On October 31, 2023, the draft Law on the Tax on Foreign Real Estate Investment in the Principality of Andorra was admitted for parliamentary consideration, with the purpose of imposing a tax on foreign investments made on real estate located within its territory
In early February 2024, the project was approved by the General Council to implement for the first time this type of tax on foreign real estate investment carried out in the country.
When will this tax on Foreign Real Estate Investment be generated?
The taxable event will occur when real estate located in the Principality of Andorra is acquired, urban or real estate promotions are carried out, administrative concessions are granted, or participation in companies that have rights over real estate.
Who does the tax on foreign real estate investment affect?
This new tax will affect various groups:
- Non-resident individuals.
- Foreign legal entities (100%).
- Andorran legal entities with at least 50% of foreign share capital.
- Individuals with less than 3 years of residence.
- Andorran legal entities with foreign participation in share capital or residents with less than 3 years of residence, more than 5% and less than 50%.
If I am in any of the groups described above, what is the tax rate?
The tax rate is progressive and depends on a series of parameters:
3%:
- Investment in the first plot to build a single-family home.
- 1 flat, apartment, or studio.
- 1 commercial premises of maximum 250 m2.
- 2 storage rooms and 2 parking spaces.
5%:
- Second single-family property, second flat, apartment, or studio.
- Second commercial premises of maximum 250 m2 (together with 2 storage rooms and 2 parking spaces).
- Maximum of 5 single-family homes, flats, apartments, or commercial premises of 250 m2 maximum.
- Or a maximum of 10 parking spaces.
8%:
- Sixth single-family property, sixth flat, apartment, or commercial premises of maximum 250 m2 (together with 2 storage rooms and 2 parking spaces).
- Maximum of 9 single-family homes, flats, apartments, or commercial premises of 250 m2 maximum.
- Or a maximum of 18 parking spaces.
10%:
- Urban or real estate promotions.
- More than 1 plot per single-family home.
- All other cases different from the previous ones.
What determines the taxable base?
The taxable base is determined based on the real value of the foreign real estate investment. In urban or real estate promotions, the base will be the real value of the formalized investment. There is an exception in the case of Andorran legal entities that have a % of foreign capital (more than 5% and less than 50%), in this case, the taxable base will consist of the real value of the real estate investment carried out taking into account the proportion of foreign share capital that the foreign legal entity participates in.
Are there any tax credits or deductions?
The answer is yes, as the law provides for a tax credit of 90% on the tax liability for investments intended for renting housing in Andorra, as long as they are intended as a habitual and permanent residence for at least 10 years. In case of non-compliance with the previous assumption, the applied tax credit must be refunded and corresponding late payment interests applied. Rentals with purchase option or rental contracts made between related parties do not have the right to request the deduction of the tax.
The Andorran government estimates that the revenues generated by this new tax for the year 2024 could range between 10 and 12 million euros, depending on the foreign investments formalized in recent years. Due to the emergence of this new tax, before carrying out any real estate investment in the Principality of Andorra, it is important to study each case to assess different options and try to be fiscally efficient. At Summit Advisors, we have professionals in the sector who will advise you in the best way.