Financial activity in Andorra is one of the pillars on which the principality’s economy has traditionally relied. A significant portion of the Andorran state’s revenue comes from this economic sector.
It’s not surprising, therefore, that financial activity is strictly regulated. In fact, the regulation prohibits the practice of financial activity in Andorra without prior authorization from the Andorran Financial Authority.
When discussing financial activity in Andorra, most people think of banking, wealth management companies, collective investment scheme managers, or specialized credit entities, that is, companies that manage large volumes of money. However, it encompasses many other aspects.
It’s evident that a company can make a sale and collect payments in installments, and when doing so, it charges an amount for the financing. Why shouldn’t it outsource this operation to another entity? Of course, it can, but this entity must have the corresponding authorizations.
Similarly, an individual with liquidity might think there shouldn’t be any problem in lending their money at interest. They would be wrong, because, beyond a few loans within their family or close friends circle, they are actually carrying out a financial activity, especially if the amounts are significant and there’s repetition in the operations.
The consequences of conducting a financial activity without authorization can be severe, both at the civil, administrative, and even criminal levels.
It’s likely that the person or entity that granted the loan or financing may end up not collecting the interest, facing a fine of up to 1 million euros for individuals and up to 5% of the net business volume or twice the amount of profits obtained from the operation, in addition to the suspension of social rights.
And these are just the civil and administrative consequences, because if the offense is deemed criminal, prison sentences of up to 4 years can be imposed, and for companies, dissolution can be ordered.
Therefore, it’s highly recommended for any individual or legal entity considering granting a loan or credit on a regular or even sporadic basis, but for a substantial amount, to consult a legal professional for advice and thus avoid undesirable situations.
At Augé Legal & Fiscal, we are thoroughly familiar with the regulation of Andorra’s financial system, and we advise businesses and individuals on the limits and powers they can exercise while complying with the industry’s regulations.