Monaco

5. Taxation

a. Introduction

There is no personal income tax in Monaco and no capital gains tax. Inheritance tax is dealt with in Section 2, above. Most French nationals resident in Monaco remain subject to French taxation. Monaco offers assistance to France in matters potentially involving evasion of French taxes by any person, but will not assist other countries. The EU Savings Directive has led the EU and Monaco to reach agreement on the subject.

The Monaco Savings Directive Agreement dated 7 December 2004 (Agreement) is now in force. Savings income in the form of interest payments made in Monaco to beneficial owners who are individuals resident in the EU is subject to withholding tax at a rate of 15 per cent for the first three years as of 1 July 2005, then at a rate of 20 per cent for the next three years and thereafter at a rate of 35 per cent. Monaco retains 25 per cent of the revenue generated and transfers 75 per cent to the EU state in which the beneficial owner is resident. The Agreement allows the beneficial owner to avoid the withholding tax by permitting the Monaco paying agent to disclose interest payments to the Monaco authorities and to give certain information.

Monaco has signed four double taxation treaties (DTTs), in addition to the 1963 Tax Treaty with France, which is not strictly speaking a DTT in the traditional sense. It enables income tax to be levied against French nationals who have transferred or intend to transfer their residence to Monaco, the imposition of profits tax on certain companies, and the exchange of information.

On 27 July 2009, Monaco signed its first DTT in more standard form with Luxembourg. The signed Treaty draws widely from the OECD model Treaty, as do subsequent DTTs with St Kitts and Nevis, Qatar and the Seychelles.

Furthermore, at the end of 2009, Monaco engaged in a process of negotiations with certain states (over 20 in fact) to conclude further exchange of information agreements in all areas concerning taxation in accordance with international standards established by the OECD and recognised by the United Nations. Monaco has reached agreements with various countries, in particular: Andorra, Argentina, Australia, Austria, Belgium, the United States, Liechtenstein, the Netherlands and Germany.

Since the Pittsburgh Summit (USA) of 25 and 26 September 2009, Monaco is on the OECD white list.

b. Tax system

i. General concepts of tax liability

Business entities operating in Monaco are taxed either on net profits or as a percentage of local operating costs.

ii. Rates and exemptions

Since 1 January 1963, tax has been levied on profits earned by firms (whatever their legal form) involved in industrial or commercial activities on Monegasque territory if over 25 per cent of their turnover originates from operations carried on outside Monegasque territory, either directly or through an intermediary.

Tax has also been levied on profits earned by firms (whatever their legal form) whose activities in Monaco consist of receiving revenues from the transfer or licensing of patents, trademarks, manufacturing procedures or methods, or revenues from literary and artistic rights.

The tax rate is presently fixed at 33.33 per cent.

Businesses that do not make profit in the classic sense – such as those that administer the operations of a group – are taxed on a percentage of their local operating expenses in Monaco.

c. Other taxes

i. Tax on turnover

VAT is collected in Monaco on the same basis and at the same rates as in France: 19.6 per cent and reduced rates of 5.5 per cent and 2.1 per cent.

ii. Law 214 trust duties

Law 214 trusts are subject to registration duties on a scale determined by the number of beneficiaries as follows:

  • single beneficiary: 1.3 per cent
  • two beneficiaries: 1.5 per cent, and
  • more than two beneficiaries: 1.7 per cent.

The duty may be converted at the parties’ request to an annual tax of 0.2 per cent, but such a request must be in the deed or will itself. The annual tax is payable in advance. The first annuity is due upon registration of the deed and subsequent payments must be settled within the first ten days of January in each year. The penalty for late payment is 25 per cent of the tax due. The trustees are personally liable for the tax due.

In either case, the duty or tax is calculated on the value of all trust assets, except Monegasque securities. Trust assets that consist of Monegasque securities attract duty at a reduced rate as follows:

  • single beneficiary: 0.05 per cent
  • two beneficiaries: 0.25 per cent, and
  • more than two beneficiaries: 0.45 per cent.

This duty is payable upon registration of the deed or will.

Specifically in the context of Law 214 will trusts, it is generally accepted that:

  • specific bequests and legacies (if any) attract standard Monegasque succession duty, and
  • residue attracts the Law 214 duty/tax.

Advert

Article Search

© 2011 Society of Trust & Estate Practitioners