Finance

The Rules of the Game

[Every attention has been given to avoid errors or omissions in our reports. However, this document must only be used as a basis of information, and not an official document. We accept no responsibility for any errors, and advise any potential investor to verify their legal and fiscal situation with a qualified expert in the field.]

Understanding all the rules and regulations may seem difficult for someone who's not "in the business" of finance. That's why we have put together the most important points concerning financial transactions in Monaco in the simplest manner possible.

Following-on from treaties agreed between Monaco and France, Monaco became part of the French banking system, and the official currency is the French Franc. A Monegasque currency does exist, but only in the form of coins (the same size, weight and value as the French coins).

TAXATION

The only direct taxes existing in Monaco are:

- commercial and industrial profit tax
- registration and stamp duty
- mortgage duty

There is no other direct tax such as:

- income tax
- wealth tax
- professional tax
- tax on habitation
- tax on salaries

Taxation in Monaco depends on several factors. One has to keep in mind the internal regulations of the Principality, but the particular position of Monaco with regard to France should also be taken into account.

After the 1962 crisis between Monaco and France, new fiscal conventions were passed, notably that of May 18th, 1963. Questions of taxation also come into play with a convention dealing with mutual administrative assistance of December 23rd 1957.

The convention of April 1st, 1950 is based on avoiding double-taxation and putting into order the rules relating to inheritance. Foreign tax laws do not apply in Monaco, but it's clear that people living in the Principality do not automatically escape the application of these laws.

Thus, the factors affecting taxation in Monaco are:

- internal regulations particular to Monaco,
- conventions passed with France,
- regulations in other countries.

There are two types of taxation which can be looked-at: that which is applicable to investments, and that which concerns commercial activities. Here, we'll be concentrating on that which touches on investments.

TO BE OR NOT TO BE RESIDENT... THAT'S THE QUESTION.

In general, when a person is considered to be resident in a country, he becomes subject to the domestic tax laws of that country.

In some cases, an individual may actually be subject to taxation on income received in countries other than the country of residence, depending on the tax laws of the individual's domicile, whether or not the income is actually transmitted to the country of residence (e.g.: US Citizens).

EXCHANGE CONTROLS

Exchange control regulations are based on the French consultative document of December 28, 1966. While the latest regulations have lifted exchange controls, the French government maintains the option to place certain restrictions on foreign exchange transactions, depending on circumstances. Exchange controls were initially imposed in 1968 and 1981 by the French parliament in the context of a state of national emergency.

From 1989 exchange controls were lifted, both for businesses and individuals and, for the time being, do not apply to France.

The movement of funds between Monaco and other countries; and within Monaco itself between residents and non-residents; or financial operations undertaken directly in a foreign environment are not subject to control.

NB: In the past, bank accounts held by non-residents were considered to be resident accounts from the point of view of exchange control, and this is likely to be the case if exchange controls were imposed in the future.

VALUE ADDED TAX (VAT - In French, TVA)

The legislation is identical to that of France, with the two states being considered by customs as being one and the same. VAT revenue collected within Monaco is split between Monaco and France. In July 1995, VAT was augmented from 18.6 to 20.6%. Currently any EC resident is subject to paying VAT in Monaco, regardless of their residence. Non EC residents can reclaim any VAT payments made in Monaco. Reclamation is made when leaving French territory, but must be paid on all non-allowable goods and services that may have been purchased duty-free when entering French territory, which includes Monaco. This legislation only applies to EC residents.

FISCALITY OF INVESTMENTS

Neither dividends nor interest payments are subject to taxation on resident accounts in the Principality. With no fiscal convention having been signed between Monaco and any foreign country other than France, any drawing of interests from the source of dividends in any foreign country, including France, is wavered of any tax, nor deduction or restitution, except in the case where the beneficiary has his fiscal domicile outside of Monaco, in a country which has a fiscal convention with that in which the dividends or interest are being paid.

LIVE IN MONACO - INVEST ELSEWHERE... BEWARE THE TAXMAN! - (FRANCE AS AN EXAMPLE)

People living in Monaco are subject to French internal laws in the case of revenue on investments on French territory, as are all other people not domiciled in France. The dividends are levied at 25% at the source, without being a fiscal asset. Payments on fixed-rate investments are also subject to automatic taxation in France.

CAPITAL GAINS TAXATION

In Monaco, there is no taxation of capital gains from the sale of assets. The problem comes in when other taxation systems may come into play. In general, international tax rules concerning capital gains brings into play similar principals and regulations as those concerning income tax. As is usually the case, at least two states come into play: that of the source, and that of the residence in which the beneficiary is domiciled.

"MY FISCAL DOMICILE IS MONACO" (FOREIGNERS, MONEGASQUES, "PRIVILEGED" FRENCH)

If the capital gains are realised outside France, they are neither taxable in France nor in Monaco... but may be taxable in a third-party country where taxation laws may exist for capital gains by non-residents.

If the capital gains are realised in France, they are exonerated of tax for all non-French residents, whether they be companies or individuals. There is no ceiling.

"MY FISCAL DOMICILE IS NEITHER MONACO NOR FRANCE"...

If the capital values are realised in France, they are exonerated.

If they are realised outside France, they are exonerated except if laws apply in the home country of the beneficiary either for residents or non-residents.

"MY FISCAL DOMICILE IS FRANCE"...

The French rules apply. That is to say that if the capital gains are realised in France, taxation applies over a certain ceiling which is re-evaluated yearly. If the capital gains are realised outside France, taxation applies under the same conditions. The capital gains are taxed at a rate of 16%.

A SPECIFIC CASE- INVESTMENT FUNDS...

Investments via the means of collective organisation "throw a spanner in the works" of the traditions fiscal schemes, by introducing an intermediary between the beneficiary and the issuer.

Since 1987, it has been possible to establish such funds based in Monaco.

- They may hold stocks or bonds issued in several countries
- They may be incorporated in one of these countries, or in others
- They may "sell" their financial products in several countries

In Monaco, funds may either be transparent or opaque dependent wholly on the option exercised by the founders of the funds.

If the funds are opaque:

- The products contained in the funds are subject to the regulations within the source country
- Monaco residents (except non-privileged French) holding units in a Monegasque trust are exonerated from tax. Non-residents may be subject to taxation in their country or residence.

If the funds are transparent:

- Holders of units who are resident in Monaco (except non-privileged French), are exonerated of tax within the Principality on the products distributed, but may eventually have tax withheld at the source of the products in the fund.
- For non-residents, there's also a possibility of taxation in their place of residence.
- It is important to note that Monaco has signed no fiscal convention destined to avoid double taxation.

TAXATION ON CAPITAL

In Monaco, there is no tax on capital, however property kept outside Monaco may lead to taxation within that country.

ESTATE DUTY

For foreigners, Monegasques and privileged French residents in Monaco, at the time of death:

Property held in Monaco comes under Monegasque law. The applicable tax barometer for estate and donation is as follows:

- In direct line husband/wife (or vice-versa), 0%
- Between brothers and sisters, 8%
- Between aunts and uncles, nephews, nieces and grand-children, 10%
- Other family members other than above, 13%
- Non family members, 16%

This applies to property situated in Monaco, whatever the nationality, the domicile or the residence of those interested.

For those not resident in Monaco:

Monegasque laws apply to all property situated in the Principality, thus on stocks and shares held in Monaco, however, estate duty in the home country of the deceased may also apply.

INVESTMENT IN REAL ESTATE

The possession of real estate in Monaco, from the taxation point of view, is very interesting (See Prestige Real Estate Report).

With...

- No tax on rental revenue
- No tax on capital held
- No tax on capital gains in the sale of resale
- No estate duties if the property is left in direct line between husband and wife.

This situation is all the more advantageous from the point of view that real estate taxation, on an international level, is generally based on the situation of the building.

NB: While no tax is applicable on real estate, a habitation tax does exist for all those renting apartments. The rate is ONE PERCENT of the annual rental, and is payable by the tenant.

TRUSTS

The Monaco civil law no. 214, dating from 1936, allows the creation of trusts outside the Principality for people who are living here.

Trusts must be established under the provisos that:

1) Its provisions are permitted under the law of the resident's country of Nationality;
2) An official certificate to this effect drawn-up by a recognised lawyer is attached to the trust deed;
3) The deed must be drawn-up in Monegasque notarial form;
4) The trustees must be selected from a list of approved trustees maintained by the Monegasque court;
5) At least one trustee must be a trust corporation, however a personal co-trustee may be added.

The creation of a trust permits the resident to bypass local succession laws.

TAXATION OF TRUSTS:

The following rates of duty apply to the capital of the trust:

- One beneficiary: 1.3%
- Two beneficiaries: 1.5%
- More than two " : 1.7%

If the resident so wishes, this may also, upon application, be converted to an annual levy of 0.2%.

BANKING SYSTEM PARTICULARITIES

Accounts opened in Monaco banks are not divulged to the fiscal authorities: neither in Monaco nor elsewhere. This is with the exception of joint or group accounts, which, upon opening, are immediately declared to the Monaco fiscal authorities, in order to avoid problems of succession. This being said, the detail of an account may eventually be divulged, following a specific demand to the Monegasque authorities, in the case, for example of a high level fraud inquiry by authorities of a third party country.

CHEQUES

Two types of cheque exist for private accounts: barred and non-barred. Barred cheques are "account payee only", while non-barred cheques may be marked "au porteur" (to the carrier of the cheque), who may then simply cash the cheque at it's bank of origin. It suffices to sign the back of the cheque and produce a passport or other proof of I.D.

OPPOSING CHEQUES: A cheque drawn-up by the holder of a bank account in Monaco may not be "opposed", except in the case where it is either lost or stolen. Other exceptional cases exist where a cheque may be opposed (fraud etc.), however these are treated case by case.

Every attention has been given to avoid errors or omissions in our reports. However, this document must only be used as a basis of information, and not an official document. We accept no responsibility for any errors, and advise any potential investor to verify their legal and fiscal situation with a qualified expert in the field.


 

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