Executive Summary
Andorra is an independent principality with a population of about 79,000 and area of 181 square miles situated between France and Spain in the Pyrenees mountains. It uses the euro as its national currency. Andorra is a popular tourist destination visited by over 8 million people each year (pre-pandemic) who are drawn by outdoor activities like hiking and cycling in the summer and skiing and snowshoeing in the winter, as well as by its duty-free shopping of luxury products. Andorra’s economy is based on an interdependent network of trade, commerce, and tourism, which represent nearly 60% of the economy, followed by the financial sector. Andorra has also become a wealthy international commercial center because of its integrated banking sector and low taxes. As part of its effort to modernize its economy, Andorra has opened to foreign investment and engaged in other reforms, including advancing tax initiatives. Andorra is actively seeking to attract foreign investment and to become a center for entrepreneurs, talent, innovation, and knowledge.
The Andorran economy is undergoing a process of digitalization and diversification that accelerated due to the impact pandemic-related border closures had on its dominant tourist sector. In 2006, the Government began sweeping economic reforms. The Parliament approved three main regulations to complement the first phase of economic openness: the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012). From 2011 to 2017, the Parliament approved direct taxes in the form of a corporate tax, tax on economic activities, tax on income of non-residents, tax on capital gains, and personal income tax. Andorra joined the IMF in October 2020, providing it access to additional resources for managing its economy. Also, as part of the post-pandemic economic recovery plan, Andorra passed Horizon 23, a comprehensive roadmap backed by 80 million euros of public funds to accelerate economic diversification into sectors like fintech, sports tech, esports, and biotech. These regulations aim to establish a transparent, modern, and internationally comparable regulatory framework.
These reforms aim to attract investment and businesses that have the potential to boost Andorra’s economic development and diversification. Prior to 2008, Andorra limited foreign investment, worried that large foreign firms would have an oversized impact on its small economy. For example, previous regulations allowed non-citizens with less than 20 years residence in Andorra to own no more than 33 percent of a company. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. The approval can take up to one month, which can be rejected if the proposal is found to negatively impact the environment, the public order, or the general interests of the principality.
Andorra is a microstate that accounts for .001 percent of global emissions and has demonstrated its ambition to the fight against climate change by establishing a national strategy that commits to reducing greenhouse gas emissions (GHG) by a minimum of 37 percent by 2030 and pursuing carbon neutrality by 2050. In addition to implementing an energy transition law, Andorra approved the Green Fund and a hydrocarbon tax to promote climate change mitigation and adaptation initiatives.
Andorra’s per capita income is above the European average and above the level of its neighbors. The country has developed a sophisticated infrastructure including a one-of-a-kind micro-fiber-optic network for the entire country that provides universal access for all households and companies. Andorra’s retail tradition is well known around Europe, thanks to more than 1,400 shops, the quality of their products, and competitive prices. Products taken out of the Principality are tax-free up to certain limits; the purchaser must declare those that exceed the allowance.
Table 1: Key Metrics and Rankings
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