ANDORRA Law and Practice Contributed by: Elena Redondo, Albert Hinojosa and Marc Ambrós, Cases & Lacambra
of 10% to 15%, depending on the time elapsed since the date of acquisition. On the other hand, if the seller is an individual, Personal Income Tax ( Impost sobre la renda de les persones físiques ) would apply. In this case the nominal rate would be between 0% and 15%, also depending on the time elapsed since the date of acquisition. 2.11 Legal Restrictions on Foreign Investors A restriction on foreign investment in real estate establishes that a foreign natural person has to obtain a prior foreign investment authorisation from the Andorran government to acquire real estate located in Andorra. Furthermore, foreign legal persons cannot directly acquire a property located in Andorra, so they must use an Andor - ran special purpose vehicle or SPV. The acquisi - tion or constitution of the SPV is also subject to obtaining the relevant prior foreign investment authorisation from the Andorran government if the foreign entity owns more than 10% of the SPV’s share capital or controls more than 10% of its voting rights. Finally, the Andorran govern - ment 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, sovereignty and national security, public and economic order, the environment, public health or the general inter - est 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, has intro - duced the Foreign Investment in Real Estate Tax (FIT) in the Principality of Andorra. The newly established FIT is levied on foreign investments in real estate in Andorra, as defined in the For - eign Investment 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 development 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 (3%, 5%, 8% or 10%) is applied, depending on the number of real estate units involved in the investment. Fur - thermore, the FIT Law introduces a 90% rebate on the tax liability if the foreign investment is directed towards the acquisition of construction of real estate intended for the rental housing market, meant for habitual and permanent resi - dence for a minimum period of ten years. 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 exemptions, 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 (provided that specific conditions are met) if such acquisitions are made by a non-resident or resident individu- als with less than three years of residence, or by non-resident legal entities.
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