- February 7, 2024
- Posted by: andorrasolutions
- Category: News Andorra
The incorporation of a new tax on foreign investment in real estate in the Principality of Andorra for 2024 has been approved by the Council of Ministers. The bill was presented by Conxita Marsol, Andorra’s Minister of the Presidency, Economy, Labour and Housing. It is expected to come into force in mid-February 2024.
The new law aims to create and regulate the essential elements of the tax on foreign investment in real estate in the Principality of Andorra. The tax rates will be between 3% and 10%, depending on the number and type of properties acquired, and applied to the real value of the formalised investment.
Who is targeted by this new tax on real estate investment with foreign capital?
The taxpayers of this new tax are in the following groups:
- Individuals not resident in Andorra.
- All foreign legal entities.
- Individuals with less than 3 years’ residence in Andorra who make a foreign real estate investment, regardless of their nationality.
- Andorran legal entities with a foreign shareholding of 50% or more.
- Andorran legal entities with direct or indirect participation of non-residents in Andorra, or of residents of less than 3 years, in their capital or in their voting rights, of less than 50% and more than 5%, and which make a foreign real estate investment.
The incorporation of this law is intended to prevent the application of tax avoidance mechanisms on investments made by persons who are not sufficiently established in the Principality of Andorra.
What will the new tax on real estate investment with foreign capital in Andorra look like in 2024?
The new tax on real estate investment with foreign capital in Andorra will be progressive, from 3% to 10% of the real value invested with foreign capital in real estate.
- The first tranche starts at 3%, if you purchase a plot for a single-family property, or a flat, appartment or studio, or business premises of maximum 250 square metres and up to 2 storage rooms and 2 parking spaces.
- The next tranche is 5%, applicable to the purchase of a second to fifth single-family property, second to fifth flat, appartment, studio or business premises of maximum 250 square metres, accompanied by 2 storage rooms and 2 parking spaces. Another alternative to this second tranche of 5% is the purchase of 10 parking spaces.
- For the purchase of the sixth to the ninth single-family property, flat, studio, business premises of maximum 250 square metres, with 2 storage rooms and 2 parking spaces, the tax rate is 8%. The same rate of 8% applies if instead of purchasing the above-mentioned properties, you decide to purchase 11 to 18 parking spaces.
- Finally, the tax rate of 10% will apply for any investment that exceeds the above, or does not fall into the above categories, investment in more than one plot of land or if the investor is going to engage in urban or real estate developments.
Will this tax apply to real estate transactions concluded before 5 September 2023?
It should be recalled that the transitional suspension of foreign investment in real estate came into force on 5 September 2023. For all transactions entered into before that date, the tax indicated in the new law will not be applied retroactively. The moratorium on the acquisition of real estate will be repealed with the entry into force of the Law on the tax on foreign investment in real estate in the Principality of Andorra.
Tax rebate applicable if the investment is intended for rental housing in Andorra
A 90% tax rebate will be granted for foreign investments in real estate that are intended as a habitual and permanent residence for at least 10 years. They will also receive this rebate for the purchase or construction of real estate, whose objective is the promotion of rental housing for habitual and permanent use, for a period of no less than 10 years, and regardless of the fixed rent.
Minister Conxita Marsol explained that the aim of this tax is to moderate speculative foreign investment in real estate, to promote rental housing and to provide a source of income for the government without taxing residents.
It is estimated that the revenue that could be raised by 2024 with this new tax is between 10 and 12 million euros. This calculation is based on investments formalised in recent years. Minister Marsol explains that if this tax had been implemented from 2020, the first year’s revenue would have been six million euros, the second year almost seven million euros, the figure for 2022 would have reached 14.5 million euros and the cumulative figure up to August 2023 would be around 7.9 million euros.
More information on this issue can be found in the Proposed law amending Law 10/2012 of 21 June on foreign investment in the Principality of Andorra, in the Report of the Legislative Committee on Finance and Budget on the Draft Law on the Tax on foreign investment in real estate in the Principality of Andorra, documents only available in Catalan, and also by visiting the website of the General Council of Andorra.