2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to, and Restrictions Upon, Foreign Investment

Prior to 2008, Andorra has limited foreign investment opportunities mainly due to concerns about the impact of foreign firms on such a small economy. As a consequence, non-citizens were allowed to own no more than 33 percent of a company. Foreigners were entitled to own 100 percent only after residing in the country for a minimum of 20 years.

In April 2008 the Andorran government approved a new law on investment that entered into force on November 7, 2008. This new law follows the OECD requirements in order to avoid harmful fiscal practices. The framework of the new law establishes immediate access to foreign capital in certain sectors of the economy (audiovisual, e-commerce, aesthetic medicine and wellness, training, industrial production based on new technologies and research and development), subsequent to authorization from the Andorran government in the event that the investment is equal to or exceeds 50% of the share capital. This law is not applicable to Andorran banking entities that are governed by specific legislation regulating the financial sector, especially the “Law regulating the basic administrative regime of Andorran banking entities” dated 30 June 1998. This law permits foreign credit institutions to invest in up to 51% of the capital of Andorran banking entities.

There are three types of companies: Limited Society (Societat Limitada - SL), Anonymous Society (Societat Anonima -SA) and Collective Society (Societat Colectiva – SC).

Andorran companies are obliged to keep and retain accounting records, prepare and sign their annual accounts and the proposed distribution of profit within six months from year end, and submit these annual accounts to audit when two of the following circumstances prevail during two consecutive years: a) total assets exceed 3,600,000 Euros; b) net sales exceed 6,000,000 Euros; c) the company has over 25 employees. The audit obligation was established by Law 20/2007.

Conversion and Transfer Policies

The currency of Andorra is the Euro. There are no limits or restrictions provided that they correspond to a company’s official earnings records.

Expropriation and Compensation

Private investors are entitled to compensation by law. As far as can be determined, no incidents of expropriation involving the United States have occurred in Andorra.

Dispute Settlement

Disputes are resolved through courts in accordance with established laws.

Performance Requirements and Incentives

Andorra’s regulations call for direct taxation of 100 percent foreign-owned companies. Bills also call for a 15 percent tax on profits but taxes may be offset by expenditures on research and development, staff training, and environmental protection. Laws also provide tax relief of 10,000 Euros per year for the employment of disabled individuals. Investment laws require an investigation into the background of the partners founding the company. Individuals with criminal records in any country, who have been fired from a public position or who have been prosecuted for money laundering, tax evasion, misappropriation of public funds or property crimes will be disqualified from owning a company in Andorra.

Right to Private Ownership and Establishment

Property rights are protected under article 27 of the Constitution. Laws restricting foreign ownership of domestic enterprises have been changed to allow greater foreign investment.

Protection of Property Rights

Andorra has been a member of the World International Property Organization (WIPO) since 1994. Protection of intellectual property rights, however, is weak. The country accepts business related to research of intellectual property and internet sales. Although the government of Andorra took some steps to become a member of the World Trade Organization some years ago, the country is not a full member.

Transparency of the Regulatory System

The government has transparent policies and effective laws.

Efficient Capital Markets and Portfolio Investment

Andorra adopted the Euro in 2002. Because the country does not have a currency of its own, there are no exchange or capital controls. The financial sector is modern and efficient.

The Andorran administration has no formal investment incentive schemes but may occasionally offer support for the development of tourist facilities or for the development of state of the art investment. Through the office of Andorran Development and Investment (ADI) the government has a platform called AndorraAngels which provides meeting points between private investors (business angels) on the one hand, and on the other hand, entrepreneurs and Small and Medium Enterprises (SME) who need capital to develop their business projects in the Principality. The platform AndorraAngels was created in 2009 and it is a member of EBAN -the European Business Angels Network.

Competition from Stated-Owned Enterprises (SOEs)

There are few State-Owned enterprises which are allowed to compete with private enterprises without restriction.

Corporate Social Responsibility (CSR)

Over the years, the Andorran banking sector has been consolidating its voluntary corporate social responsibility policies. Each of the five Andorran banks has taken economic, social and environmental measures. Local enterprises tend to follow CSR principles.

Political Violence

Andorra has not experienced any politically motivated destruction of property. No anti-American sentiment is evident in the country.

Corruption

Legal and financial systems are highly transparent. The Andorran revised Penal Code that came into force in September 2005 increases penalties for corruption and money laundering and include drug-trafficking, hostage taking, sales of illegal arms, prostitution, and terrorism.

Bilateral Investment Agreements

Andorra has bilateral agreements with France (2003), Spain (2003), and Portugal (2006). No agreements exist between Andorra and the United States.

OPIC and other Investment Insurance Programs

Andorra does not have an investment incentive agreement with OPIC (U.S. Overseas Private Investment Corporation) nor is it a member ofMIGA (Multilateral Investment Guarantee Agency).

Labor

For many years unemployment was non-existent in Andorra; rather, there was a shortage of workers. The recent economic crisis, however, has affected employment. All employees wanting to work in Andorra need work permits. Annual quotas are established for new issues of renewable work permits. Tourism is the sector with the greater need for workers. Andorra is not a member of the ILO Convention.

Foreign Trade Zones/Free Ports

Although not a full member of the European Union (EU), Andorra is subject to all EU free trade zone regulations and arrangements with regard to industrial products. The EU allows duty free importation of agricultural products originating in Andorra. No Free Trade zones exist in the country.

Foreign Direct Investment Statistics

Due to foreign investment limitations until the end of 2008 such statistics are unavailable.

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