The Digital Assets Act was approved last 30 June by the General Council of the Principality of Andorra.

On 30 June, the General Council of Andorra approved the regulatory framework of Blockchain and digital currencies through the “Draft law on the digital representation of assets through the use of cryptography and distributed ledger and blockchain technology” (hereinafter, the “Digital Assets Act”).

Admitted to parliamentary procedure on 27 January 2021, after 17 months, 14 extensions and a total of 38 amendments, once it enters into force, the Digital Assets Act will regulate such wide-ranging issues as:

• The public and private issuance of digital assets, the representation of digital assets, tokens, the different categories of digital assets and their legal regime.
• Regulated entities and participants in the Blockchain TECHNOLOGY ecosystem, including specific anti-money laundering provisions, their authorisation, supervision and control in the representation of digital assets, the capital they must have paid up in cash to be able to carry out the activity, and the professional and directors’ liability insurance to be able to carry out the activity, as well as the internal control mechanisms.
• The license to carry out the activity, the registration procedure before the activity, the revocation of the license and the exercise of the activity.
• The legal regime for the issuance of digital asset representation, as well as for participants in digital asset representation, in particular digital asset trading platforms, digital asset representation custodians, and the legal regime for other activities such as collective investment schemes (CIS).
• The decentralisation of ecosystems and new forms of decentralised financing (DeFi).
• Smart legal contracts and smart contracts with legal implications.
• The supervision of activities by the Andorran Financial Authority (hereinafter, the “AFA”) and the Police Department (taking into account the anti-money laundering regulations which consider high-risk assets tokens and cryptocurrencies).
• The applicable regime of infringements and sanctions arising from.
• The income tax regime is applicable to capital gains derived from transactions with tokens. As the income tax treatment of these assets was not clearly regulated in the tax laws, the act includes certain tax aspects to clarify some gray points.
  However, the final text has left out an important part of the original text, namely the regulation of digital assets as financial instruments. The main reason for this was a request from the AFA, which asked for more time to prepare itself, both in terms of resources and expertise, to carry out adequate supervision in this field. Consequently, Andorra does not consider Blockchain technology, tokens and cryptos as financial assets and clearly not part of the financial system.

Thus, the implementation of blockchain and cryptocurrencies in Andorra will ultimately take place in two phases: firstly, the tokenization of digital assets in closed ecosystems, which will be possible through the approval of the Digital Assets Act; and, secondly, the widespread use of digital assets as financial instruments, for which the fourth Transitional Provision of the Digital Assets Act imposes on the Andorra Government the obligation to draw up, within 12 months of its entry into force, a Draft Law regulating the issuance and provision of services linked to digital assets, blockchain and cryptocurrencies that may be considered financial instruments.

What is clear is that, although it has been decided to separate the evolution of the digital economy sector into two phases, and there is still a long legislative and regulatory road ahead, the approval of the Digital Assets Act is a significant step towards the economic diversification and digital transformation of the Principality of Andorra, positioning the country at the forefront of an international race to attract significant foreign investment, qualified talent and new business models to a society whose paradigm is constantly changing.

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