Financial Crime World

Andorra’s Regulation of Alternative Investment Funds

Andorra has established itself as a favorable jurisdiction for alternative investment funds (AIFs) in recent years. The country’s regulatory framework provides a range of benefits for both investors and fund managers. In this article, we will explore the key aspects of Andorra’s regulation of AIFs.

Marketing Restrictions

According to Law 10/2008, the Andorran Financial Authority (AFA) can restrict the marketing of AIFs to well-informed investors in cases where there is a low liquidity level or high risk of loss for the AIF. The marketing of AIFs limited to well-informed investors is prohibited to retail investors.

Who are Well-Informed Investors?

  • Institutional investors
  • Professional investors
  • Individuals with a net worth exceeding €1 million

Reporting Requirements

AIF managers must prepare:

  • Annual reports
  • Quarterly reports
  • Reports of any decrease in net assets (if it is less than 10%) to the AFA and investors
  • Management companies/investment companies must also report any decrease in net assets (if it is less than 10%) to the AFA

Taxation

All forms of AIFs receive the same tax treatment, subjecting them to a:

  • Corporate income tax rate of 0%
  • Management companies/investment managers are subject to a standard corporate income tax rate of 10%

Investor Tax Treatment

Resident Individuals

  • No tax on distribution of dividends
  • 10% rate for capital gains, unless the investor holds a stake of less than 25% or has maintained that stake for more than two years

Non-Resident Individuals

  • Subject to withholding tax at the source, with rates ranging from 5% to 20%

Pension Fund Investors

  • Exempt from corporate income tax

Establishment and Transfer Taxes

There are no establishment or transfer taxes levied in connection with an investor’s participation in an AIF or the transfer of the investor’s interest.

In conclusion, Andorra’s regulation of AIFs provides a favorable environment for both investors and fund managers. The country’s zero-tax regime on corporate income, lack of establishment and transfer taxes, and relatively low reporting requirements make it an attractive destination for investment.