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Andorra Set To Introduce Corporate Tax In Economic Shake-Up

by Robert Lee, Tax-News.com, London

23 August 2006


The Principality of Andorra is set to introduce corporate tax as part of new plans designed to diversify the jurisdiction's economy, which remains predominantly reliant on tourism and banking.

According to a report in the Financial Times, legislation before parliament could introduce corporate tax at a rate of 12%, and establish a requirement that registered firms must file regular accounts to international standards.

Under current legislation, there are no taxes in Andorra for companies or individuals other than modest annual registration fees, municipal rates and property transaction taxes. Despite the widespread perception of the principality as an offshore 'tax haven' there are no special regimes for offshore entities and no trusts. However, strict banking secrecy remains sacrosanct, and while strict anti-money laundering legislation stops criminal activity, tax avoidance is not a crime in Andorra, a factor that has no doubt earned it is prolonged place on the Organisation of Economic Cooperation and Development's (OECD) list of 'uncooperative tax havens'.

Nonetheless, the jurisdiction's government insists that the changes are being ushered in to help modernise the country's economy rather than in an effort to improve its "undeserved" image with OECD members.

"This is all about our future survival," Andorra's Prime Minister, Albert Pintat, told the FT.

"As a European sovereign state in the western world we have to move with the times," he added.

With its limited geographical area - the country is only 2.5 times larger than Washington D.C. at 468 sq km - Pinant said that Andorra must concentrate on attracting businesses in high-end service industries such as information technology, publishing, patent registration and protection, and specialist health services.

Presently, income from tourism accounts for about 80% of the Andorran economy, with around 11.6 million visitors attracted by to the principality's summer and winter resorts by its duty-free status.

However, Pinant told the FT that Andorra cannot expect to transform its economy overnight "given that it got off to a late start". He also said that the country has no desire to join the EU, despite its drive to integrate more with Europe as a whole.

A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp

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