Investing in Andorra via an SCI: Benefits and Pitfalls

Published on October 3, 2025 and written by Cyril Jarnias

Investing in Andorra via a Civil Real Estate Company: Benefits and Pitfalls to Know

Nestled between France and Spain, Andorra is often perceived as a tax haven offering numerous investment opportunities, particularly through a Civil Real Estate Company (CREC). This small mountainous country is attracting more and more investors drawn by its favorable economic environment and advantageous tax regime.

However, investing in Andorra via a CREC is not without potential pitfalls and requires a thorough understanding of local specifics. This article explores the benefits and challenges associated with this type of investment, providing practical advice for navigating this complex landscape.

Optimizing Legal Structure via a CREC in Andorra

Establishing a Civil Real Estate Company (CREC) in Andorra offers several notable tax and estate planning benefits:

• No inheritance taxes: Transferring real estate assets through a CREC allows avoidance of inheritance taxes, facilitating estate planning and preservation of family capital.
• Reduced tax rate: Profits generated by the CREC are subject to a corporate tax rate capped at 10%, significantly lower than many European countries.
• Untaxed dividends: Dividends distributed by an Andorran company, including a CREC, are not taxed locally.
• Double taxation agreements: Andorra has agreements that prevent double taxation on certain real estate income for foreign residents.

Benefit	Explanation
Tax reduction	Corporate tax capped at 10%, no tax on dividends or inheritance
Easy transfer	Progressive donation of shares possible without complex formalities
Asset protection	Separation between personal and real estate assets
Simplified management	Facilitates entry or exit of partners

The CREC also facilitates management and transfer of real estate assets:

• It allows partners (family members or investors) to collectively own a property while precisely defining their share percentages.
• Progressive donation of shares avoids physical division of the property during inheritance, enabling its preservation within the family or partner circle.

Specific Legal Requirements for Establishing a CREC in Andorra

To establish a CREC in Andorra, certain steps and local regulations must be followed:

• Drafting articles of association compliant with Andorran law
• Registration with the Commercial Registry
• Minimum required number of partners (generally two)
• Mandatory involvement of a local notary
• Strict compliance with annual accounting obligations

Note that Andorra imposes strict compliance with legal framework regarding the origin of invested funds (anti-money laundering) as well as transparent identification of beneficial owners.

Risks & Potential Pitfalls

However, there are certain risks to be aware of:

Major Risks to Anticipate

• Non-compliance with local laws potentially leading to statutory nullity or tax penalties
• Regulatory changes that could challenge current tax advantages (example: future modifications to international taxation)

Common Complications

• Poorly drafted articles of association preventing certain estate planning operations
• Difficulty during withdrawal or replacement of a partner if articles don’t address these scenarios

Concrete Example / Case Study:

A French entrepreneur creates an Andorran CREC with his children. He invests in a rental building. Over the years, he progressively transfers his shares through structured donations. At his death, no inheritance taxes are due; his heirs still control the property through their shareholdings in the company. This structure allowed them to:

• Significantly reduce their overall tax burden,
• Ensure a smooth transition,
• Avoid any disputes related to physical division of the property.

Always ensure you’re accompanied by a local professional to guarantee legal compliance and optimal tax planning.

Real Estate Purchase in Andorra: Benefits of a CREC

The Civil Real Estate Company (CREC) represents a particularly advantageous tool for purchasing and managing real estate properties in Andorra, both from tax, inheritance, and estate planning perspectives.

Main Benefits of Using a CREC in Andorra:

• Facilitation of estate transfer
• Simplification of real estate management among partners
• Tax optimization within Andorra’s attractive context
• Protection of personal assets from real estate investment risks

Facilitation of Estate Transfer

Indirect ownership of a property through a CREC allows progressive transfer of shares rather than the property itself.
Practical example:

• A parent wishes to transfer an apartment located in Andorra to their children. They can transfer a portion of the shares corresponding to the property each year, allowing anticipation and optimization of inheritance while maintaining control over important decisions.
• This mechanism avoids the classic co-ownership that often complicates transfers during direct inheritance.

Simplification of Collective Management

The CREC offers statutory flexibility allowing partners (family members or business partners) to organize decision-making and daily administration as they see fit.
Concrete example:

• Several investors collectively acquire a rental building. Through their partner status within the CREC, they define in the articles how major decisions (sale, renovation…) or daily matters (rental management) will be made.
• Transfer or addition of a new partner is also facilitated through simple internal transfer or sale of shares.

Tax Optimization Adapted to Andorran Context

The Andorran tax framework is recognized for its low corporate taxation and advantageous exemptions for residents.
Key points:

• Rental income generated by an estate planning company generally benefits from a reduced rate compared to individuals.
• The structure also allows—depending on the chosen tax regime—either transparent taxation (income distributed directly to partners) or opaque taxation (taxed at corporate level before distribution).

Aspect	Direct Ownership	Ownership via CREC/Estate Planning Company
Transfer	Co-ownership	Progressive share transfer
Management	Unanimous decisions required	Customizable statutory rules
Taxation	Individual taxation	Possible optimization depending on regime
Personal protection	Unlimited liability	Liability limited to share capital

Flexibility in Partner Management

The articles can freely specify:

• Specific procedures for transferring/selling/acquiring shares
• Strict conditions for approving new partners
• Unequal but contractual distribution of decision-making power

This thus offers more agility during family changes, professional partnerships, or evolving estate planning strategies.

Protection of Personal Assets Against Economic/Financial Risks

In case of financial difficulties related to real estate investment, only the share capital invested in the company is exposed—not necessarily all individual personal assets.
Example:

If a rental project managed through a company encounters significant defaults or unpaid debts, only the assets recorded on its balance sheet are affected; this legal barrier thus strongly protects each partner against any broader seizure.

Using a civil real estate company in Andorra therefore combines local tax optimization, increased inheritance/family flexibility, and legal security against economic uncertainties inherent to any real estate investment.

Pitfalls to Avoid When Investing in Andorra with a CREC

Pitfalls to Avoid When Investing in Andorra with a CREC

Major Legal Differences Compared to France

• The concept of misuse of corporate assets is not recognized in Andorra, which changes the liability framework for managers and partners.
• There are no inheritance taxes nor wealth tax, unlike France.
• Dividends distributed by an Andorran CREC are exempt from withholding tax, whereas they are taxed in France.
• The regulation of civil real estate companies (CREC) is less detailed in Andorran law; certain specific protections provided in France may not apply.

Tax and Administrative Obligations of CRECs in Andorra

• Corporate tax (CT): fixed rate of 10%, much lower than France (25%).
• Local VAT (IGI): general rate of 4.5%, with certain reduced or increased rates depending on sectors.
• Mandatory annual declarations: filing of accounts, tax returns, and transparency obligations towards Andorran authorities.
• In case of holding structure, possibility to benefit from parent-subsidiary regime with 95% dividend tax exemption, under strict conditions (95% capital ownership, choice of tax integration regime).

Aspect	Andorra	France
Corporate Tax	10%	25%
VAT/IGI	4.5%	20% (standard rate)
Inheritance taxes	None	Applicable
Misuse of corporate assets	Not recognized	Recognized and penalized
Dividends	0%	Taxed

Risks Related to Local Real Estate Market

• Small market size: increased volatility, lower liquidity in case of resale.
• Sometimes overvalued prices in certain tourist areas, exposing to correction risk.
• Variable rental yield depending on seasonality and tourist demand.
• Risk of dependence on local economic conditions and migration policies.

Common Mistakes by Non-Resident Investors

• Underestimation of real costs: condominium fees, local taxation, management fees, maintenance, potential work required by local authorities.
• Poor anticipation of declaration obligations and administrative requirements specific to Andorra.
• Failure to account for legal differences that could affect partner protection and conflict management.
• Neglect of tax residence impact on personal taxation and that of the CREC.

Essential Steps to Avoid Disputes

• Thorough verification of legal status of the building and acquisition conditions.
• Precise drafting of CREC articles adapted to Andorran law, with conflict resolution clauses.
• Scrupulous compliance with declaration and administrative obligations.
• Prior audit of the real estate property to anticipate hidden costs.
• Seeking advice from specialized professionals (lawyers, tax specialists, local notaries) mastering Andorran law specifics and international tax conventions.

It is highly recommended to use local legal and financial advisors to secure the investment, optimize taxation, and prevent any disputes related to unfamiliarity with the Andorran framework.