The relationship between Andorra and the European Union is based on a customs union that establishes a common commercial policy towards Andorra and EU, with the main purpose of increasing the efficiency and economic relations.
The Agreement between the European Economic Community and the Principality of Andorra was signed on 28 June 1990 and entered into force on 1 July next year. By this treaty Andorra was treated as member state of the EU's trade in manufactured goods, but not in agricultural products.
Andorra does not have an official currency and, unlike their larger neighbors, France and Spain, is not a member state of the European Union. However, Andorra now uses Euro as the official currency, while in past used the French franc and the Spanish peseta. In 2002 these two currencies were replaced by the euro, situation that lead to replacing the franc and the peseta as currency in circulation in Andorra.
Andorra demanded the right to mint its own coins in 2003. The following year the Council of the EU adopted its negotiating position in respect to Andorran demand. The Commission recommended the opening of negotiations after Andorra accepted the Council Directive 2003/48/EC on taxation of savings income in the form of interest payments.
The negotiations have progressed from then, although expected to conclude in 2008, then in 2012, but have been stalled several times, partly due to bad relationships because of the Andorra’s status of tax haven.
Finally, in February 2011 the EU and Andorra reached a monetary agreement which was signed on 30 June of the same year. Once ratified, the agreement will make euro the official currency of Andorra Principality and allows up to 2.4 million minted coins from 2013, as provided in the terms of the agreement.
There are two more agreements signed in 2003 and 2004 between Andorra and the European Union. One was an agreement of cooperation in the field of environment, communications, information, culture, transport, regional and cross-border collaboration and social issues, but has produced few results of operations so far. The other was an agreement on the taxation of savings that was signed as a result of pressure from the EU on offshore financial centers to abide by the rules of the EU.
On 29th of December 2010 Andorra adopted for the first time the income tax obtained by resident and non-resident taxpayers obtained from their economic activities. There are several variations on the application of income tax, according to the law’s provisions: progressive, proportional or regressive.
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