Tucked away high in the Pyrenees Mountains on the borders of France and Spain lie tiny Andorra, Europe’s most remote tax haven. It takes three and a half hours by car to reach Andorra from the nearest airports in Barcelona in Spain and Toulouse in France. Talk in Andorra is than an airport is scheduled to be completed within two years, but currently access is limited to ground transportations.

 Andorra is a tiny state of 453 sq km (175 sq mi), located on the border of France and Spain and surrounded by them. It has a population of 54,428 (1992 est.), with the capital city of Andorra-la-Vella accounting for 15,698. 

Set in the eastern Pyrenees, Andorra is a contrast of high mountains and deep valleys. The Valira River drains the area. Temperatures in the valleys can reach 32 degrees C (90 degrees F) in the summer, but the winters are cold (average January temperature is about 0 degrees C/32 degrees F), with an abundance of snow. One major highway connects Andorra with France and Spain, and other roads make the whole area accessible by automobile. The country has no railroad and no airline. 

Approximately 60% of Andorra’s citizens are of Spanish origin; 6% are French. One-third are descendants of an ancient tribe known in Roman times as Andosians, from whom the country got its name. 

Legend has it that Charlemagne granted the mountaineers of Andorra independence in gratitude for them guiding his army through the Pyrenees in his battle to expel the Arabs from southern France and Spain. 

The main language is Catalan, and Spanish and French are spoken widely. Roman Catholicism is the official religion. 

Only 4% of Andorra’s land is arable, so that the country must import food from France and Spain. Tobacco, potatoes, rye and buckwheat are grown in the lower valleys, where a few vineyards and olive groves are also located. Large flocks of sheep are brought from France and Spain each summer to graze on the abundant mountain pastures. Small quantities of iron, lead, silver, and alum are mined. Three major hydroelectric plants enable Andorra to export electricity to Spain. 

For many centuries Andorra’s most profitable, although unofficial, industry was smuggling between Spain and France. This remains a profitable sideline for some, but in recent years tourism has become by far the nation’s largest industry. Tourism and rapid growth were spurred in the 1960s when Andorra established itself as a duty-free area. Excellent skiing in the winter, hunting and fishing, and the many folk festivals in the summer, as well as the mineral baths at Les Escaldes, have generated a tourist flow of more than 6 million visitors a year. 

Andorra has no sales tax, and both French and Spanish currency is recognized as legal tender (it has none of its own). Its postal system is free, being totally supported by the sale of Andorran stamps to collectors around the world.  

Andorra advertises itself as having no serious crime, and, no income taxes of any kind. Andorra also claims to have no immigration difficulties, no restriction on the movement of money and no obstacles to purchases or resales of real estate properties. Cisa, the main Andorran developer, can guarantee 60% mortgages in any currency and offers rental programs. 

Until recently, Andorrans were governed jointly by two ‘suzerains’ – the Spanish bishop of Urgel and the French president. But, in a referendum, a modem constitution was voted in which restricts the powers of the ‘co-princes’ and puts decisions on the future of Andorra and its 50,000 foreign inhabitants firmly in the hands of the people. 

Since the arrival of the first non-feudal government, with the center-right Agrupament Nacional Democratic party leading a reform-minded coalition government, Andorra has moved to relax its strict foreign-owned financial services operator’s rules. It has been thought that one way of raising revenue would be to attract the international financial services community and apply small stamp and customs duties. But the French fiscal authorities, who keep a close eye on their citizens’ dealings with Andorra, have strong objections to Andorra’s politicians turning Andorra into a British style tax haven like Gibraltar. 

Already there are some 1,200 UK expatriates and tax refugees, “too rich to die and too poor to live” in the words of one resident, who have settled in Andorra. According to Sr. Candid Noudi Mora, whose family owns Cisa, Andorra is presently negotiating with the EC with a view to having the advantages of EC membership but none of the disadvantages. “We will make no concessions regarding taxation matters.” 

In 1278 the feudal state of Andorra was placed under the joint rule of the Spanish bishop of Urgel and the French count of Foix. The system remained technically the same until 1993, when Andorra’s citizens voted to adopt a constitution establishing a parliamentary co-principality, with separate executive, legislative, and judicial branches. The country, which is governed by a general council of 24 elected representatives, is independent and pays token homage to Spain and France. Women obtained the right to vote in 1970. Andorra, like Switzerland, maintains a policy of strict neutrality in international affairs. 

The tiny principality set in a Pyrenean valley wedged between France and Spain is still, according to local property agents Roc Proprietas, “one of the few remaining tax havens. Its prosperity is based upon free trade, freedom from taxes and an absence of bureaucratic excesses”. Roc Proprietas also highlight the safe crime-free environment for the resident, a moderate cost of living, excellent communications, a highly efficient and totally confidential banking system and generally excellent weather. In addition, they promise the investor sustained growth of property values, total absence of taxes and guaranteed security. 

It is debatable whether Andorra qualifies for the title of international finance center. Through there is neither value added tax nor income tax, most of Andorra’s very high income per capita of over US$16,000 is derived from skiers and shoppers. The signs of financial life are in Andorra La Vella’s three miles of duty-free shops where banks jostle for attention, conducting offshore business in freely-interchangeable francs and pesetas and without the hindrance of exchange controls. 

Andorra’s politicians will he careful of trying to raise revenue by taxing the citizens, however indirectly. On previous occasions when the government attempted to impose a bank deposit tax and a hotel guest tax, it has been forced to resign; such was the strength of the opposition to anything resembling taxation. 

Andorra’s peculiar status seems set to continue – not a complete international financial services center, but a place where business can be conducted tax-free; not a part of the European Community, nor a specially recognized external area like Gibraltar, Madeira, nor completely separate, like the Channel Islands or the Isle of Man. It is likely to remain a place for skiing and shopping rather than international financial services until legal changes allow the Pyrenean state to be promoted as an offshore center with tax incentives for international business.

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