ANDORRA Law and Practice Contributed by: Elena Redondo, Albert Hinojosa and Marc Ambrós, Cases & Lacambra
IV; or (ii) it has been unoccupied for at least 18 months preceding the entry into force of Title IV and this unoccupancy is due to a cause attribut - able to the owner. 2.10 Taxes Applicable to a Transaction Taxation on the purchase of real estate depends on the envisaged purchase scheme (ie, asset deal or share deal) as well as the condition of the parties intervening in the transaction. Asset Deal The condition of the seller will determine whether an asset deal will be subject to General Indi - rect Tax ( Impost General Indirecte ), which is the Andorran VAT, or Transfer Tax ( Impost sobre transmissions patrimonials immobiliàries ). If the seller does not qualify as a businessperson or professional for VAT purposes, the sale and purchase of real estate will be subject to Transfer Tax, which will be borne by the purchaser. The applicable Transfer Tax rate will be 4%. Should the seller qualify as a businessperson or professional for VAT purposes, the sale and purchase of real estate will be subject to VAT, which will be charged by the seller and borne by the purchaser. The applicable VAT rate will be 4.5%. If an asset is transferred as part of an independent economic unit for VAT purposes, such transfer will not be subject to VAT. Share Deal If the transfer of real estate is carried out through a share deal, the transaction would not be sub - ject to VAT or Transfer Tax. However, the Transfer Tax Law sets out an anti- abuse rule to tax indirect transfers of real estate. This rule will apply if a company’s assets con - sist of at least 50% of real estate assets located
in Andorra and are transferred and, by virtue of such transfer, the purchaser acquires more than 20% of the company’s shareholding. In both cases – Asset Deal or Share Deal – capi - tal gains on the transfer of real estate would be subject to Corporate Income Tax ( Impost sobre societats ) if the seller is a company which is resi - dent for tax purposes in Andorra, at a nominal rate of 10% to 20%, depending on how long the asset has been held by the seller. If the seller is an individual, Personal Income Tax ( Impost sobre la renda de les persones físiques ) or Non- Resident Income Tax ( Impost sobre la renda dels no-residents fiscals ) would apply. In this case the nominal rate would be between 0% and 25%, depending on both the residence in Andorra of the seller and 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 must 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 acquisition or constitution of the SPV is also subject to obtaining the relevant prior for - eign 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 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
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