Monaco

The Principality of Monaco does not have any direct income tax,  nor land and property, and company’s do not suffer any direct tax on their profits. However, if more than 25% of a company’s turnover is generated outside of Monaco, then the company is subject to a 33.33% tax rate.

Monaco does have a Value Added Tax (V.A.T.). On most services and products you purchase this will be only 5.5%, however some purchases can be 19.6% also. V.A.T. is also applicable for property sales, but any properties over 5 years old are exempt from the tax.

There is no inheritance tax if it is to children or a spouse. For brothers and sisters it is 8%, Uncles, aunts, neices and nephews is 10%, other relatives is 13%, and non-related person is 16%.

There is also tax on the sale of alcoholic beverages.

Monaco Stamp Duty

Stamp Duty, Capital Transfer Tax and Registration Fees are payable on transactions evidenced by the official registration of documents in various public registries. It is mandatory to register inter vivos transfers of real estate located in the principality, the official documents of notaries and bailiffs, private agreements concerning leases, wills, agreements evidencing the sale of businesses and certain other legal and corporate documents and instruments.

The following rates of tax are payable:

• 7.5% on the registered value of a business sold;
• 7.5% of the registered value of real estate sold (which includes other associated fees);
• 3% of the value of a registered mortgage (which includes other associated fees);
• 2% of the value of a civil judgment registered;
• 5% on the sale of personal assets unless they are sold by auction in which case the tax is reduced to 2%;
• 1% on the registered value of a short term lease which value is determined according to set formulas;
• 6.5% on the registered value of a long term lease which value is determined according to set formulas.
• 0.65% on mortgage subscription fee

Monaco Inheritance and Gift Taxes

Inheritance and gift taxes are only payable by residents on assets situated in Monaco and do not apply to assets located outside the jurisdiction. The tax payable arises on a transfer made at the time of a person’s death or on a transfer made by way of inter vivos gift.

Gifts located within Monaco which are left to charitable institutions or to the nation are exempt from this tax whether the transfer occurs on death or inter vivos.

The rates of tax payable depend on how close the relationship is between the donor and the donee with the general rule being that the more distant the relationship the higher the tax payable.

The rates payable on transfers of property situate in Monaco whether by way of inter vivos gift or on death are as follows:

• Direct line spouses (wife, parents and children), nil;
• Brothers and Sisters, 8%;
• Uncles, Aunts, Nieces & Nephews, 10%;
• Other relatives, 13%;
• Unrelated persons, 16%.

If the deceased is a French national who had been resident in Monaco for 5 years at the time of his death then assets located in Monaco are governed by the laws of Monaco whereas assets located in France are taxed according to the principles of French tax law.

Monaco does not give tax credits for death duties, inheritance taxes and gift taxes. Thus if a person dies with assets in Monaco and tax has already been paid on the transfer of those assets by the laws of another jurisdiction Monaco will levy its own taxes if tax is payable under its own internal laws.

Monaco Value Added Tax

For the purposes of VAT Monaco is part of the European Union. The Principality adopts the French system for collection. French customs operate the levying of VAT which relates to non European Union transactions whereas the Monegasque authorities operating the levying of VAT on all other transactions.

Two rates of VAT apply: the normal rate of 19.6% (which is the standard rate in France) and a reduced rate of 5.5%, which applies to water, food products, medicines, books, special equipment for handicapped people, hotel accommodation, public transport services and public entertainment services.

The standard rate of VAT is payable on sales of real estate whose construction was completed less than 5 years ago and which have never been transferred for value. Real estate which has been constructed more than 5 years ago and which has already had one purchaser who paid market value does not attract VAT.

Business Profits Tax is levied on three types of entity:

• An entity receiving royalties or other income which relates to intellectual property rights such as the licensing and selling of copyrights, patents and trademarks. If however some tax has been deducted at source in another jurisdiction then the Monegasque authorities will give a tax credit against the amount assessed;
• An entity involved in commercial or industrial activities 25% or more of whose income is from sources located outside of Monaco; and
• A company incorporated in Monaco which holds 20% or more of the shares of a non-resident company will pay business profits tax on dividends received from the non-resident company (note that pure holding companies are not allowed in Monaco).

Thus business profits tax is not levied on:

• Entities which are not involved in intellectual property or in commercial and industrial activities (eg professional firms, consultancies, service providers);
• Entities which are involved in industrial and commercial activities 75% or more of whose income comes from within Monaco; and
• Non-resident entities in any line of business, residence being determined by the residence of the directors, officers and main shareholders and the location of board meetings.

Since no income tax is payable by individuals in Monaco (save by certain classes of French nationals) where a business entity is subject to profit tax this can be mitigated by adopting the practice of paying out all profits in salaries or management fees and thereby ensuring negligible business profits for taxation purposes (subject to statutory limits on directors’ fees).

It should be noted that an administrative head office of a foreign corporation is not subject to business profits taxation since it does not have a commercial purpose. Instead the administrative head office pays a charge of 2.66% of the sum of expenses relating to the running of the office.

The profits of a branch of a foreign company are deemed to be earned outside the Principality and so the branch may be required to pay business profits tax.

Monaco Rates of Income Tax

When levied, the rate of business profits tax is 33.33%. Reduced rates apply to newly incorporated entities: a new trading entity less than 50% of whose share capital is held directly or indirectly by other companies pays a reduced rate of business profits tax on its activities for the first 5 years after its incorporation, as follows:

• 0% payable in the first 2 years;
• tax calculated on 25% of the reduced profits in the third year;
• tax calculated on 50 % of the reduced profits in the fourth year
• tax calculated on 75 % of the reduced profits in the fifth year
• tax calculated on 100 % of the reduced profits in the sixth year

Monaco Calculation of Taxable Base

Generally speaking, taxable income is based on GAAP financial statements. The following are some particular rules applied in Monaco:

• Directors’ fees are deductible up to a maximum based on turnover and the social security ceiling, and there is a reasonableness test;
• Inventory is normally valued at the lower of cost or market value; cost is determined either by FIFO or by average cost;
• One half of any increase in research costs is deductible, with an inflation adjustment;
• Certain types of provision are deductible, including specific loss provisions and provisions against asset valuations;
• Trading losses can be carried forward and set off against trading profits for a period of 5 years; trading losses can in some cases be carried back and set off against profits arising in the previous 3 years – a tax credit is issued;
• There are some limitations on the deductibility of luxury goods and services, interest on loans, and expenses against foreign source income;
• Capital gains on the disposal of business assets are taxable as income.

Monaco Filing Requirements and Payment of Tax

The tax year is the calendar year. Advance payments of one fifth of the previous year’s tax bill are due on February 20th, May 20th, August 20th and November 20th. Tax returns are due three months after the end of the year, and any balance of tax due is immediately payable.

Monaco Withholding Tax

There are no withholding taxes in Monaco.