ANDORRA Law and Practice Contributed by: Elena Redondo, Albert Hinojosa and Marc Ambrós, Cases & Lacambra
the construction project, the latter may exercise direct claims against the contracting 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 village and the regulatory ordinances will estab - lish the conditions of habitability of the residen - tial buildings and those destined for other uses. These conditions must respect the minimum requirements of the law. In general, the law requires obtaining a cer - tificate issued by the Andorran government to demonstrate that the residential building com - plies with the conditions of habitability. This cer - tificate must be requested by the promoter of the construction project. Refer to 2.1 Categories of Property Rights 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 taxa - tion is that governing corporate reorganisation operations, including mergers, demergers, asset transfers, and share exchanges. 8.3 Municipal Taxes Municipal tax rules apply to commercial/busi - ness premises. However, there are exemptions, depending on the business sector of the com - pany and the activity carried out in the relevant business premises. 8. Tax 8.1 VAT and Sales Tax
There are also local taxes related to the owner - ship 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 transac - tions by non-residents are subject to taxation under the Non-Resident Income Tax Law. The taxable amount is calculated as the positive dif - ference between the actual value of the trans - ferred 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 applica - ble 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 the with - holding tax effectively applies to 80% of the Companies subject to Corporate Income Tax have the right to deduct the depreciation gener - ated from the owning of constructions. Depre - ciation can be deducted from the Corporate Income Tax taxable base in accordance with the depreciation plan adopted. gross rental income. 8.5 Tax Benefits
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