ANDORRA Trends and Developments Contributed by: Oriol Giró, Laia Bertran, Yaumara Toledo and José Luis Andrés, Emindset Law Firm
Substance does not require every business to employ a large workforce or occupy extensive premises. A consulting company, digital enterprise or investment office may naturally operate with a smaller structure. The relevant question is whether the resources, deci - sion-making and activity are proportionate to the busi - ness being presented. Good governance is equally important. Directors should actively exercise their responsibilities, maintain proper records and ensure that important decisions are genuinely taken in Andorra where the company claims Andorran tax residence. Contracts, invoices, intellectual property arrangements and service rela - tionships should reflect commercial reality. This approach is also relevant internationally. For - eign tax authorities increasingly examine beneficial ownership, effective management, permanent estab - lishments and controlled foreign company rules. An Andorran structure should therefore be designed not only to comply locally but also to withstand scrutiny in the jurisdictions where its shareholders, clients or assets are located. The Association Agreement with the European Union The proposed Association Agreement with the Euro - pean Union has the potential to become the most sig - nificant legal and economic development in Andorra’s modern history. Negotiations have produced a frame - work intended to give Andorran businesses broader access to the EU internal market while recognising the specific characteristics of a microstate. Andorra faces both the challenge and the opportu - nity of closer association with the European Union and alignment with the relevant EU acquis. This will require the country to incorporate a substantial body of European legislation into its domestic legal frame - work within a demanding timeframe, while businesses will also need to adapt their governance, compliance and operating models. At the same time, the process offers a major opportunity to internationalise and diversify the Andorran economy, enabling companies established in Andorra to develop cross-border busi - ness more easily while continuing to benefit from the country’s highly competitive tax framework.
The agreement would not make Andorra a member of the European Union. Nor would all EU law automati - cally become applicable. It would, however, require Andorra to incorporate and apply substantial parts of the EU acquis in the areas covered by the Agreement, particularly those connected with the internal market. Potentially affected areas include: • the free movement of goods, services, persons and capital; • competition and state aid; • financial services; • company and commercial regulation; • consumer protection; • employment and social standards; • professional qualifications; • telecommunications and digital services; • transport, energy and environmental rules; and • regulatory supervision and judicial co-operation. The Association Agreement will not require tax har - monisation, allowing Andorra to retain its current tax rates rather than align them with the generally higher levels applicable across the European Union. For Andorran companies, the central opportunity is improved access. Businesses that currently encounter legal or administrative barriers when operating in the European Union may benefit from a more predictable framework. The recognition of professional qualifica - tions and more consistent rules for services could be particularly important for professionals and smaller companies whose natural market extends beyond Andorra. The agreement may also increase Andorra’s attractive - ness as a base for internationally oriented business- es. A company could potentially combine Andorra’s stable and competitive domestic environment with a closer legal relationship to the EU market. Immigration and the preservation of Andorra’s particularities Free movement of persons is one of the most politi - cally sensitive aspects of the agreement. Andorra’s population, labour market and housing stock are too
22 CHAMBERS.COM
Powered by FlippingBook