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Andorra’s Financial System: Understanding Agent and Trust Concepts
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Andorra has a unique financial system that differs from other countries in the region. One of the key differences is the absence of agent and trust concepts under Andorran laws.
Absence of Trusts and Agents
According to the Hague Convention on the Law Applicable to Trusts and on their Recognition, Andorra has not ratified this convention, which means that trusts are not recognized as legal entities in the country. Additionally, the concept of “agent” is also not recognized under Andorran laws.
Instead, alternative mechanisms are used to achieve similar results. For example, a local representative can be designated in Andorra who is granted powers of attorney by the foreign lender to carry out securities-related actions. This includes taking legal action and enforcing proceedings before Andorran courts.
Another common mechanism is the use of parallel debt provisions, which recognizes an additional debt in favor of the security agent appointed, independent from the debt owed by borrowers to the lender.
Loan Transfer Mechanisms
Andorra has a range of loan transfer mechanisms available under its laws. These include:
- Assignment: The assignment of loans qualifies as a generic legal business that provides for the transfer of rights and obligations from the transferor to the transferee.
- Sale: The sale of loans is a specific legal business that involves the transfer of ownership of the loan from one party to another.
- Pledge: A pledge is a type of security interest that gives the lender a claim on specific assets or property.
Tax
Andorra has a tax system that applies to both residents and non-residents. Withholding tax rates apply to payments made by legal persons to natural persons, with a rate of 10%.
Guarantees and Security
The assets typically available as collateral in Andorra include:
- Mortgages over real estate assets
- Pledges over shares of subsidiaries
- Pledges on bank accounts
- Pledges over credit rights derived from income-producing agreements
Creation of security interests does not require notarization, except in the case of mortgages. However, notarization is recommended as a matter of best practice.
Conclusion
Andorra’s financial system offers unique opportunities for investors and lenders. Understanding the nuances of agent and trust concepts, loan transfer mechanisms, tax, and guarantees and security can help facilitate successful transactions in this market.