COVID19 has the changed the lives of many. It is obvious that with the upcoming fall and winter months many are wondering how intense a potential second or ongoing wave will be and if lock-downs will be put in place once more. Andorra is no exception. This small country surrounded by mountain ranges with limited access points can implement landlocked controls to 99% of the influx of outside visitors and therefore limit substantially the spread of COVID19. However the Andorran economy obviously relies on border crossings for its tourism depending economy. Authorities will need to balance carefully the benefits from an already reduced tourism and shopping demand against the risk of spreading the virus within the Principality. It is likely that a second policy of restrictions will be affecting less the movements of professionals and residents and therefore have a limited impact on the local economy. Sectors such as retail, tourism and hospitality most likely will continue to be heavily impacted.
The inequality in the way the COVID19 has affected the global business and working community is visible among the work force of much of Southern Europe and worldwide. The drop in jobs related to tourism, hospitality and B2C services is contrasting with the rise of independent consultants that work as freelance in the IT sector or related to the digital economy in general. With the growth that we are experiencing in e-commerce and IT related services it becomes clear which sectors are benefiting from the current tendencies. Andorra is positioning itself with this trend as potential base and place of residency for a skilled, independent and flexible workforce.
Working from home is becoming increasingly the norm for many professionals in those sectors. They are flexible and can be digital nomads when it comes to choosing their home base. Life quality and taxation are important factors. The health system, general safety and crime as well as quality of life related factors are to be considered for a potential residency. Tax residency in Andorra has gained in popularity during those months of lock-down and ongoing pandemic. Our research and internal data shows that the demand to establish a residency in Andorra has risen mostly among IT consultants and technicians. Home office has come to stay at least partially. Even digital nomads find themselves limited given travel restrictions and the issue of national health systems in certain countries such as in Asia and the Caribbean.
Andorra offers one of the best health systems in the world. The cost of social security and health care coverage is very competitive as well as living expenses for housing, food and utilities. In a worst-case-scenario of an ongoing pandemic over months or a year Andorra can be a safe-haven for those that may provide their services over distance working from home or with limited travel.
Through an official income tax of 10% with an effective tax rate well below that on salary / earnings Andorra offers multiple advantages for those that become tax resident. Corporate tax at 10% and tax-exempted dividends as well as the absence of wealth tax make Andorra more than attractive for medium and high earning individuals.
We do not dare to predict the outcome of the pandemic but it is clear that for years to come companies will reduce travel budgets, home office or working over distance will remain in place at least partially and the tax burden among OECD countries will be on the rise. Andorra is not immune to the drop in its tourism sector and will also be pressured to reduce its fiscal deficit. However it is well aware that its tax regime is one of the main attractions for foreign investment which it will rely on even more in a post-COVID situation.