's own name to avoid any suspicion of illegality.