Andorra To Say Goodbye To Her Tax Haven Status?

Being known as a tax haven before 2008 was fine for countries like Andorra, not many people objected, and as long as other countries had a healthy economy they were pretty much left to their own devices.

But when the banking crisis precipitated a downturn in the fortunes of many industralised countries, attention turned to those countries that were attracting their citizens away with the benefit of no tax - and the realisation that tax revenues were being lost, just when governments needed revenue more than at any time since the 1930's and 40's.

Pressure has been brought to bear on tax havens such as Andorra by an international government organisation called the OECD, which as well as monitoring set in place a blacklist of countries that were deemed to be non co-operative, and established goals for each as to how to come off the blacklist.

Particularly vocal has been French President Nicolas Sarkozy, who as joint co-prince of Andorra - a title each French President has - has used his influence to change the zero income tax rate that residents enjoy in the Principality. He of all the G20 leaders has campaigned to tighten up on tax havens in the hope of having more revenue flow into the government coffers.

Andorra came off the OECD blacklist in 2010, and her banks now apply due diligence for new account openings, including requiring proof of the origin of funds being deposited, and is now making moves to change her status to a low tax jurisdiction, but doing it in a way that will affect few if any current or future residents.

The Andorra Parliament is now set to debate as to whether for the first time in her modern history to introduce personal taxation, which will mean she can no longer be labelled as a tax haven, but with the kind of rates they are considering will be regarded as a low tax jurisdiction.

Very early proposals suggest that an income tax of between 5 and 8 percent will be levied, with an allowance of 30,000 Euros before any tax is due. At the upper suggested rate someone earning 50,000 Euros would be subject to 1,600 Euros of tax.

This rate is one that will be envied by nearly all other Western European countries, and it allows Andorra to claim that it is no longer a tax haven, but a low tax jurisdiction.

But Andorra is also debating whether this should only be for income derived in the country, not on worldwide income. Very few residents earn money in the country itself, with most income derived from activity elsewhere - the result will be that nearly everyone who has residency in Andorra will have the same tax bill as now - zero.

No-one knows how much if any revenue this will raise, but overall it is hoping to get some more money in from small business and personal taxes to offset the drop in tourism the country has experienced, in common with many other places, since 2008. Estimates suggest that the number of tourists visiting has dropped from a high of twelve million to some eight million expected in 2012.

It is also allowing non-Andorrans to own a hundred percent of companies for the first time, and this will boost inward investment, and in turn see the number of people buying real estate in Andorra rise, as business people take residency.

With a combination of low personal and business taxes, along with people being able to establish businesses in Andorra, the liberalisation of the country could have a positive impact on the local economy in 2012.