ANDORRA Law and Practice Contributed by: Elena Redondo, Albert Hinojosa and Marc Ambrós, Cases & Lacambra
power, sovereignty and national security, pub - lic and economic order, the environment, public health or the general interest of the Principal - ity 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 FIT is levied on foreign investments in real estate in Andorra, as defined in the Foreign 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% 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 or construc - tion of real estate intended for the rental hous- ing 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 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.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Acquisitions of commercial real estate locat - ed within Andorra are generally financed with recourse to debt by means of one-off or revolv - ing loans or credits granted by local banking entities. The financing structure and disposal conditions may vary widely, depending on the specific char - acteristics 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 granted 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 acqui -
sitions 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 encom - pass the following.
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