Investing in cryptocurrencies in Andorra can be a very relevant option for many people, especially from Spain. As all businesses related to cryptocurrencies, tokens, NFTs and the various blockchain applications or mining itself are purely digital and do not require a physical location, they are a very frequent target client to go to live in Andorra. So much for traders as well as for holders or entrepreneurs with projects with crypto assets.
Although Andorra is not a crypto paradise at least not yet, it is remarkable the the country's efforts to open up internationally and attract the most innovative sectors and markets like Big Data or, in this case, blockchain. What Andorra is a jurisdiction that bets on cryptocurrencies and blockchainThis is demonstrated by the fact that a bill to regulate the sector is currently in the parliamentary process.
In this article we will discuss the situation and the advantages of doing a business in this sector in the Principality. Of course, the main and most obvious advantage is the fiscal one, but it is not the only one.
Cryptocurrency environment in Andorra in 2022
With the price of Bitcoin at about 40.000$ and with the first international institutional supports already made, Bitcoin is slowly coming of age. Some continue to say that it is a bubble, but they are the same that they said when it was at 300$ and they are the same as when it fell from the peak of 20,000$ of 2017 to approximately 10,000$ they said "I told you so", even though 10,000$ it should also be a supposedly exorbitant amount for them.
The frequency of profiles of Bitcoin investors and hodlers and in general cryptocurrency traders who move their business to the Principality of Andorra has increased a lot in 2021, a year already marked by a strong boom and a maximum of new residents due to the pandemic, the economic crisis, the poor management of both by the governments of Spain, teleworking and trend set by El Rubius. The newest fashion in this sense is that of the video games with cryptocurrencies, of which there are already numerous projects in Andorra and practically all of them have been established during 2021 and of which we have a lot of experience.
The importance of fund traceability
However, from Andorra Insiders we must insist that the source of funds must be clear when someone who owns these crypto assets wants to settle in some currency, especially if the objective is to operate with said funds again through the banking system and acquire goods and services with them. Maintaining the traceability of operations is essential to be able to declare cryptocurrencies.
Specifically speaking of the Principality, we already reflected in other articles how meticulous and strict Andorran banks are. This has always happened because the Andorran banks have investments of great wealth and businesses from all over the world, and their prestige is highly valued, image and brand for investors of all kinds as a serious, respectable and responsible bank.
Therefore the banks they are always cautious and put problems in all activities considered morally doubtful (for them): from online games, casinos and others related to gambling, to adult themes and pornography, through tarot and fortune telling businesses. In addition and as we also commented, after the BPA crisis that led to the transformation of the country, these controls have been intensified.
The case of cryptocurrencies is therefore not an exception, quite the opposite. Due to their properties and anonymity and how new they are, these assets are highly susceptible to money laundering and therefore for banks to accept the income and cash flows generated with them, it must always be proven that the ultimate origin of the funds resides in an entity of the banking system or that somehow the completely legal origin can be certified thereof.
Intermediate operations are also taxed
The cryptocurrency exchange per se generates a taxable income that must be declared in personal income tax, regardless of whether whoever transmits the cryptocurrency obtains a legal tender currency (fiat), another cryptocurrency or another type of asset. That is to say: that when someone sells for example bitcoin, even if they obtain another cryptocurrency such as Ethereum, that operation per se is already subject to tax and constitutes a capital gain or loss that must be declared.
This fiscal impact, for many still unknown, has been clearly exposed by the tax authorities of practically all of Europe, including Andorra. In fact, in Spain, the verification of all operations, which includes the exchange of information with other jurisdictions such as Malta and Estonia, are part of the tax control plan for this year, and therefore, it is foreseeable that tax inspections will intensify in the sector.
The operation is therefore relatively simple and works like this both in Andorra as in most countries of the world including Spain: each time a certain amount of cryptocurrencies, tokens or crypto assets is liquidated or sold, the holder of them obtains a capital gain / loss calculated as the value of the crypto in the sale operation minus the value in the purchase. At the end of the fiscal year, gains and losses from all operations are offset and the net income subject to tax is obtained.
We insist that this treatment is applicable regardless of the asset obtained And regardless of whether they are on a specific platform or exchange and the funds have not been withdrawn from the bank.
Cryptocurrency trading log for traders
In this sense, we recommend have a record of all operations carried out with bitcoin and other cryptocurrencies at hand in order to certify and justify, when the funds are to be settled and reintroduced into the financial system in current currencies, that the origin of the funds is lawful. It should be noted that you can have these cryptos in an external wallet, as long as it can be shown how that capital has gotten there.
Numerous clients and people around the world have a huge wealth in cryptocurrencies, especially in Bitcoin, but because they bought in the early days of this technology through low-traceable platforms and methods, they cannot liquidate and reintroduce the funds back into the financial system. Y Currently there is no use in owning Bitcoin if you cannot trade with it.
Have tools like Coin Tracker o Coin Tracking or similar to register all operations with cryptocurrencies is highly recommended if you want to declare correctly and have the option of liquidating the capital to the banking system.
Cryptocurrency taxes in Andorra: personal income tax
For practical purposes, cryptocurrency trading is usually done in a personal capacity, except in cases in which a group of investors deposit a joint capital in a company, in which case it is the company that carries out the trading.
Specifically, in the case of Andorra at the moment, and pending specific legislation, cryptocurrencies are considered as one more normal asset, and therefore obtained as individuals, they are taxed on the basis of personal income tax savings as capital gains, which is a 10% on net profit with € 3,000 exempt income. As a society the profits of the company are taxed to the 10% also but deducting expenses in which the salary of the administrator of the same can be included.
Thus, the gains obtained from trading cryptocurrencies in Spain are subject to personal income tax at a rate between 19% and 26% (due to the tax increase in 2022), while the maximum rate applicable in Andorra is 10%. Less than half, certainly a significant savings. You can read about Andorran taxes in greater depth here.
The main difference however is that In jurisdictions such as Spain, the cryptocurrency must be declared in the Wealth Tax, that is, it is taxed for the simple fact of owning cryptocurrencies in one's own patrimony. In Andorra there is no wealth tax, nor on inheritance and donations, with which the mere possession of these crypto assets is exempt from tax.
Crypto platforms used
The most famous exchange used in Andorra is Binance, although Coinbase is also very established. There are also the banks taking over Kraken. In general, we recommend that you verify that the platform on which you operate allows Andorra as the country of residence of the account and that it is a reliable, secure platform whose traceability of funds is clear. In general, it must be a platform with a reputation and that provides confidence to Andorran banks in such a way that they understand that there is no possibility of carrying out money laundering or other types of fraud with them.
Due to the covid-19 crisis, Andorra prepared a package of measures or plan for 2023 called "Horitzó 23" with which it intends to face the dire consequences that this pandemic has caused, especially as regards the economic ones. One of the 77 initiatives of the plan is the modification of the Law 35/2014, on electronic trust services to include in these all systems blockchain.
This law was passed in 2014 and seeks to regulate those electronic services that require trustnamely: electronic signatures and seals, certificates of authentication, and electronic delivery services and time stamps. Thus, the modification of the law would give all cryptocurrencies and other blockchain-based technologies the legal value of being reliable and usable.
Finally, the initiative ended up establishing a modification with the already approved Law 9/2021 of April 29, modification of Law 35/2014, of November 27, on electronic trust services, law that intends address the different options in reference to taking advantage of opportunities in the field of Blockchain. Thus, Andorra has an advantage over Europe, since here the legislative texts have already been approved and Europe, which is following the same line, will take at least two years to have all this regulation approved.
This law was drafted by Nacho Alamillo Domingo, a legal expert in the European Blockchain Services Infrastructure project of the European Commission and who is also contributing to European regulation. On the other hand, the Law 20/2014 of October 26 regulating electronic contracting and operators that carry out their economic activity in a digital space is legislation in which, due to its characteristics, it is already implemented certain legal treatment regarding smart contracts in Andorra.
The previous legislative modification has borne fruit in the Law 24/2022, of June 30, on the digital representation of assets through the use of cryptography and distributed ledger technology and Blockchain, published in the BOPA and referenced both on the AFA page and on that of the General Council. A law that regulates professional activities in the field of blockchain carried out from Andorra, despite having been cut by the legislator.
The idea is to provide a minimum basis to regulate, organize and supervise business practices using this technology, while opening the door for the development of more ambitious laws on the application of blockchain in the Principality in the future. Specifically, applies to tokenization practices (digital representation of assets) carried out by private Andorran companies, which must be authorized by the AFA in order to operate. Something similar to what happens with brokers, investment funds and financial advisers.
The AFA will be in charge of the strict authorization, registration, supervision and control process for individuals and companies that carry out activities of issuance and custody of tokens, create platforms for the sale of tokens or are digital veedor, etc. that they will have to meet very high standards of experience, solvency and professionalism to be able to operate in the Andorran market. The objective is ensure that blockchain technology is put to good use and that the interests of participating users are protected.
However, important procedures to be regulated in the future will be outlawed, such as the issuance of assets that are considered financial instruments or electronic money, that is, that can be a substitute for money and allow payments to be made through virtual currencies. At the moment they are not foreseen, but the Government must regulate them within a maximum period of twelve months from the entry into force of the law.
The figure of the digital veedor stands out in the Law, which will be the body in charge of guaranteeing that the projects comply with with the requirements of the law. The digital observer must necessarily be a lawyer or economist registered in Andorra and have Andorran nationality or fiscal residence. And any entity that wants to operate in Andorra must necessarily designate a digital veedor accredited by the AFA. The figure of the veedor already has its own approved regulation that defines its requirements, obligations, etc.
in an innovative way smart contracts are also regulated, which are those that are prepared automatically within the blockchain software without the manual intervention of a lawyer or other professional. These will be legally valid in Andorra if certain requirements are met, such as that they are immutable, that they are digitally signed and that the object of the transaction can be verified and controlled.
However, the implications of these laws they go far beyond cryptocurrencies, since it implies admitting the value of distributed consensus that technology itself manages to make a reality. If it continues in this line, we could be talking in a few years to legally give notarial and contractual validity, registration and exchange, etc. to all the tools that use blockchain and even to be able to issue cryptos.
Secretary of State Galabert has recalled that the work has not finished and is currently working on the Digital Economy Law, which should allow offering a range of new opportunities such as the entrepreneurial visa, becoming a sandbox point or creating the figure of digital nomads. The law has not been exempt from conflict and controversy either, to the point that the Government drew up an advisory contract that it later annulled.
Mining and blockchain business in Andorra
Other activities related to cryptocurrencies such as cryptocurrency mining or other businesses related to the blockchain have also arrived in Andorra. The type of residence that this type of profile usually takes advantage of is the self-employment, by means of the creation of a society to develop your activity. The taxation of the company, as in the case of a natural person, is the 10% on the profit obtained in society. This percentage applies regardless of the activity to be carried out with cryptocurrencies, You can also deduct all expenses related to the activity.
In this regard, it should be noted that recently The Government has regulated cryptocurrency and cryptoactive mining facilities through Regulations to mitigate the impact about him Andorran electrical system. The new activities made possible by the Blockchain Law require great computing capacity and, consequently, also demand great electricity consumption. The regulation establishes a series of requirements proportional to the capacity of the mining facility. Thus, the Administrative Registry of cryptoactive mining facilities is integrated into the National Energy Registry.
On the other hand, projects of video games with NFT with the new business model applied to video games called «play-to-earn» in which many game assets (skins, characters and accessories, weapons, perks and even virtual lands and more) are linked to an NFT token (usually from the Ethereum network) in such a way that it is unique and verifiable by the network. In this way, and also adding a commonly used cryptocurrency, a whole market of digital assets in the environment of said video game virtual.
Other alternatives that are being developed are projects that seek link games with DeFi technology, for example using staking tokens to give rewards in video games or to remunerate the simple fact of playing and betting on the game. Also the idea with NFTs is that they have properties (in their smart contract) in such a way that they can progress, evolve or gain valuable characteristics.
The legal and fiscal treatment of the creation and distribution of NFT collections for example in Open Sea it must also be taken into account and treated with the greatest possible rigor and in compliance with current legislation. In this sense, we also recommend obtaining specialized advice, and for this reason we have an exclusive Department dedicated to legal advice on cryptocurrencies and blockchain projects in Andorra. The establishment of companies with the objective of being leaders in the Web3 sector and blockchain solutions such as mafia racks it is also giving impetus to the sector in the country.
Prevention and prudence
As a summary, although crypto assets are innovative and interesting, it is important to note that Andorra and its banking system have a restrictive positioning in money laundering prevention policy. In other words, in any case, the origin of the funds must be justified, as well as the traceability of the operations. For this, it is important have the most experienced and knowledgeable professionals in the sector, since passing the regulatory compliance and banking compliance procedure is an essential procedure to be a resident and be able to operate in Andorra.
At Abast Global we are professionals in establishing people and businesses in the Principality of Andorra and we have a extensive experience in blockchain and cryptocurrencies. With our legal, tax and accounting services, the safest and most carefree establishment in the Principality of Andorra is completely guaranteed. Of course and as always, we offer you comprehensive support from the first to the last moment. May contact us and tell us your particular case here, and can read part of the services we offer here.