ANDORRA Law and Practice Contributed by: Albert Hinojosa and Marc Ambrós, Cases Lacambra
8. Tax 8.1 VAT and Sales Tax
it acts with guilt or fraud, and the determination of the amount corresponds to the parties but may be moder - ated by the judicial authority if it is excessive. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Other guarantees may be agreed upon to guarantee the execution of a construction project, as long as both parties have accepted them. Comfort letters, parent guarantees and letters of credit are commonly used. 7.6 Liens or Encumbrances in the Event of Non-Payment The contractor has a legal guarantee that substanti - ates their right to receive the price of the construc - tion project carried out. The guarantee consists of the retention of the property until the price agreed by both parties is paid. The contractor’s right to claim in relation to the con - tracting party to obtain the agreed price lasts 30 years. In cases where the client does not pay the agreed price to the contractor, and the contractor is a debtor of the subcontractor in the construction project, the latter may exercise direct claims against the contract - ing party, with the maximum limit of the amount owed to the contractor. 7.7 Requirements Before Use or Inhabitation The management plans, the zoning plans of the vil - lage and the regulatory ordinances will establish the conditions of habitability of the residential buildings and those destined for other uses. These conditions must respect the minimum requirements of the law. In general, the law requires obtaining a certificate issued by the Andorran government to demonstrate that the residential building complies with the condi - tions of habitability. This certificate must be requested by the promoter of the construction project.
Refer to 2.10 Taxes Applicable to a Transaction for the tax implications arising from the transfer of real estate. 8.2 Mitigation of Tax Liability The only special regime that allows real estate transactions to be exempt from indirect taxation is that governing corporate reorganisation operations, including mergers, demergers, asset transfers, and share exchanges. 8.3 Municipal Taxes Municipal tax rules apply to commercial/business premises. However, there are exemptions, depend - ing on the business sector of the company and the activity carried out in the relevant business premises. There are also local taxes related to the ownership of property depending on the size of the plot over which that property is distributed. In addition, there are also local taxes levied on income from the rental of real estate. 8.4 Income Tax Withholding for Foreign Investors Capital gains derived from real estate transactions by non-residents are subject to taxation under the Non- Resident Income Tax Law. The taxable amount is cal - culated as the positive difference between the actual value of the transferred assets and their acquisition value. Upon transfer, if the seller is a non-resident, the buyer is required to withhold 5% of the sale price and remit this amount to the Andorran government as an advance payment. If the withholding exceeds the seller’s actual tax liability under the applicable law, the seller may request a refund for the difference, which the Andorran tax authorities are required to process within six months of the request. Additionally, rental income earned by foreign investors from properties located in Andorra is subject to a 10% withholding tax. The Non-Resident Income Tax Law allows for a standard deduction of 20% from gross rental income to determine the taxable base, meaning
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