Andorra's Tax Reforms Transforming 'Safe Haven' Image

by Ulrika Lomas, Tax-News.com, Brussels

Andorra’s Foreign Minister Gilbert Saboya Sunyé has explained that the global crisis forced the country to implement "courageous" reforms, and, crucially, to construct a completely new tax system.

While acknowledging that neither the reform of the country’s tax system nor the decision to cut wages in the public sector were popular among the population, Sunyé underlined the government’s aim of balancing the budget by 2015.

Sunyé emphasized that Andorra is a small country and therefore able to react quickly to events, highlighting the fact that the Andorran government implemented all of the reforms within a very short timeframe of 18 months. The minister noted that as a small country Andorra is also feeling the effects of the fiscal decisions more immediately.

Noting that Andorra had a very prosperous economy, the minister said that the crisis had therefore hit society very hard, compelling the government to double the budget for social programs, necessitating additional tax revenues.

In addition to the recent introduction of direct taxes, Andorra is also expected to introduce a value-added tax (VAT) regime on January 1, 2013, to further boost income. It is expected that Andorra will introduce a standard VAT rate of 4.5%, a reduced rate of 1% applicable to certain essential goods and services, and an 8% rate for banking and financial services.

Sunyé made clear that Andorra now aims to use the crisis as an opportunity to reform, to open up the country, and to intensify its relations with the European Union (EU). Gaining progressive access to the EU market is an important goal, which runs in parallel to the tax reforms, the minister added. The minister explained that the government is currently examining two scenarios: on the one hand the possibility of access to the European Economic Area and on the other specific association agreements for small states. Here, the minister pointed out that Andorra is working together with San Marino and with Monaco.

Alluding to Andorra’s negative image as a safe haven for illegal money, the minister underlined that although Andorra had a "competitive" tax system, the government has always fought strictly against money laundering. Andorra has amended its legislation and practices in line with international standards, the minister stressed, noting that Andorra has made great efforts in terms of transparency. Concluding, the minister referred to the fact that Andorra received a positive assessment by the Organization for Economic Cooperation and Development in the first phase of its Peer Review process. Andorra is no longer on any "black list," the minister ended.

In addition to ongoing negotiations with France, Andorra has also recently opened negotiations with Belgium and Switzerland towards double tax agreements.

An approach to the two governments was made at the Francophonie summit in Kinshasa back in October, and comes as part of Andorra’s wider strategy to open its economy to foreign investment and to move towards closer fiscal collaboration with foreign governments.

As far as DTAs are concerned, Andorra seems to have given priority to French-speaking countries. For example, Andorra is also in the process of negotiating a DTA with Luxembourg.

Andorra also recently implemented its law to liberalize foreign investments in the territory and foster economic openness as part of its policy to open its economy.

Under the new law, foreign individuals wanting to exercise a profession in Andorra will no longer be required to have been resident in Andorra for at least 20 years, provided there is a reciprocal agreement between Andorra and the relevant foreign country. Nevertheless, a system of authorizations from the administration still applies.

The new law is further evidence of Andorra’s commitment to combat international money laundering: nationals or residents of countries blacklisted by the Financial Action Task Force may not be granted any authorization.

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