New law Real Estate Andorra

New Law on Sustainable Growth and Real Estate Andorra

On March 6, 2025, the General Council of Andorra (Andorran Parliament) approved a law on sustainable growth and the right to housing in Andorra (also known as the Omnibus Law), which will take effect 15 days after its publication in the Official Gazette of the Principality of Andorra (April 16, 2025).

This law also regulates the buying and selling of homes in Andorra, highlighting different types of properties such as houses, villas, and chalets in Andorra la Vella.

Additionally, it emphasizes the supply of homes for sale in Andorra and the benefits of investing in this growing market. The law facilitates the buying process, making it easier for buyers to acquire properties.

The most critical points of the law are as follows:

1. General Context and Purpose of the Law

Andorra, a microstate located between Spain and France with a population of approximately 80,000 inhabitants and an economy historically dependent on tourism and financial services, has experienced a boom in foreign investment in recent decades, particularly in the real estate sector. This phenomenon, driven by its tax appeal, political stability, and strategic location in the Pyrenees, has brought significant economic benefits, such as an increase in GDP and infrastructure modernisation. Furthermore, the Andorran real estate market offers a variety of properties, including houses, villas, and chalets for sale. However, it has also posed challenges, particularly in terms of housing access for local residents, as property prices have risen due to external demand, especially from non-resident investors interested in second homes or luxury properties, impacting the ability of clients to find affordable housing.

The law published on March 6, 2025, addresses this duality: it aims to keep Andorra an attractive destination for foreign investment, a key source of revenue, while introducing measures to mitigate its negative effects, such as real estate speculation and the shortage of affordable housing. The amendments reflect a balanced approach, combining tax incentives for certain types of investment with higher levies for speculative transactions, alongside adjustments in other legislative areas to promote sustainable economic development and protect residents’ rights.

2. Amendments to Law 3/2024 on the Tax on Foreign Real Estate Andorra

The core of the law focuses on updating Law 3/2024, which regulates the tax applicable to foreign investments in real estate in Andorra. This section details changes regarding obligated parties, exemptions, taxable base, tax rates, accrual timing, and bonuses, with an analysis of their implications. The European Commission plays a crucial role in implementing the Omnibus Law, designed to simplify regulations and reduce business administrative burdens, balancing sustainability goals with the need to enhance the EU’s competitiveness in a global landscape.

Additionally, the CSRD could affect data comparability between companies and raises concerns about the potential for greenwashing in global supply chains.

2.1. Obligated Parties Subject to the Tax

The regulation identifies as obligated taxpayers those individuals and legal entities that obtain authorization for foreign real estate investment in the Principality, as stipulated in the Law on Sustainable Growth and the Right to Housing. The specific parties are:

• Non-resident individuals: This includes individuals without residency in Andorra or Andorran nationality, except for cases covered by international agreements. This group encompasses, for example, foreign investors acquiring properties as second homes or for tourist rentals.
• Non-Andorran residents with short tenure: Individuals residing in Andorra without Andorran nationality who undertake a foreign real estate investment and cannot prove at least 3 years of effective and permanent residency in the 10 years prior to the application. This clause aims to prevent new residents with foreign capital from evading the tax through recent residency.
• Foreign legal entities: Entities of foreign nationality, including public institutions of foreign sovereignty (such as governments or state-owned companies), whether they invest directly or through branches or permanent establishments in Andorra. This covers, for instance, investment funds or multinational corporations.
• Andorran entities with significant foreign ownership: Legal entities of Andorran nationality whose capital or voting rights have a direct or indirect foreign participation equal to or greater than 50% collectively. This point seeks to capture local corporate structures controlled by foreign interests.

The definition of "residency" is key: it requires a valid authorization issued by the ministry responsible for immigration, excluding non-renewable temporary permits. For Andorran citizens, residency is measured by the time registered in the communal census. Additionally, "foreign participation" is considered to be held by non-residents or foreign entities, including residents with less than 3 years of tenure in the past 10 years.

2.2. Tax Exemptions

The law establishes specific exemptions to avoid taxing investments deemed beneficial to the local economy or essential for residents. These include:

• Investments under 50,000 euros: Transactions below this threshold are exempt, facilitating small purchases, such as minor plots or modest renovations, without additional tax burdens. This could benefit individual investors or families with limited projects.
• First home for long-term residents: Individuals residing in Andorra for more than 10 years with effective and permanent residency are exempt when acquiring their first home, provided they do not own another property in Andorra, use it as their primary residence, and meet other regulatory requirements. This measure encourages the integration of long-term residents and protects their housing access.
• Investments with construction permits: Operations subject to communal authorization for construction are exempt from the foreign investment tax, falling instead under local construction tax regulations. This incentivizes development projects regulated by Andorran authorities.
• Job creation and maintenance: Investments linked to the generation and sustenance of jobs, as defined in future regulations, are also exempt. This reflects an interest in aligning foreign investment with tangible social and economic benefits.

Para obtener más detalles sobre estas exenciones fiscales, se puede consultar la información disponible en los documentos y recursos proporcionados por las autoridades.

These exemptions demonstrate a strategic approach: the government aims to primarily tax speculative or luxury investments while exempting operations that support the local economy or residential stability.

2.3. Taxable Base and Tax Rates

The taxable base and tax rates are fundamental to understanding the fiscal burden imposed by the law:

• Taxable base: This is calculated based on the real value of the real estate investment formalized after the foreign investment authorization, including the sale of properties. For Andorran entities with foreign participation ≥50%, the base is proportional to that participation, avoiding taxation of the entire investment if local capital is involved. For example, if an Andorran company with 60% foreign capital invests 1 million euros, the taxable base would be 600,000 euros.
• Real estate developments: For new developments, the real value must be verified with the tax administration before formalizing the new construction declaration before a notary within the timeframe and manner to be determined by regulation. Prior taxed investments are excluded, preventing double taxation in long-term projects.
• Tax rates: The law establishes a progressive structure to differentiate based on the type and scale of investment:
• 3%: Applicable to the first single-family home, apartment, or studio, with a maximum of 3 parking spaces and 3 storage units per unit. This reduced rate encourages the acquisition of primary or modest homes.
• 5%: For a second property (apartment or studio) with the same limits on annexes. This increase aims to discourage the accumulation of secondary properties by foreign investors.
• 10%: For investments exceeding these limits or not fitting the above categories, such as large real estate developments, luxury properties, or speculative investments. This higher rate targets operations with greater economic impact or lesser social benefit.

2.4. Accrual Timing

The tax is accrued at the moment the investment is formalized before a public notary, providing clarity on the taxation point. For real estate developments, accrual occurs upon formalizing the new construction declaration, aligning with the project’s official start. An important clause states that losing the "foreign investment" status (e.g., if the owner becomes a long-term resident) does not entail a refund of the tax paid, ensuring the irrevocability of the collection.

2.5. Bonuses

An innovative feature is a 90% bonus on the tax liability for investments aimed at acquiring or constructing affordable rental housing for habitual and permanent residency for a minimum of 10 years. This measure, regulated under the Urban Property Leasing Law, covers not only the properties but also common areas, parking spaces, and associated storage units. For example, if a 500,000-euro investment generates a 15,000-euro tax (3%), the bonus would reduce the liability to 1,500 euros, provided the affordable rental commitment is met. However, if the use changes before the term (e.g., the property is sold or rented at market rates), the taxpayer must repay the exempted amount, ensuring compliance.

3. Amendments to Law 15/2022 on Andorra Rental of Housing

The 2025 Omnibus Law introduces amendments to Law 15/2022 on Urban Property Leasing, aiming to improve rental market regulation and protect tenants. Key changes include:

• Extension of minimum lease term: The minimum lease term is extended from 3 to 5 years. This measure seeks to provide greater stability for tenants and foster longer-term contractual relationships.
• New contract renewal regime: Tenants can renew their lease for an additional 2-year period, provided they meet established conditions. This offers greater security and facilitates long-term planning, destacando la importancia del servicio y la atención al cliente en el sector inmobiliario.
• Rent adjustment based on CPI: The rent adjustment formula shifts to the Consumer Price Index (CPI) instead of the Housing Price Index (HPI). This change aims to more accurately reflect cost-of-living trends and prevent disproportionate rent increases.
• Rent reduction for landlord non-compliance: A provision allows tenants to request a rent reduction if the landlord fails to meet maintenance and repair obligations. This protects tenants and ensures that landlords maintain properties adequately.

Additionally, the law updates urban leasing regulations with two significant changes to strengthen tenant protections and adjust contractual terms:

• Penalties for violations: Amendments to sections b) and c) of Article 55:
• Serious violations: A fine equivalent to 50% of the annual rent paid by the tenant at the time of contract termination. For example, if the monthly rent was 1,000 euros, the fine would be 6,000 euros (50% of 12,000 euros annually).
• Very serious violations: A fine of 100% of the annual rent, amounting to 12,000 euros in the same example. These penalties aim to deter serious breaches, such as unjustified evictions or lack of maintenance. Removing administrative barriers in the service sector is key to improving efficiency and productivity.
• Cost updates for old contracts: An additional fourth provision allows exceptional updates to service costs (e.g., water, electricity, heating) in habitual residence contracts from 2019 or earlier, provided the landlord proves a cost increase and individual consumption cannot be measured. This addresses inflation and rising service prices, balancing landlord and tenant interests. Clear and accessible information on public services related to rentals is also crucial.

4. Changes to Law 42/2022 on Digital Economy, Entrepreneurship, and Innovation

In the digital economy sphere, the law introduces adjustments to promote entrepreneurship:

• Section 2 of the first transitional provision of Law 42/2022 is repealed, and a new third transitional provision is added. This allows companies registered in the Commercial Registry to apply for “startup” status until July 30, 2025, if they meet legal and regulatory requirements, without needing to fulfill certain additional criteria (e.g., those in Articles 61 and 62). This change eases access to benefits like tax exemptions or government support, fostering innovation amid economic diversification.

Además, es crucial establecer conexiones clave y asociaciones profesionales en el Reino Unido, especialmente en Londres, para aprovechar su posición estratégica en negocios y legalidades en la región.

5. Amendment to Law 3/2019 on Urgent Housing Measures

The law adjusts section 6 of Article 26 of Law 3/2019, setting a fixed tax rate of 100 euros per square meter for certain housing rental cases. This simplifies taxation in this area, providing predictability for landlords and tenants under urgent measures.

6. Increase in the Tax on Stays in Tourist Accommodations

The seventh final provision mandates the government to submit, within one year of the law’s entry into force, a proposal to amend Law 19/2022 and increase the tax on stays in tourist accommodations. The additional funds will support, among other goals, training for tourism professionals, a sector accounting for about 30% of Andorra’s GDP and facing challenges like international competition and sustainability needs. This increase aims to boost revenue and enhance service quality. Escaldes Engordany, with its charming cobblestone villages and natural beauty, is an attractive location for tourist accommodations.

7. Measures for Sustainable Housing

The 2025 Omnibus Law includes several measures to promote sustainable housing and reduce the environmental impact of the construction sector. Key measures include:

• Energy efficiency standards: All new residential buildings must meet the highest energy efficiency standards. This aims to reduce energy consumption and carbon emissions, aligning with sustainability goals.
• Tax incentives for rehabilitation and sustainable construction: Tax deductions and subsidies are introduced for rehabilitating existing buildings and constructing sustainable homes de lujo, encouraging eco-friendly practices.
• Fund for sustainable housing projects: A fund is created to finance sustainable housing projects and the rehabilitation of degraded neighborhoods, supporting energy efficiency and sustainability initiatives.
• Promotion of sustainable materials: The use of sustainable materials in housing construction is encouraged, reducing reliance on non-renewable resources and promoting low-impact techniques.

8. Impact on Companies

The 2025 Omnibus Law will significantly affect companies in the construction and housing sectors. Key impacts include:

• Adaptation to new standards: Companies must adapt to new energy efficiency and sustainability standards, requiring investments in technology and processes to comply.
• Compliance with rental provisions: Firms must adhere to new rules on lease renewals and rent adjustments, necessitating changes in property and contract management, así como en los servicios ofrecidos para garantizar la satisfacción del cliente.
• Access to tax incentives: Companies can benefit from tax incentives and funding for sustainable housing projects, offering competitive advantages and growth opportunities.
• Training and upskilling: Investment in employee training will be necessary to meet new regulatory demands, including updates on sustainable construction and energy efficiency techniques.

9. Simplification of Regulations and Reduction of Bureaucracy

The 2025 Omnibus Law aims to simplify regulations and reduce bureaucracy in the construction and housing sectors. Key measures include:

• Consolidation of regulations: Multiple regulations and standards are merged into a single text, simplifying consultation and application, reducing complexity, and improving administrative efficiency.
• Elimination of unnecessary procedures: Redundant processes are removed as part of broader sustainability efforts, streamlining administrative tasks and reducing burdens for businesses and citizens.
• Electronic management system: An electronic system is introduced for submitting applications and processing procedures, modernizing public administration and improving service access.
• Advisory and consultation body: A body is established to address queries and resolve disputes, providing guidance and support to businesses and citizens, enhancing transparency and effectiveness.

With these new sections, the article maintains its coherence and depth, offering a comprehensive and detailed overview of the amendments introduced by the 2025 Omnibus Law in Andorra.

10. Regulatory Provisions and Consolidated Texts

The law includes specific mandates for its development and implementation:

• Regulations: The government has 6 months to approve necessary regulations for the law’s application and one year for those related to Law 16/2017 on tourist accommodations, ensuring an orderly transition.
• Consolidated texts: Within 12 months, the government must submit updated versions of 11 affected laws to the General Council, including those on immigration, taxes (corporate, personal income, non-resident income, general indirect), anonymous companies, foreign real estate investment, propiedad, leasing, digital economy, and urgent housing measures. This will facilitate consultation and application of the amended regulations.

11. Entry into Force

The law takes effect 15 days after its publication in the BOPA (March 21, 2025), except for Title IV, concerning the transfer of vacant and neglected housing, which will take effect 6 months later (September 6, 2025). This staggered timeline allows preparation for more complex measures, such as managing unused properties.

12. Analysis of Implications

This law has profound implications across multiple levels:

• Foreign investment: Progressive tax rates (3%, 5%, 10%) and exemptions aim to deter mass speculation while favoring resident integration and employment. Success will depend on the enforcement capacity to determine the "real value" of investments and prevent underreporting.
• Affordable housing: The 90% bonus for affordable rentals is a strong incentive to increase housing supply, a critical issue in Andorra, where prices have risen 20-30% in the last decade per local estimates. However, the 10-year requirement might deter some investors if rental market risks are perceived.
• Economic diversification: Adjustments in startups and tourism aim to bolster alternative sectors to real estate, vital for reducing reliance on seasonal tourism and speculative foreign investment.
• Social protection: Penalties in leasing and adjustments to old contracts strengthen tenant rights, aligning with social policies to ease real estate pressure on locals.

A challenge will be regulatory implementation: the law leaves several aspects (e.g., job-related exemption details or affordable rental criteria) to future regulations, potentially causing uncertainty until they are clarified.

13. Socioeconomic Context

Andorra is at a transitional moment. Its economic model, based on low taxes and openness to foreign capital, has attracted high-net-worth investors and residents but has also strained the housing market and cost of living. The law responds to social demands for greater housing equity while preserving international competitiveness. Compared to measures in other microstates or tourist regions (e.g., Monaco or the Swiss Alps), this regulation blends fiscal control with social incentives, a pragmatic approach for a resource-limited country.

14. Conclusion

The law of March 6, 2025, represents an ambitious effort by the Andorran government to regulate foreign real estate investment, improve housing access, and diversify the economy. With a tailored tax framework, specific incentives, and a long-term vision, it seeks to balance openness to external capital with the protection of local interests. Its impact will hinge on regulatory clarity and enforcement capacity, but it sets a significant precedent in Andorra’s legislative evolution.

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