ANDORRA Law and Practice Contributed by: Albert Hinojosa and Marc Ambrós, Cases Lacambra
Finally, the Andorran government has a veto right, which enables it to deny the authorisation of foreign investment when the investment may harm, even occasionally, the exercise of public power, sovereign - ty and national security, public and economic order, the environment, public health or the general interest of the Principality of Andorra and any direct foreign investment related to sensitive goods. Law 3/2024, published in the Andorran official state gazette on 28 February 2024, introduced the Foreign Investment in Real Estate Tax (FIT) in the Principality of Andorra. The FIT is levied on foreign investments in real estate in Andorra, as defined in the Foreign Invest - ment Law. This includes acquisitions of real estate or other rights in rem, concessions, participation in companies or other legal entities holding rights over such real estate, or for urban or real estate develop - ment purposes. The FIT is levied on both natural and legal persons. The tax base is calculated on the basis of the actual value of the realised foreign investment, upon which a progressive tax rate (6% for the first real estate unit and 10% for subsequent units). Furthermore, the FIT Law introduced a 90% rebate on the tax liability if the foreign investment is directed towards the acquisition or construction of real estate intended for the rental housing market, meant for habitual and permanent residence for a minimum period of ten years. It is also required for the rental price to be affordable. The settlement and payment system for the FIT entails an advance payment before the issuance of the favourable foreign investment resolution, in which the appropriate tax rate will be applied. Tax payment must be completed before the execution of the public deed for the foreign real estate investment and must be verified before the notary public attesting to such execution. In any case, the FIT Law delineates several exemp - tions, which include, among others, acquisitions mortis causa by natural or legal persons who are not resident for tax purposes in the Principality of Andorra and acquisitions intended for conducting business, professional, commercial, or industrial activities (pro - vided that specific conditions are met) if such acqui -
sitions are made by a non-resident or resident indi- viduals with less than three years of residence, or by non-resident legal entities. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Acquisitions of commercial real estate located within Andorra are generally financed with recourse to debt by means of one-off or revolving loans or credits granted by local banking entities. The financing structure and disposal conditions may vary widely, depending on the specific characteris - tics of the acquisition and the borrower. However, it is common for the guarantee scheme of such financing operations to encompass a mortgage granted over the real estate asset and one or several pledges grant - ed over any credit rights deriving from agreements entered into by the borrower (eg, insurance contracts) or other instruments (eg, borrower’s bank account(s)). There are no special financing options for acquisitions of large real estate portfolios. 3.2 Typical Security Created by Commercial Investors The standard security package for a commercial real estate transaction would normally encompass the fol - lowing. • A first-ranking mortgage over the target real estate asset. • A pledge over the shares of the company holding the target real estate asset (usually an SPV). • A pledge on the company’s bank accounts (over the bank account balance and the bank account itself), usually complemented by periodical cash- sweeps, limits for maximum-free disposal amounts or minimum-unavailable amounts and disposals subject to the consent of the financing entity. • A pledge granted over credit rights deriving from any income-producing agreement entered into by the borrower and related to the specific real estate asset. In a non-exhaustive manner, a pledge may be created over insurance policies, lease agree -
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