Andorra Draws Home Buyers Despite Tax Law
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Version 0 of 1. One of the world’s most lenient tax havens, the principality of Andorra, announced in June that it would collect its first income tax in 2016. It is just one of the changes that the tiny country, on the border of France and Spain, has made over the past two years. But it was one that real estate agents feared would compound the property slump in Andorra since the beginning of the 2008 financial crisis. Yet there has been little evidence of further trouble because of this tax, said Roger Munns, owner of Tribune Properties, a British agency specializing in sales in Andorra. “We’ve sold properties with a combined value of over €2 million” — about $2.7 million — “since the confirmation of income tax being introduced,” Mr. Munns said. “Which, I think, shows that Andorra is still a serious contender for those wanting to lower their tax bills.” After all, he noted, someone with residency in Andorra earning €100,000 a year would pay €6,800 in taxes. Andorra’s main industry is tourism. The country attracts around 10 million visitors each year to its 468 square kilometers, or 180 square miles. Its lack of income tax has also attracted many wealthy people who are not citizens but who make up more than 50 percent of Andorra’s population of 85,000. Many have chosen Andorra over better-known havens like Monaco because of lower property prices. These start at around €1,000 per square meter, or $124 per square foot, and rise to around €7,0000 per square meter. In Monaco, the average price per square meter is €38,000, a level that is starting to challenge even the wealthiest buyers. In Andorra’s ski resorts of Soldeu, La Massana and Ordino, prices are from around €165,000 for a two-bedroom apartment of 87 square meters, with luxury chalets or apartments of four to five bedrooms ranging from around €1 million to €3.5 million. Homes in Andorra rarely offer the level of finishing and fixtures that is available to buyers in the super-prime markets of Monte Carlo, Hong Kong or London. Because sales have been at a near standstill since 2008, there has been little new construction, so the market now is mainly resales. Andorra announced its income tax after pressure from the Organization for Economic Cooperation and Development. The organization, based in Paris, is helping to streamline aspects of global economic policy and had requested greater transparency in Andorra’s tax laws. The new tax will apply to anyone who lives in the principality for at least 183 days in a calendar year. The first €24,000 of income will be tax free, with the next €16,000 taxed at 5 percent. The balance of income exceeding that initial €40,000 will be taxed at 10 percent, which is still less than most West European countries and even some countries in Eastern Europe. Mr. Munns said most of the people buying property in Andorra were not working and would have no income tax to pay. Many retirees enjoy the lifestyle there, and will benefit from the continued lack of inheritance or wealth taxes. There also is no capital gains tax on property held for more than 12 years. The General Council, which acts as Andorra’s government, also relaxed its residency and investment laws last year to make the country more attractive to foreign investors. A person now must spend 90 days a year in the principality to qualify for residency, compared with the previous 180-day requirement. Also, foreigners now have the same property ownership rights as citizens. In addition, three new categories of residency permits were introduced. Anyone who is retired or at least not working in Andorra can obtain a permit in the first category by making a financial investment in the country of at least €400,000, which can include a property purchase. Then there is a professional permit, which applies to business owners who live in Andorra but operate businesses elsewhere. The third category is for international sports and science professionals and celebrities from the performing arts. This permit is being seen as an attempt to woo the kind of buyer who otherwise would go to places like Switzerland or Monaco, which continues to have no income tax. Narcis Socias, who owns a local property agency, Finques 3 Cases, said that agents were waiting to see the full effects of the changes but that they had seen an increase in the number of inquiries from foreigners over the past year. “Most are retired with a good level of disposable income or people aged 40-plus with independent means, possibly from business ownership or finance-based work,” he said. “Foreign investors in Andorra generally have between €500,000 and €2 million to spend on property. Andorra isn’t going to attract the same number of wealthy investors, top financiers or celebrities as other tax havens because it can’t offer the same lifestyle.” Life in Andorra, Mr. Socias said, is generally more low key than in places like Monaco, with a focus on outdoor pursuits and peaceful, close-knit communities. “We don’t have the same attitude to luxuries, such as sports cars, designer shops or fancy bars,” he said. “But we do have the luxury of low crime, beautiful scenery and cheaper property.” The government is hoping to draw investors with better travel links. Improvements at the Pirineus-Alt Urgell airport, which is owned by the government of Catalonia and is 24 kilometers, or 15 miles, from the Andorran capital, Andorra La Vella, have allowed more private jets to operate here. And with a new heliport in the capital, people can arrive from Barcelona in around 25 minutes. “This may make high-net worth investors view Andorra more favorably,” Mr. Munns said. |