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Andorra: Reorder a Personal, Corporate or Societal Heritage at Zero Cost

Salvador Balcells i Iranzo's picture
Published: 24/10/18 - Country: Spain
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With Andorran tax regulations, there was a subject that had been postponed: what happened if you wanted to reorganize an estate? Then it happened that there being no special regulation, applied general taxation. And this supposed to be able to pay for all the taxes in force: the corporation tax, the income tax of individuals, the income tax of non-tax residents, the general indirect tax, the capital gains tax in real estate property transfers, property transfer tax, ...

In short: simply to organize -not sell- an own patrimony, could cost so much money in taxes, that taxation was a real brake for the execution of such operations, and a serious drawback to improve the dynamics and organization of the economy itself Andorran

Fortunately, it has not been a year since the law 17/2017 of the fiscal regime of business reorganization operations was approved to solve this problem. And as has happened with the new Andorran tax laws, not only has a model similar to that of neighboring countries been adopted, but in addition to adapting it to the own circumstances of the Principality, it has been known to take advantage to make an improved and more modern drafting.

Among the operations included in the new regulations, we highlight:

Merger operations: including the absorption of investee companies, the absorption of dominant companies and the merger of companies without a prior shareholder relationship between them.

That is to say: the regulation includes all the merger modalities without making restrictions depending on the type in question.

This operation is perfect, for example, to eliminate leftover companies and simplify structures, or to create more powerful and competitive corporate groups.

Excission operations: the total and partial demerger is admitted, the allocation in different proportions (in short, the transfer of part of the assets of a company to a partner or another) if the one acquired is a branch of activity or there is a certain family affinity and minimal participation among the partners.

This means that, for example, a company could split into two new companies, awarding each of the former two partners one of the new companies where there would be the assets of the divided company.

It is therefore a perfect option, for example, in succession planning or divisions between partners.

Contribution operations by companies: which may be a branch of activity, or assets or shares in a share capital that represent 5% of this share capital.
It is an operation designed especially to provide elements from one society to another.

Contribution operations made by natural persons: which can be a branch of economic activity (ie a business), assets related to an activity, shares in a share capital that represent 5% of this, or immovable property not affected by the development of an economic activity.
It would be the ideal option to give corporate form in an individual business or determinants elements not affected but that want to be integrated within an already existing society.

Stock exchange transactions: by which one company achieves the majority of another, in exchange for attributing to its shareholders securities of the first company. Perfect for joint venture operations.

Return operations of assets or real estate for residential use by the partners: in order to reassign assets owned by companies but actually used by the partners in a particular way, to the latter. It is a very original regulation that is optimal for undoing anachronistic and forced situations, where property of personal use of the partners are located within a society, when it is normal for the owner to be directly the person making the use.

In short, each operation of these, will allow to reorganize the personal or business assets as you wish, almost without limits, eliminating companies, grouping assets, separating activities, returning to be the owner of real estate that at a given time will be contributed to companies but that are of particular use of the partners, ...

As it is easy to deduce, all the exposed operations will suppose an exchange of ownership of goods, real estate, shares and participations, ... that in principle could entail a high taxation.

Well no: in general the special tax regime regulated by Law 17/2017 determines that these operations will not be integrated into the tax base of corporation tax, nor to the income tax of natural persons, nor to the tax of the income of non-resident taxpayers, nor will they be subject to the general indirect tax (without their application affecting the IGI deduction regime of the companies or persons that carry them out), nor to the capital gains tax in real estate transfers, nor to the tax on real estate property transfers, being therefore an operation that seeks what is called fiscal neutrality.

This principle of fiscal neutrality, in addition to regulating non-taxation, also supposes:

  • the maintenance of the fiscal value and the age of the elements affected by the aforementioned operations
  • the subrogation of the acquirers in the rights and obligations of the transferors, including the negative tax bases
  • and the elimination of the tax benefits of the regime when the main objective of the operation is not the restructuring or rationalization of activities but fraud or tax evasion.

This regime is voluntary; its application requires a prior communication to the tax administration where, among other data, it is necessary to indicate whether or not it is waived. In addition, this communication must be submitted to the notary authorizing the deed.

In short: Andorra already has a modern instrument that will allow in the future that all personal or business groups organize as they wish, without the fiscal costs of legal operations being a hindrance.

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Salvador Balcells i Iranzo's picture

One of the things Mr. Balcells like most about his job is when you get a safe, legal and fair tax situation for the sake of the taxpayer's tranquility and economy, both in previous structuring and planning, and when certain criteria have to be defended before Tax administration.

As a lawyer, he always try to put himself in the place of the one who asks for advice, so that all the options or alternatives that are considered as solutions, are those that would adopt at a personal level if the interested party is himself.