Bloomberg News reports that the government of the Principality of Andorra is opening up investment in resorts and other businesses to foreign investors for the first time in seven centuries.
The rumored goal is to plug a national budget deficit but, in my opinion, this new opening to the world doesn't means that Andorra is about to change what is arguably the strictest bank secrecy policy in Europe, (a view confirmed by an old friend who has lived there for many years).
In the past part of the government budget has been financed by loans from Andorra’s five commercial banks until rising private defaults curbed this lending.
All Andorran banks now are locally owned and one of their major attractions, especially for foreign depositors, is a bank secrecy law so tight that the country is one of only two in Europe still on the blacklist of the Financial Action Task Force (FATF) of the Organization for Economic and Community Development (OECD), because of their refusal to share tax and other information with other governments. (Monaco is the other one still on the FATF list).
Outside Investment Welcome
Foreigners, previously restricted to owning no more than a third of any Andorran company, can now hold up to 49% in its main industries, including luxury clothing retailers, real- estate developers and ski resorts. They will be able to own 100% of companies in 200 industries the government wants to develop, such as research firms and Internet commerce. Prime Minister Albert Pintat said the government aims to remove all foreign investments restrictions within six years.
Along with lifting this curb on foreign investment, the Andorran government paid the usual lip service of now wanting to be seen as an “investment haven” and not a “tax haven.” That has become ritual language in a public relations effort to appease the OECD/FATF without really yielding financial privacy. In fact, Andorra levies no taxes on foreign income and, all things considered, is one of the better tax havens in the world. They rely on revenue from about 10 million visitors a year for more than two-thirds of their $4.1 billion economy, less than half the size of Malta’s, the smallest state in the European Union.
Hidden Andorra
Andorra is a tiny, mountainous country of about 83,000 souls…with no taxes, no army and no poverty.
Nestled between Spain and France high in the Pyrenees, this is a residential tax haven for very wealthy foreigners who enjoy winter sports. If you live in this independent nation 20 years you can become a “privileged citizen” and enjoy all rights of citizenship except voting. Citizenship may be somewhat difficult, but you can establish immediate residency fairly easily. Just move in and apply for a resident’s card. But you must rent or own property in order to stay.
Andorra consists of 185 square miles. It’s about one-fifth the size of Rhode Island. Andorra’s rugged terrain consists of gorges and narrow valleys surrounded by mountain peaks that rise higher than 9,500 feet above sea level. It is an independent nation-state governed by 28 elected members of the General Council.
Banking Evolution
Over the past 50 years, Andorra has evolved. It’s transformed from being a very poor mountain mini-principality, into a sort of duty-free shopping center with ski resorts and banking secrecy. And it’s all thanks to the growth in purchasing power from the middle class in Cataluñ, the neighboring Spanish province. There is no income or estate taxes for anyone living in Andorra.
The banks now require anyone who wants to open an account to appear in person. Lawyers cannot open accounts for them. U.S. persons who reside here are not allowed to have any U.S. securities in their Andorran bank accounts because the banks don’t want to be bothered with excessive time and costs for U.S. reporting and SEC visits. Non-U.S. securities and investments are no problem. There are several banks. The three largest are Credit Andorra, Andbank and Banca Mora.
With political and economic stability, no labor problems, virtually no unemployment, and the lowest crime rate in Europe, remote Andorra could be your safe haven away from the modern world’s problems. But bring warm clothes and plan on driving because the only access is three hours by road from the nearest airports in Barcelona, Spain or Toulouse, France. (A new airport in Andorra le Vella for small planes will be ready sometime next year).
Best Offshore Uses: Quick tax-free residence, duty-free bargains, banking in strict financial privacy, skiing nine months of the year
For more information about Andorra and many other tax havens, see my book, Where To Stash Your Cash, Tax Havens of the World.
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