Monaco - Principles of the Taxation System

The Principality of Monaco is one of Europe’s smallest territories (only 2 sq. km.), which, from the perspective of a Russian resident, may seem quite modest. Nevertheless, it holds a strong reputation as the “casino of Europe,” and its residents are predominantly very wealthy individuals, including multimillionaires and billionaires.

Obtaining citizenship or at least residence status in Monaco is prestigious and often financially advantageous. Despite its reputation as a “country for the wealthy,” the Principality has a notably liberal fiscal policy. This article will provide an overview of Monaco’s tax system.

Key Taxation Rules in Monaco

Monaco’s tax collection system differs significantly depending on whether it applies to individuals or companies. Individuals residing in Monaco are fully exempt from income tax, with the exception of French citizens living there. This exception exists because Monaco is associated with France, delegating certain governmental powers to it.

Key Aspects of Monaco’s Fiscal Policy for Foreign Companies and Profit Tax Calculation

Monaco recognizes five types of legal entities:

1. Sole Proprietorship
2. Limited Liability Company (S.A.R.L.)
3. Public Limited Company (S.A.M.)
4. Limited Partnership (S.C.S.)
5. General Partnership (S.N.C.)

The tax base is the company’s worldwide income. A profit tax rate of 33.33% applies only to legal entities that:

• Conduct their business in Monaco while earning at least 25% of their income outside its borders.
• Earn revenue from the sale of literary (or any artistic) rights.
• Generate income from licensing patents, trademarks, industrial processes, or formulas.

In calculating a company's profits outside Monaco, foreign sales or trade in export goods are considered, while real estate transactions within Monaco and direct retail sales are excluded.

Since the country applies a territorial tax principle, taxes are not levied on transactions conducted outside Monaco through a permanent establishment or with the participation of a dependent agent. Additionally, operations that complete an entire commercial cycle abroad are excluded.

The management activities of international corporation headquarters may also be subject to tax.

Other Financial Regulations

• There are no Controlled Foreign Corporation (CFC) rules.
• There is no currency control.
• No withholding taxes are levied on income sources.
• Stamp duty has a fixed rate or depends on the document size. It is levied on documents serving as legal evidence in court and on documents for civil and legal purposes.
• VAT follows French law and is set at 20%, though reductions to 10%, 5%, or even 2.1% apply in certain cases.
• Employers pay social contributions ranging from 28% to 40%. Employee rates are lower (10–14%).
• Inheritance and gift taxes primarily depend on the degree of kinship and range from 0% to 16%.

Tax Reporting Conditions

Financial reports are not publicly accessible. Companies must submit their tax returns within three months after the financial year ends. Throughout the year, profit tax payments are made quarterly as advance payments, with a final settlement at the end of the financial year.

How to Register a Company in Monaco

To conduct business in Monaco, a permit from the Government is required. Before granting this permit, the relevant authorities verify the following:

• Employee qualifications and experience,
• The company’s reputation,
• Type of commercial activity,
• Whether the company has a representative in Monaco,
• Legal address and amount of capital.

Company Registration Procedure: Main Steps

1. Submit a business and financial plan,
2. Provide the legal address,
3. Submit a document package to the Economic Development Office.

After Receiving Permission: Next Steps

• Register with the Institute of Statistics and Economic Studies (I.M.S.E.E.),
• Notify tax authorities about the start of commercial activities,
• Register with the Employment and Labor Office,
• Register with the Social Security Fund (Caisse Sociales de Monaco),
• Register with the Health Insurance Fund (C.A.M.T.I.),
• Register with the Independent Pension Fund for Entrepreneurs (C.A.R.T.I.),
• Obtain the necessary documents from the Chamber of Commerce.

In conclusion, to obtain a residence permit in Monaco through the investment program, one must, among other requirements, rent or purchase property in the Principality. According to the country’s laws, property can be purchased by both foreign individuals and legal entities.