Kybkalo D.S., Usachev V.A.

Donetsk National University of Economics and Trade Named after Mikhailo Tugan-Barabovsky

Financial system of Andorra

Andorra is a principality in Europe in east Pireneyakh, borders on France in the north and Spain in the south.

Separate state (fifth from the end on the quantity of population in Europe after Liechtenstein, Dignity-Marino, to Monaco and Vatican), Andorra today is a prosperous country, mainly, due to tourism and status of offshore area. The population of Andorra has most in the world life-span — in middle 83.5. Area of Andorra is 468 km2.

Tourism development has involved foreign capital investments to Andorra and promoted expansion of building and a rise in prices for the ground areas. The state takes the minimum part in management of economy, and private business operates isn't almost limited. The big role in economy is played by the bank sector using tax privileges existing in the country.

The Andorran financial system is one of the mainstays of Andorran economic activity and compared to other financial centers it is characterized by the high solvency ratio of the banking system, the fruit of a policy of strong capitalization ever since its beginnings.

The financial system of Andorra is highly regulated. System is regulated by legislative documents, such as « the Law on payments of financial institutions » from November, 27th, 1993, « the Law on regulation of factor of obligatory investments from August, 22nd, 1994, « the Law on protection of bank secret and prevention of money-laundering or production received by a criminal way » from May, 11th, 1995 or « the Law on regulation of criteria of solvency and liquidity of financial institutions » from February, 29th, 1996.

Now the structure of an Andorra financial system is established by the Law 14/2010, from May, 13th - banks, not bank company with specialized loans, the financial companies operating collective investment schemes and the financial investment companies (public investment firms; agencies of investment firms; managements of portfolios of firms and advisory firms).

Andorra has no stock exchange. Though, trading of stocks and bonds are not prevalent in Andorra.

Andorra financial system is largely dependent on the banking sector. Activity of banks and other financial institutions in Andorra is regulated by Andorra national financial institution (INAF) according to the Law on regulation of a financial system of 1993. INAF consists of two associations: l’Associació de Bancs Andorrans (Ava) and l’Associació d’entitats financeres d’inversió (ADEFI).

Now there are only 7 banks in Andorra. All banks of Andorra are members of Group of Andorra banks. It is forbidden to foreign banks to open the branches in Andorra, and such position will not change. The banking entities established in the Principality basically offer traditional universal banking services. Bank activity in Andorra is very favorable, and Andorra banks keep in contact with the Swiss banks. Andorra banks provide full bank secret of contributions.

At present the economy stays in a good conditions, rates of increase are estimated approximately in 5 % or even more. Andorra has no own official currency, in use take participation various currencies: euro, the French franc, peseta.

In Andorra there is no taxation of the companies or private persons, except for a modest annual payment for the registration, some municipal taxes and taxes to agreements with property. Andorra insists on that two thirds of companies are in the property of citizens of this country. Offshore business of Andorra is limited to rich enough private persons.

Andorra is one big duty-free. All territory of Andorra is a zone of duty-free trade, therefore the prices for all goods here are more low on 25-40 %, than in Spain, France and other EU countries. There are shops of almost all world brands in Andorra.

In September of last year the parliament of Andorra has supported introduction of the tax to additional cost and surtax. In practice taxes are not entered till now – the parliament of the country discusses possibility of an establishment of the VAT at a rate of 10 percents and surtax – in 4,5 percents As the western experts notice, the similar size of the VAT is rather modest in comparison with the majority of the West European countries, and thanks to it Andorra remains attractive to firms and investors.

All companies in Andorra are released from payment of taxes, but there is a payment for the license (700 Euros) and the annual state tax (for SL (Societat Limitadad – the company for business dealing in Princedom territory) makes 500 Euros, for SA (Societat Anonima – the company for business dealing with the big turn of the capital) – 1 000 Euros). The special legislation concerning the offshore is absent, but 2/3 offshore companies should belong to Andorrans or to the residents living in Andorra long time.

There is no necessity for granting of the financial reporting for state structures. Accounting records should be stored in the registered office of the company.

Foreign trade is focused on the EU countries. Andorra is a member of the customs union of EU. The trading exchange of the industrial goods and services between Andorra and the European countries in EU isn't assessed with custom duties.