Corona consequences for Andorra: tax haven seeks sources of income

With the pandemic, Andorra’s main source of income – tourism – has collapsed dramatically. Now the principality wants to find other ways to keep the economy going

Andorra is a mixture of spectacular nature – 65 mountains exceed the 2000 meter mark – and shopping madness. On the outskirts of the capital Andorra La Vella, a number of outlet centers have sprung up in recent years; in the center there is one boutique after the next, with jewelry stores and perfumeries in between. The low value added tax of 4.5 percent attracts guests from all over Europe.

“We are here to relax and do the typical Andorran shopping, especially fashion. But we also do a few trips into the mountains,” says a Spanish tourist. A German vacationer from Hesse made a stopover in Andorra on the way to Spain. “It’s just all shopping and so on. Parking spaces are tight, small, you have to search,” he says. “But otherwise nice here in the mountains.”

“We can easily take on debt”

The principality lives from tourism. Before the pandemic, there were eight million visitors a year, a hundred times as many people as the principality has inhabitants. But like all tourist destinations, Andorra is also suffering from the Corona crisis. The number of guests fell sharply last year – and with it the state’s income also fell.

Andorra’s finance minister, Eric Jover, is not too gloomy about the situation. “Sure, we are not a member of the European Union and therefore we do not get any Corona aid from Brussels,” says Jover in an interview with the ARD-Studio Madrid. “We are fortunate that our budgetary position is still somewhat relaxed. Our national debt is only 34 percent of economic output. In our neighboring countries this rate is well above the 100 percent mark. This means that we can easily take on debt to support the state To ensure services for our citizens. “

Negotiations for better access to the EU market

Negotiations are currently underway between Andorra and the European Union. It is not about accession, but about better access to the EU market; for example for the Andorran banks, because the banking sector is huge compared to the size of the country. The principality abolished banking secrecy four years ago in order to adapt to European standards. Andorra has only been part of the International Monetary Fund since 2020, making it its youngest member.

The country no longer wants to rely so much on tourism as a source of income in the future. How quickly business with holidaymakers could come to a standstill was impressively seen in the pandemic when the borders were suddenly closed, says Finance Minister Jover. “We are a country in the mountains, land is scarce and expensive. We will never be able to attract heavy industry to Andorra,” said the politician. “But we don’t want that either, if only because of the environment. In addition, the costs for the logistics would be huge. Andorra, for example, is a country that is ideally suited for teleworking, ie for working from a distance.”

Popular residence for high earners

Because the Internet supply is excellent, the minister assures. He also raves about the good health system and of course the attractive tax model. Government officials are not particularly fond of the word “tax haven”. But taxes are de facto so low that high earners in particular like to get a residence in Andorra – for example Spanish influencers and YouTubers. The fact that they are increasingly heading to Andorra and the Spanish state is losing loads of taxes as a result has been making headlines for months.

“The fact that the YouTubers come to us has advertised us. But we are by no means looking for a dispute with our neighbor Spain,” says Jover. “We want Europeans – be it Spaniards or Germans – to move to Andorra of their own free will, with their families, with their companies. That makes our country rich, and that is our goal.”

What Andorra also wants to become more attractive for tourists and potential new residents: From mid-December onwards, the miniature state can be reached by plane. Andorra cooperates with the La Seu D’Urgell airfield in Catalonia, ten kilometers from the border, and wants to attract visitors from all over the world.