Monaco – Attracts & Intrigues
December 2023 /
Apart from the famous Formula 1 Grand Prix and the lavish yacht marina at Port Hercule, the Principality of Monaco both fascinates and sparks intrigue.
What is it all about?
2nd-smallest independent state in the world, Monaco is a steep 2sq. km enclave extending out to sea.
Cradled within the French department of Alpes-Maritimes and situated between Nice and the Italian border, the Principality is home to nearly 40,000 permanent residents, some of them are from Monaco, but most of them are wealthy foreign expatriates.
Special features, an unusual European position
Located at the heart of Europe, the Principality has strong ties with the European Union:
- It is a part of the European customs territory and the Schengen area (although not a signatory),
- It is a part of the European VAT system via France,
- It uses euro as currency.
A number of bilateral treaties have been signed with the European Community and then the European Union to establish formal relations.
Yet it is worth pointing out that the Principality is not a party (member) to the European Union!
This creates a number of highly practical issues, especially when it comes to commercial activities from abroad (which are regulated or even prohibited, and are not covered by the European freedom to provide services), and so on.
Talks to set up a new framework for relations and an association agreement have been taking place since 2015 without success, and to make matters worse, a recent suspension of talks was announced in September 2023 amid fundamental disagreement over the rules and openness of the European internal market.
How attractive ?
Despite these recent events, Monaco’s appeal remains unchanged.
The Principality continues to lure European and non-European nationals looking for a secure retreat offering an attractive lifestyle, relative privacy, a low, if not zero, taxation, all within a thriving economy.
Principality’s Departments are constantly working to enhance the attractiveness of “Le Rocher”, in particular the Princely Government’s Attractiveness Unit (formerly the Welcome Office), which offers a free governmental welcome service to aspiring newcomers.
Principles of taxation
Since 1869, individuals domiciled in Monaco have been exempt from income tax.
Similarly, there is no taxation of capital gains on movable or immovable property, nor wealth tax, nor any local taxes.
Foreign-source income may, however, be taxed in the country of origin !
There is also a system of social security contributions.
The Principality is an almost tax-free territory, but it does levy corporate income tax under certain conditions, VAT at French rates in principle, customs duties, registration fees, stamp duties and various other taxes.
Despite the attractiveness of this regime, it is crucial to secure a tax residence in Monaco and, if necessary, rearrange the assets to avoid any risk of tax requalification by other jurisdictions, as some recent high-profile scandals have already taken place.
This is particularly true given that Monaco was criticized as a weak spot in the AML/CFT system as a direct result of the Moneyval report, and that various cases have come to light in recent years, such as the Belgian tax authorities’ denial of Monaco’s tax residence of a number of Belgian expatriates.
Thanks to its many charms, the Principality is known, for example, for hosting a large number of world-class athletes, expats from Eastern Europe, UK, Belgium and Israel and former finance executives.
Estate planning and the special situation of inheritances
When it comes to the transfer of assets by gift or inheritance, the common belief that there are no taxes in Monaco is wrong.
The transfer of Monaco assets is taxable, except in the case of transfers between spouses and to direct heirs. Taxes may also be levied abroad.
French administrative courts admit the application of the Franco-Monegasque succession treaty signed on April 1, 1950 to nationals of foreign countries, provided they benefit from a treaty signed between France and the country of their citizenship, which includes a non-discrimination provision based on nationality, whereas the treaty was originally and in principle reserved for French and Monegasque nationals only.
This treaty has a major influence for example in the event of inheritance by French residents, or when part of the inherited property is located in France and held indirectly.
With regard to civil law, it is worth mentioning that Monaco considers that, under its own rules of private international law (law of June 28, 2017), the entire succession is subject to the law of the State in which the deceased was domiciled at the time of death, unless a professio juris is applied.
Is there any benefit to being a French citizen domiciled in Monaco?
Contrary to popular misconception, tax residence in Monaco offers many incentives, even for French nationals.
The 1963 treaty between France and the Principality of Monaco stipulates that French nationals resident in the Principality are taxed under the same conditions as if they were domiciled in France (art. 7-1). These include:
– income tax,
– capital gains tax,
– wealth tax for French nationals settled in Monaco since January 1, 1989.
However, in rare circumstances, certain French nationals may be regarded as domiciled outside France.
That said, French nationals resident in Monaco are not subject to social security contributions in France, with the exception of certain French-source income. This can be a significant benefit on its own.
In addition, French nationals can claim the benefit of the succession treaty outlined above, provided that at the time of death they had been resident in Monaco without interruption for at least 5 years.
So, for French nationals, the tax benefits are obviously reduced, but not nil, contrary to what is often stated.
This same treaty may also offer other atypical planning opportunities in a Franco-Monegasque context.
Mobility, International exposure and Monegasque real estate ownership
First and foremost, in order to settle down on a long-term basis (> 3 months per year or permanently) in Monaco, the requirement is to get a residence card from the authorities.
It should be noted that there is a range of residence cards: first temporary (1 year), then ordinary (3 years) which is renewable and finally privileged (10 years) normally after a decade in Monaco.
The process differs depending on whether the applicant is :
- an EEA (European Economic Area) national.
In this case, the process to be carried out with the Residents’ Section of the Monegasque Public Safety Department is simplified.
- or not.
On the other hand, in this case, it is first necessary to first obtain a type D visa via the French authorities. Once this has been done, the candidate must undergo a full interview process.
In all cases, and in addition to a certain amount of documentation, you’ll need to demonstrate that you have a place to live in Monaco – an issue of its own in Monaco – as well as adequate financial resources and obviously no recent criminal records/penal sentences.
People domiciled in Monaco are often expatriates, and lead very international life, whether because family members (i.e. children) live elsewhere and/or because they hold the bulk of their assets and investments abroad.
In such cases, and even though Monegasque taxation is an almost non-issue, it is essential to seek assistance in understanding the impact of these cross-border situations, and to put in place the appropriate wealth solutions, in terms of holding methods, estate planning, asset protection and so on.
Monegasque advisors often call on foreign experts to deal with these complex situations.
Given the importance of the real estate sector in the Monegasque economy, and in order to be in line with the AML/CFT rationale, despite the criticisms mentioned above, as of 2011 Monaco has introduced an annual reporting obligation for the owners of real estate in Monaco held through corporate entities, which must be carried out by an authorized representative. All changes to declarations are subject to a fee, with a few exceptions. A special mechanism enables the holding structure to be simplified by granting real property rights to the beneficial owners of the legal entity at a lower cost.
In addition, as of December 15, 2023, a new regulatory requirement applies to a number of Monegasque companies, which must appoint a “RIE” (Responsable des Informations Elémentaires) and provide information on their beneficiaries to the authorities.
Guidance & Assistance
The Yours Advisory team, consisting of experts in dealing with complex international wealth and corporate affairs, is available to assist you on your Monegasque or Monaco-related topics and other international issues.