Andorra’s New Foreign Investment Law Following the Approval of the Omnibus Law

Andorra’s New Foreign Investment Law Following the Approval of the Omnibus Law

Authors: Martí Periago, Albert Barroso

The recent approval of the Omnibus Law marks one of the most significant reforms of Andorra’s foreign investment framework in recent years.

The legislation introduces a broad package of measures aimed at regulating foreign real estate investment, improving access to housing, promoting sustainable development and strengthening oversight of certain economic activities.

Among its most important changes, the Omnibus Law fully repeals the former Foreign Investment Act of 2012 and introduces substantial amendments to the Foreign Real Estate Investment Tax regime.

Who Is Considered a Foreign Investor?

The new legislation redefines the concept of foreign investor.

The following categories are generally included:

• Non-resident individuals.

• Non-Andorran residents who cannot demonstrate at least three years of effective residence within the previous ten years.

• Foreign legal entities.

• Andorran companies with foreign ownership equal to or exceeding 50%.

The reform also introduces a more flexible residency criterion and excludes certain Andorran companies with foreign participation below 50% from the scope of the foreign investment regime.

New Categories of Foreign Investment

The law simplifies the previous framework and now distinguishes only between two categories:

Direct Foreign Investment

This includes investments in Andorran companies where specific ownership thresholds are exceeded.

Prior authorisation remains mandatory for investments exceeding 10% of the share capital. In addition, authorisation may also be required where the combined participation of foreign investors reaches or exceeds 25% of the company's capital.

Foreign Real Estate Investment

The reform strengthens controls over investments carried out directly or indirectly through companies, collective investment schemes and other investment vehicles.

Particular attention is given to transactions that result in foreign ownership or real estate asset thresholds being exceeded.

Mandatory Effective Economic Activity

One of the most significant changes is the requirement that companies subject to foreign investment must commence genuine economic activity within 18 months of incorporation.

To demonstrate compliance, companies must:

• Hold a valid business or commercial registration.

• Fulfil annual financial reporting obligations.

• Meet minimum levels of business activity to be defined by future regulations.

This measure seeks to prevent the creation of inactive entities established solely to obtain self-employed residence permits.

New Restrictions on Real Estate Investment

For the first time, Andorran legislation introduces quantitative limits on foreign real estate investment.

As a general rule, a foreign investor may acquire:

• One plot of land with a single-family house.

• One detached residential property.

• Two apartments, flats or studios.

• Up to six parking spaces.

These limits do not apply to properties acquired before the entry into force of the Omnibus Law or obtained through inheritance or matrimonial property settlements.

Real Estate Development Restrictions

The reform imposes significant restrictions on foreign investment in property development activities.

As a general rule, foreign investors may no longer acquire or develop properties with the intention of resale.

However, exceptions apply where developments are fully allocated to long-term residential rentals and at least 50% of the units are rented at affordable prices for a minimum period of ten years.

Monitoring and Sanctions

The Omnibus Law introduces specific monitoring mechanisms for authorised investments.

Authorities may request periodic information to verify that investments are being carried out in accordance with the conditions originally declared.

The reform also establishes a new administrative sanctions regime for non-compliance, inaccurate reporting and fraudulent conduct.

Changes to the Foreign Real Estate Investment Tax

The legislation also modifies the Foreign Real Estate Investment Tax framework.

The new tax rates are:

• 3% for a first residential investment.

• 5% for a second residential unit.

• 10% for all other cases or where investment limits are exceeded.

In parallel, the requirements for obtaining tax incentives linked to affordable rental housing have been significantly tightened.

Conclusion

The new Foreign Investment Law represents a fundamental shift in Andorra’s regulatory approach.

The introduction of quantitative limits, enhanced administrative controls, restrictions on certain real estate developments and changes to taxation reflect the Government’s objective of balancing international investment with housing protection and sustainable growth.