Taxation in Monaco
Summary
1. Introduction
1.1 Area and population
1.2 Constitution, political culture and law
1.3 Key economic indicators
1.4 Banking and finance
1.5 Currency
2. Trends in tax policy
2.1 Personal income taxes
2.2 Corporate income taxes
2.3 Other business taxes
2.4 Value added taxes
2.5 Excises
2.6 Recurrent taxes on capital
2.7 Non-recurrent taxes on capital
2.8 Compulsory social security contribution paid to government
2.9 Environmental taxes
2.10 Other taxes
3. Main drivers of tax reforms
3.1 Tax reforms since 2000
4. Drafting and reviewing tax legislation and regulations
5. Building up tax expertise
6. Major players in tax policy
6.1 Formal procedures for changes of tax law
6.5 Removing bank secrecy
1. INTRODUCTION
The Principality of Monaco is the second smallest country in the world, with a land area of 2,02 square kilometers and has a population of approximately 35 000 people. It is located on the Mediterranean Sea, approximately 20 km from Nice, and it is entirely surrounded by France, by land. The Italian border is approximately 12 km away.
1.1 Area and population
Monaco is the second smallest country in the world, with a land area of about 2 square kilometres, and has a population of approximately 35,000 people. Monaco is located on the Mediterranean Sea, approximately 20km from Nice, and is entirely surrounded by France, by land. The Italian border is approximately 12km away.
1.2 Constitution, political structure and law
The Principality of Monaco is an independent sovereign state. Its independence and sovereignty were first recognised by France in 1489.
The Head of State is the Prince, a hereditary monarch. The written Constitution assures the separation of powers. Executive power rests with the Prince, who is assisted by six Ministers. Legislative power rests with the Prince and the National Assembly, which comprises 18 Monegasques that are elected every five years, by Monegasque citizens.
Monaco is not a member of the EU. This means responsibility for external matters rests with the Prince. Monaco has a special relationship with France, which has an important impact on Monaco as a business centre. Since 1865 there has been a customs union with France, and since 1945 Monaco has been a part of the French franc zone.
Consequently, in accordance with the annex declaration of the Maastricht Treaty, Monaco introduced the Euro according to the timetable in France and the Euro has become the country’s official currency.
Under the 1963 treaty, all French custom laws, including Value Added Tax (VAT), are applied in Monaco, and the customs service in Monaco is staffed entirely by French officials. All duties and taxes are collected for the French Treasury, but a portion of the total customs duties and VAT collected in both France and Monaco is paid to the Monegasque Treasury. There are no frontier posts between Monaco and France, and goods and people pass freely.
The 1963 treaty also included provisions relating to business taxation, residency in Monaco, insurance, postal and telephone communications, and pharmacy. Consequently, conditions in Monaco are similar to those in France.
With regard to Monaco’s legal system, the Monegasque courts and tribunal, whose judges are guaranteed independence by the Constitution, exercise judicial power.
1.3 Key economic indicators
Monaco boasts the world's highest GDP per capita at $151,630. Monaco also has the world's highest life expectancy at almost 90 years (CIA estimate, 2011), and the lowest unemployment rate, at 0% in 2011 (according to the CIA World Fact Book).
Approximately 80% of Monaco’s economy is based on services, with tourism and financial services prevailing. About 5% of the economy is based on manufacturing, with cosmetics, pharmaceuticals, plastics, jewellery and clothing predominant. Approximately 50% of the country's budget is financed by VAT. Contrary to popular belief, the Monaco Casino business only produces about 2% of total finances.
1.4 Banking and finance
There are approximately 80 Banks and Asset Management Companies in Monaco, whose emphasis is on portfolio management and private banking.
1.5 Currency
The unit of currency is the Euro, represented by €. A single Euro is divided into 100 cent. The International Standards Organization (ISO) currency code is EUR. Prior to 2002, Monaco minted its own coins: the Monegasque franc. Monaco has acquired the right to mint euro coins with Monegasque designs on its national side.
2. TRENDS IN TAX POLICY AS FROM 2000
One of the characteristics of the Principality is favourable taxation for individuals. The lack of income tax dates back to an Ordinance by Prince Charles III in 1869. The only direct tax in the Principality is a tax on the profits of industrial and commercial activities. There is no wealth tax, annual property tax or council tax.
2.1 Personal income taxes
Monegasque nationals and residents in the Principality, with the exception of French nationals, who are regulated by the 1963 Bilateral Convention between France and Monaco, are not liable for income tax. However, the lack of income tax for individuals only relates to activities that are carried out and persons who are genuinely established in the Principality of Monaco. It does not affect rules applied by other States.
Tax on income from savings: an agreement between the Principality and the European Community, signed in Brussels on 7th December 2004, sets out measures equivalent to those in European Directive 2003/48/CE of 3rd June 2003, the so-called "savings directive."
2.2 Corporate income taxes
Companies of any type which carry on a commercial or industrial activity on the territory of the Principality are subject to tax at the rate of 33.33% when at least 25% of their turnover is generated by operations outside Monaco.
In 1991, fiscal arrangements were instituted relating to the formation of companies which allow for the exemption of profits made during the first two years and partial taxation only of the profits of the next three years.
In addition, an extra and specific reduction is provided for in the case of scientific and technical research activities.
Administrative offices, which are not basically commercial, are not subject to a tax on profits, but to a levy of 2.66% of the total of the expenses incurred in running the office.
Dividends paid by Monégasque companies to their shareholders are not taxed.
Business Profits Tax (Impot sur les benefices) 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 in 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 five years; trading losses can in some cases be carried back and set off against profits arising in the previous three 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.
2.3 Other business taxes
Registration Duty (Droit d’enregistrement)
Registration duties are levied on the transfer of certain property in Monaco. Here are some examples of the rates applied:
Rate %
Transfer of real estate in Monaco 7.5/4.5
Transfer of shares in a real estate company, which owns real estate in Monaco 4.5
Leases of real estate for life or unlimited duration 6.5
Leases of movable property for unlimited duration 5.0
Leases of real estate and movable property for limited duration 1.0
Subscription for shares on formation of a company 1.0
Transfer of shares and negotiable instruments 1.0
In the case of a SAM (Corporation), submitting the transfer of shares to registration formalities, so the tax is optional, is not required.
2.4 Value added tax
The existence of the French-Monégasque Customs Union means that V.A.T. is applicable at the same rate as in France. European community tax is applicable since
January 1, 1993.
The following are subject to V.A.T.:
On the one hand, the operations due to economic activity carried out for a fee by a tax payer, i.e. by a person acting on an independent basis as of custom or occasionally, whatever his legal status;
On the other hand, the operations expressly named by law as being subject to V.A.T. (delivery of goods to oneself, certain purchases, imports…)
And lastly, operations which would normally be exempt, but which become eligible for the application of V.A.T. according to a choice made by the person carrying them out (operation carried out by persons performing exempted commercial activities, banking and financial establishment operations, empty property rentals for industrial, commercial or professional use).
The most frequently applicable rates are as follows:
The normal rate of 20.6% is used when there is no reason to apply the reduced rate.
The reduced rate of 5.5% is applicable as follows:
On various services: transports of travelers, hotel or furnished accommodation, certain shows (cinema, theater, concert…), entrance fees for certain attractions (museums, monuments, cultural exhibition), private television subscription, provision of meals in works cafeterias, services related to the supply and evacuation of water;
On certain products: water, food products (except alcoholic beverages and certain solid food product), medicines (except medicines which are reimbursed to social security contributors belonging to the 2.10% category), products with agricultural origins, books, special apparatus and equipment for the handicapped, certain products for animal feed.
Goods physically in Monaco and supplied there by an enterprise fall within the scope of the tax. Goods exported from Monaco to a foreign country (other than France) are zero-rated, subject to certain conditions.
The general principle with regard to the supply of services is that they are considered to be made where the supplier has its head office. However, many services when supplied to an overseas person are zero-rated.
The following rates of VAT are currently applied:
Rate:
19.6% - Standard rate for the supply of goods and services
5.5% - Various goods and services, such as foodstuffs, water, books, transport, and entertainment
2.1% - Daily newspapers and periodicals.
2.5 Excises
Monaco businesses must pay French excise rates.
Excise tax as a percent of the retail price of alcoholic beverages:
Beer: 3.8
Wine: 1.2
Spirits: 22.5
Products where applicable excise duties:
Alcohol, alcoholic drinks (EU directives 92/83/EC and 92/84/EC) beer or mixtures of beer with non alcoholic drinks wine other fermented drinks such as cider intermediate products such as sherry or port ethyl alcohol - except when it used to manufacture other products not intended for human consumption (if used for heating or propulsion it may be classified as an energy product) spirits * Excise duty does not need to be paid on homemade products not produced for commercial purposes, except for spirits.
Reduced rates of excise duty may apply to wine and fermented drinks of 8.5% alcohol or less by volume.
Energy products & electricity (EU directive 2003/96/EC)
These are taxed when used as: motor fuel heating fuel
* There is no excise duty on energy products when they are used for purposes other than as motor or heating fuel.
Tobacco products (EU directive 2010/12/EU) cigarettes cigars cigarillos smoking tobacco, such as fine cut rolling tobacco
* Excise goods are generally exempted from the duty when they are used: in diplomatic or consular relations by the armed forces of any NATO member by international organisations
2.6 Recurrent taxes on capital
Property added value tax
V.A.T. is applicable on operations contributing to the production and commissioning of real estate.
It is based on:
The sales price, the amount of compensation or the value of the social rights corresponding to the gain, plus the additional charges;
The real, venal value of the property, if this real market value is higher than the price, the amount of the expenses or the value of the social dues, increased by the charges.
V.A.T. is generated by the act which defines the transaction, or if no such act exists, the transfer of ownership.
However, V.A.T. is not applicable to operations involving buildings or parts of buildings of over five years of age or, which, during the five years following completion, have already been sold to a person other than an estate or property agent. Such operations are normally subject to transfer dues.
The V.A.T. rate applicable on property transactions, whatever their nature, is 20.6%.
There are no restrictions on the acquisition of real estate or on portfolio investments in Monegasque companies. As there is no income tax or capital gains tax, Monaco is an attractive place for such investments.
Rental Income
Rental properties are taxed at 1% of the annual rent plus estimated service charges. This tax is payable by the tenant.
Bank accounts offer security and confidentiality and, due to the large number of international banks present, interest rates on bank deposits are competitive. No withholding tax is levied on interest derived from such deposit accounts, unless it falls within the scope of the EU Savings Directive, whereby a rate of 35% will be applied.
2.7 Non-recurrent taxes on capital
Tax on inheritance and gifts only applies to assets that are situated in the Principality of Monaco or with situs in Monaco, regardless of the domicile, residence or nationality of the deceased person or donor (subject to the provisions of the Convention between France and Monaco of 1st April 1950).
The level of taxation depends on the nature of the relationship between the deceased person and their heir:
Direct filiation between parents and children or spouses
0 %
Between brothers and sisters
8 %
Between uncles, aunts, nephews and nieces
10 %
Between relatives other than brothers, sisters, uncles, aunts, nephews or nieces
13 %
Between persons who are not related
16 %
2.8 Compulsory social security contributions paid to government
The Monegasque social security system is similar to that in France for employed and self-employed people and their dependents. However, the French system typically reimburses 70 percent of medical costs, but the Monegasque system reimburses 80 percent and up to 100 percent for certain procedures and some hospitalisations.
Reimbursements are fairly comprehensive and include primary and specialist treatment, hospital stays, lab work, drugs, dental care and transportation. The rates applied by medical practitioners and services are classified into three categories according to income and family size: a standard rate, a rate that is 20 percent above the standard rate, and a fee set by prior agreement with the service provider.
Foreigners living in Monaco, not in employment or self-employed, require full private medical insurance. Proof of such cover will be required to obtain resident status.
Employers are required to make contributions to social security, pension, and unemployment organisations for each employee. In addition, the provision of life insurance cover and supplementary pension benefits is mandatory for executives. The total contributions are relatively high, potentially reaching 40% for employers and 15% for employees.
Because so many residents commute to work in France and Italy, Monaco has reciprocal social security agreements with both countries in place, so that contributions paid in one state are treated as qualifying contributions in the other state.
As well as obtaining an employment authorisation (une autorisation d'embauche), each employer must register his employee(s) at the Caisse de Compensation des Services Sociaux (CCSS) and at the Caisse Autonome des Retraites (CAR).
Such registration entitles the employee to the following (subject to certain conditions):-
Child benefit: the chef de famille (father or single parent) must be employed in Monaco. The level of benefit depends on the age of the child.
In the event of illness, payment of half of the employee's salary together with reimbursement of a part of any medical costs incurred.
Retirement pension: the employee must have worked for at least ten years in Monaco.
1
At present, the social security contributions are as follows:
CCSS: 16% of the monthly gross salary paid exclusively by the employer up to a ceiling of € 7,600.
CAR: 13.19 % ( 7.04% of monthly gross salary payable by the employer, and 6.15% of monthly gross salary payable by the employee) up to a ceiling of € 4,192.
The employer must also take out an insurance policy to cover accidents at work. The premium is calculated at about 0.60% of the total of the annual salary paid by the employer.
In addition, employers in Monaco must ensure that contributions are made to certain organisations, these contributions being the same as those made by employers in France. The contributions provide cover in the event of redundancy and also provide for supplementary pension benefits (the rate depends on whether the employee is an executive (cadre) or not) and life insurance cover.
2.9 Environmental taxes
The Monaco authorities, pushed by the war on terror and increased international co-ordination on money laundering, have tightened controls. Many investors run their businesses from Monaco, taking advantage of the tax free environment.
2.10 Other taxes
Registration fees are levied at either a fixed rate or a proportional rate, depending on the nature of the document. The fixed rate fee is usually 10€.
The duties most commonly applied are:
Duty of 1 % for tenancy agreements, levied on the annual rent plus charges
Duty of 2% for convictions
Duty of 3 % for mortgage agreement documents, for the engrossed copy
Duty of 5 % on the sale of movable property. This duty is reduced to 2 % for some sales at public auctions
Duty of 6.5 % on the sale of real estate
Duty of 7.5 % on transferring business or customer list
Transaction fees of 1 % for land publication
Transaction fees of 0.65 % for mortgages
Act n. 1.381 of 19/06/2011 on registration fees payable on transfers of property and property duties is intended, in particular, to amend the rates of duty on the sale of real estate (6.5%) and transaction fees for land publication (1%).
When carried out for the benefit of persons who meet the criteria of transparency laid down by law, property sales are now subject to proportional duty of 4.5% (instead of 6.5%). In other cases, these transactions are subject to proportional duty of 7.5%.
With regard to land publication a fixed fee of 10 euros replaces the proportional duty of 1%. Transactions involving a transfer of ownership remains subject to duty of 1%, when these transactions are subject to VAT.
Stamp tax (a form of document registration tax)
Stamp duty is a tax that is levied on all documents used for civil and legal purposes and for documents that are required as legal proof in court.
It is also a means of levying tax when administrative formalities are carried out (for example a certificate of domicile, work permit, family record book, passport, etc.)
Stamp duty is either applied at a fixed rate, or according to the size of paper used.
Other taxes:
Tax on the distribution and consumption of alcohol
Tax on insurance contracts
Tax on beverages
Tax on precious metals
In the Principality of Monaco, duties and taxes on beverages and precious metals are subject to the same regulations as those applicable in France. They are established on the same basis and at the same rates.
3. MAIN DRIVERS OF TAX REFORMS SINCE 20001
3.1 What have been the main drivers of tax reform since 2000? (e.g. the changing economic, political and social environment within which tax systems have to operate, the need for extra revenue, the need to improve tax competitiveness, the need to reduce inequalities in income and wealth, the need to simplify the system) Have the trade-offs between these objectives changed?
The Monaco Reforms Property Tax Law determined to ensure greater equity in its property tax provisions, to boost the attractiveness of the country as a location, and to encourage property investment, Monaco has passed a new law amending the taxation on the transfer and purchase of real estate.
The new law provides crucially for a substantial reduction from 7.5% (6.5% registration tax plus 1% tax on the registration of a mortgage) to 4.5% of the registration tax levied on individuals electing to purchase a property in Monaco either directly or indirectly, via a registered Monaco SCI (property company) or similar “civil” companies, where shareholders’ identities are disclosed to the tax authorities. The 4.5% reduced rate is, however, dependent on the circumstances of the transaction.
The existing 7.5% rate will continue to apply to purchases by 'offshore' entities. In addition, the new law provides that the transfer of beneficial ownership in an offshore entity that owns real estate in Monaco will be subject to registration tax at 4.5%, based on the market value of the property. Previously, such transfers have been exempt from taxation.
Other measures contained in the new tax law provide for certain disclosure requirements by offshore entities in Monaco, as well as for penalties imposed for late filing and for failure to appoint an authorised representative.
Transitional provisions are set to apply for one year following the passing of the new law, whereby any real estate that is transferred from an offshore entity to the requisite Monaco entity, such as an SCI or to an individual will be subject to registration tax of 1%, subject to certain conditions.
3.2 Have there been any major tax reform commissions (e.g. Mirrlees report, Henry report)? If so, what influence did they have?
There is no major tax reform.
3.3 What influence did independent research institutes (e.g. IFS in UK) and universities have on reforms?
There was not such an influence.
3.4 Does your country publish a tax expenditures budget? What is the benchmark used to measure tax expenditure (i.e. what is considered the “normal structure”)? What is the size of the tax expenditures compared to tax revenues? Have these figures been used to drive tax reform?
There was not published a tax expenditure budget.
3.5 Is there data available to assess the impact of the tax reforms?
Monaco boasts the world's highest GDP nominal per capita at US$153,177, GDP PPP per capita at $132,571 and GNI per capita at $183,150. It also has the lowest unemployment rate at 0%, with over 48,000 workers who commute from France and Italy each day. According to the CIA World Factbook, Monaco has the world's lowest poverty rate and the highest number of millionaires and billionaires per capita in the world. For the fourth year in a row, Monaco in 2012 had the world's most expensive real estate market, at $58,300 per square metre.
4. DRAFTING AND REVIEWING TAX LEGISLATION AND REGULATIONS
4.1 By whom are tax law provisions drafted (e.g. by experts in the government / Ministry of Finance, by members of parliament or their expert staff, by outside experts, by academics, by experts of those interest groups which are proposing the change in the law)?
According to the Constitution, ch. IV:
Art.52 The Council of State is in charge of advising on draft legislation and ordinances, which the Prince submitted for their perusal.
It can also be consulted on any other draft instrument.
Its organisation and operations are prescribed by sovereign ordinance.
The legislative power is jointly exercised by the Prince and the National Council.
After consulting the Crown Council, the Prince signs and ratifies treaties and international conventions. He acquaints the National Council through the Minister of State with them before their ratification.
Art.44 The Minister of State represents the Prince.
He oversees the executive services. He has the police force at his command. He chairs the
Government Council with a casting vote.
Art.47. Ministerial decrees are debated during the Government Council and signed by the Minister of State; they mention the relevant proceedings.
They are notified to the Prince within twenty-four hours after signature and become enforceable only in the absence of the Prince’s formal opposition within ten days after the Minister of State’s notification.
However, the Prince may let the Minister of State know He does not intend on exercising His right of opposition for some decrees or types of decrees.
These are thereby enforceable as soon as they are signed by the Minister of State.
4.2 Do outside stakeholders have an opportunity to comment on draft legislation? Are for example white and green papers issued on draft legislation? Is there a consultative forum with business?
There was not found such a mention in the constitution or other legal papers.
4.3 How does the drafting procedure of secondary instruments (e.g. regulations) of tax policy differ from that of legislative changes?
According to Constitution, Art.66:
The instigation of law implies the agreement of wills of both the Prince and the National Council.
The Prince alone may initiate law.
Deliberating and voting on bills are the National Council’s responsibility.
It falls to the Prince to sanction laws, which confers them a binding power through promulgation.
4.4 What is the influence of secondary law in the design of tax policy?
Control of financial management is ensured by a Higher Audit Commission.
4.5 Is there a process for verifying that the proposals are consistent with constitutional law, European law (if applicable), WTO agreements or other international agreements? If so, please describe.
According to the Constitution:
Art.14.(amended by Law n°1.249 dated April 2nd 2002) – After consulting the Crown Council, the Prince signs and ratifies treaties and international conventions. He acquaints the National Council through the Minister of State with them before their ratification.
However, the following treaties must be ratified in pursuance of a law:
1° - Treaties and international agreements affecting the organisation of the Constitution;
2° - Treaties and international agreements the ratification of which entails the modification of the existing legal provisions;
3° - Treaties and international agreements which entail the Principality’s adhesion to an international organisation and the functioning of which implies the participation of the National Council’s members;
4° - Treaties and international organisations the implementation of which results in a budget expenditure pertinent to expenditure type or use, which is not provided by the budget act.
The Principality’s external policy is accounted for in an annual report prepared by the Government and notified to the National Council.
Art.70. (amended by Law n°1.249 dated April 2nd 2002) – The National Council votes on the budget. No direct or indirect taxation may be introduced but through a law.
Any treaty or international agreement entailing such taxation may only be ratified by a law.
5. BUILDING UP TAX EXPERTISE
5.1. What formal training is available for those who want to work in the tax profession (e.g. at university, professional associations, other)?
There is one university located in Monaco, namely the International University of Monaco (IUM), an English-language school specializing in business education and operated by the Institut des hautes études économiques et commerciales (INSEEC) group of schools.
5.2. What are the professional qualifications normally available to people who work in the tax field?
Charted Accountant
5.3. What the mechanisms available are for the verification of the qualifications of professionals working in the tax area? What are the standards needed by public administration? Are these standards in constant review?
Examination
5.4. Is drafting of tax law “taught” at university level? Where do the persons that are responsible for drafting tax law get their training?
No
5.5. What could universities do to improve the situation? What kind of additional training is required?
There is only one University in Monaco with its field of interest in Business. Additional training is usually provided in France, mainly in Cannes which only 20 km far away.
6. MAJOR PLAYERS IN TAX POLICY
6.1 What is the formal procedure for changes of tax law? Are tax law changes proposed by the government or by (members of) parliament or by both? Are government proposals changed by parliament or just approved? Please give examples.
According to the Constitutions
Art.70. (amended by Law n°1.249 dated April 2nd 2002)
Any treaty or international agreement entailing such taxation may only be ratified by a law.
The National Council votes on the budget. No direct or indirect taxation may be introduced but through a law.
Art.66: The instigation of law implies the agreement of wills of both the Prince and the National Council.
The Prince alone may initiate law.
Deliberating and voting on bills are the National Council’s responsibility.
It falls to the Prince to sanction laws, which confers them a binding power through promulgation.
6.2 What is the relative influence on tax policy formulation of political parties, lobbying groups, public officials in the Ministry of Finance and in other ministries?
There are not influences.
6.3 Taxes are increasingly used for social engineering, e.g. to reduce consumption of alcohol and tobacco. In these areas what influence is exerted by the health and other ministries? Does the Ministry of Finance have a veto power over tax proposals coming from other ministries? Or are there other arrangements in place to ensure that tax policy remains the domain of the Ministry of Finance?"
There are applicable the same taxes as in Frnace.
6.4 What is the role of academia, media, trade unions, associations of employers or other interest groups? In which way do they influence tax policy decisions? Please give examples.
They can propose and recommend certain issues. Tax policy decisions are taken only by changing the laws, voting article by article, since the Principality of Monaco is well recognized for its taxes issues. Recommendations of international organizations are taken into consideration and are subject to further negotiations. Related to the interest groups, being a democratic state, the Principality of Monaco has an open dialogue with its population being quite easy to take into consideration serious proposals for further improvements.
6.5 Have there been cases where your country has been forced to adopt measures which are seen as not being in its long-term interests or which conflict with its culture / habits (e.g. removing bank secrecy)?
Regarding the savings taxation income the Council of European Union go ahead to negotiate Monaco by gaving a mandate to the Commission to negotiate amendments to the EU's agreements. The decision represents an important step in the EU's efforts to clamp down on tax evasion and tax fraud.
The aim is to ensure that the five countries continue to apply measures that are equivalent to the EU's directive on the taxation of savings income, which is being updated. The Commission will negotiate on the basis of a draft directive amending the savings directive (2003/48/EC), aimed at improving its effectiveness and closing certain loopholes so as to prevent its circumvention.
The draft amendments to the directive reflect changes to savings products and developments in investor behaviour since it came into force in 2005. They are aimed at enlarging the directive's scope to include all types of savings income, as well as products that generate interest or equivalent income, and at providing a "look-through" approach for the identification of beneficial owners.
6.6 What role do international and regional organizations play in influencing your country’s tax policy? Please provide example of areas where these organizations have had an impact.
Monaco joined the United Nations on 28 May 1993 and is a member of the ECE and several nonregional specialized agencies, such as the FAO, IAEA, ICAO, IMO, ITU, UNCTAD, UNESCO, WHO, and WIPO. Monaco is also a member of the Council of Europe and the OSCE. The headquarters of the International Hydrographic Bureau (IHB) is located in Monaco.
A treaty providing in detail for mutual administrative assistance between France and Monaco became operative on 14 December 1954. Fiscal relations between the two countries are governed by a convention signed on 18 May 1963. France may station troops in Monaco and make use of Monaco's territorial waters. As a result of a customs union with France and French control of Monaco's foreign policy, the principality operates within the European Union.
In environmental cooperation, Monaco is part of the Basel Convention; Conventions on Biological Diversity, Whaling, and Air Pollution; Ramsar; CITES; the London Convention; the Montréal Protocol; MARPOL; and the UN Conventions on the Law of the Sea, Climate Change, and Desertification.
In august 2012, India and Monaco have inked a tax information exchange agreement (TIEA), the ninth such deal signed by India.
The TIEA was signed by India's new Finance Minister Shri S S Palanimanickam and Marco Piccinini, Monaco's Counsellor of Government for Finances and Economy.
The agreement provides for the exchange of banking and ownership information. Minimum details will have to be provided by the requesting State regarding the information required.
All information will have to be treated as secret. It may only be disclosed to relevant specified authorities.
In November 2013, The Principality of Monaco has taken note of its rating by the OECD as "largely compliant" with international standards on tax transparency.
Indeed, Monaco is one of 26 jurisdictions deemed by the OECD to be "largely compliant" in terms of tax transparency standards, alongside the UK and Italy. According to the Monegasque Government, this positive evaluation is recognition of the significant efforts implemented by Monaco over the course of the last few years.
In its communiqué, the Government reiterated that Monaco signed a letter of intention to join the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters on November 5. In so doing, the Principality is pursuing the policy endorsed by Prince Albert II in terms of fiscal transparency and information exchange, the Government emphasized, noting that the country has therefore positioned itself as a stakeholder in the current international movement.
6.7 How does your government try to influence the debates and outcomes of the discussions in these organizations?
The Principality of Monaco is open through negotiations. Of course it will be on its own interest to keep the opportunities open for investors. Bank accounts offer security and confidentiality and, due to the large number of international banks present, interest rates on bank deposits are competitive. No withholding tax is levied on interest derived from such deposit accounts, unless it falls within the scope of the EU Savings Directive, whereby a rate of 35% will be applied.
6.8 Are there specialized bodies (e.g. OMB in the US), established by government to provide objective data on public finances and the impact of any tax reform? If so, please describe briefly.
There is not such a specialized body, but is supervised by France authorities and International Organizations due to its tax policy advantages.
Monaco is presently one of the very few countries not to have sovereign debt. Thanks to its Constitutional Reserve Fund, the Principality continues to enjoy undeniably robust financial independence.
This financial independence and the specific nature of the Principality's economic model, which is based on maintaining a stringent budgetary discipline, are the driving forces behind Monaco’s continued worldwide attractiveness and influe
CONCLUSION
In the end, it is important to remember that first of all the tax system is one of the main reasons investors are attracted to Principality of Monaco. The Principality has its own democratic and freely legislative assembly. The Prince's government runs our small country in consensus with the assembly and in accordance with internationally recognised principles of good governance. Monaco has managed to maintain its policy of not charging its residents income tax – a historic concession which has existed since the Principality was founded – and has often been accused of taking extreme measures to protect the privacy of its wealthy and, in some cases, controversial residents.
The Principality has its own democratic and freely legislative assembly. The Prince's government runs the small country in consensus with the assembly and in accordance with internationally recognised principles of good governance. Monaco is a member of the international community and, although not part of the European Union, it complies with international as well as many European laws and regulations. Moreover it is represented in the United Nations and in the Council of Europe.
Some of the key attractions of Monaco for foreign investors include:
Low taxation – including an absence of income tax, capital gains tax, wealth tax, and local taxes. Monaco also has a limited gift and inheritance tax and a favourable regime for business profits
Political stability
Euro as official currency
Hallmark as a responsible country, with strict controls to eliminate non-legitimate business
Benefits of the European Union (EU), without the disadvantages of membership (the single European market has the potential to reach 500 million consumers).
Confidentiality of business and private matters
Excellent communications and transport facilities
Strong professional infrastructure
Good climate
Reputable education system.
1. Introduction
1.1 Area and population
1.2 Constitution, political culture and law
1.3 Key economic indicators
1.4 Banking and finance
1.5 Currency
2. Trends in tax policy
2.1 Personal income taxes
2.2 Corporate income taxes
2.3 Other business taxes
2.4 Value added taxes
2.5 Excises
2.6 Recurrent taxes on capital
2.7 Non-recurrent taxes on capital
2.8 Compulsory social security contribution paid to government
2.9 Environmental taxes
2.10 Other taxes
3. Main drivers of tax reforms
3.1 Tax reforms since 2000
4. Drafting and reviewing tax legislation and regulations
5. Building up tax expertise
6. Major players in tax policy
6.1 Formal procedures for changes of tax law
6.5 Removing bank secrecy
1. INTRODUCTION
The Principality of Monaco is the second smallest country in the world, with a land area of 2,02 square kilometers and has a population of approximately 35 000 people. It is located on the Mediterranean Sea, approximately 20 km from Nice, and it is entirely surrounded by France, by land. The Italian border is approximately 12 km away.
1.1 Area and population
Monaco is the second smallest country in the world, with a land area of about 2 square kilometres, and has a population of approximately 35,000 people. Monaco is located on the Mediterranean Sea, approximately 20km from Nice, and is entirely surrounded by France, by land. The Italian border is approximately 12km away.
1.2 Constitution, political structure and law
The Principality of Monaco is an independent sovereign state. Its independence and sovereignty were first recognised by France in 1489.
The Head of State is the Prince, a hereditary monarch. The written Constitution assures the separation of powers. Executive power rests with the Prince, who is assisted by six Ministers. Legislative power rests with the Prince and the National Assembly, which comprises 18 Monegasques that are elected every five years, by Monegasque citizens.
Monaco is not a member of the EU. This means responsibility for external matters rests with the Prince. Monaco has a special relationship with France, which has an important impact on Monaco as a business centre. Since 1865 there has been a customs union with France, and since 1945 Monaco has been a part of the French franc zone.
Consequently, in accordance with the annex declaration of the Maastricht Treaty, Monaco introduced the Euro according to the timetable in France and the Euro has become the country’s official currency.
Under the 1963 treaty, all French custom laws, including Value Added Tax (VAT), are applied in Monaco, and the customs service in Monaco is staffed entirely by French officials. All duties and taxes are collected for the French Treasury, but a portion of the total customs duties and VAT collected in both France and Monaco is paid to the Monegasque Treasury. There are no frontier posts between Monaco and France, and goods and people pass freely.
The 1963 treaty also included provisions relating to business taxation, residency in Monaco, insurance, postal and telephone communications, and pharmacy. Consequently, conditions in Monaco are similar to those in France.
With regard to Monaco’s legal system, the Monegasque courts and tribunal, whose judges are guaranteed independence by the Constitution, exercise judicial power.
1.3 Key economic indicators
Monaco boasts the world's highest GDP per capita at $151,630. Monaco also has the world's highest life expectancy at almost 90 years (CIA estimate, 2011), and the lowest unemployment rate, at 0% in 2011 (according to the CIA World Fact Book).
Approximately 80% of Monaco’s economy is based on services, with tourism and financial services prevailing. About 5% of the economy is based on manufacturing, with cosmetics, pharmaceuticals, plastics, jewellery and clothing predominant. Approximately 50% of the country's budget is financed by VAT. Contrary to popular belief, the Monaco Casino business only produces about 2% of total finances.
1.4 Banking and finance
There are approximately 80 Banks and Asset Management Companies in Monaco, whose emphasis is on portfolio management and private banking.
1.5 Currency
The unit of currency is the Euro, represented by €. A single Euro is divided into 100 cent. The International Standards Organization (ISO) currency code is EUR. Prior to 2002, Monaco minted its own coins: the Monegasque franc. Monaco has acquired the right to mint euro coins with Monegasque designs on its national side.
2. TRENDS IN TAX POLICY AS FROM 2000
One of the characteristics of the Principality is favourable taxation for individuals. The lack of income tax dates back to an Ordinance by Prince Charles III in 1869. The only direct tax in the Principality is a tax on the profits of industrial and commercial activities. There is no wealth tax, annual property tax or council tax.
2.1 Personal income taxes
Monegasque nationals and residents in the Principality, with the exception of French nationals, who are regulated by the 1963 Bilateral Convention between France and Monaco, are not liable for income tax. However, the lack of income tax for individuals only relates to activities that are carried out and persons who are genuinely established in the Principality of Monaco. It does not affect rules applied by other States.
Tax on income from savings: an agreement between the Principality and the European Community, signed in Brussels on 7th December 2004, sets out measures equivalent to those in European Directive 2003/48/CE of 3rd June 2003, the so-called "savings directive."
2.2 Corporate income taxes
Companies of any type which carry on a commercial or industrial activity on the territory of the Principality are subject to tax at the rate of 33.33% when at least 25% of their turnover is generated by operations outside Monaco.
In 1991, fiscal arrangements were instituted relating to the formation of companies which allow for the exemption of profits made during the first two years and partial taxation only of the profits of the next three years.
In addition, an extra and specific reduction is provided for in the case of scientific and technical research activities.
Administrative offices, which are not basically commercial, are not subject to a tax on profits, but to a levy of 2.66% of the total of the expenses incurred in running the office.
Dividends paid by Monégasque companies to their shareholders are not taxed.
Business Profits Tax (Impot sur les benefices) 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 in 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 five years; trading losses can in some cases be carried back and set off against profits arising in the previous three 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.
2.3 Other business taxes
Registration Duty (Droit d’enregistrement)
Registration duties are levied on the transfer of certain property in Monaco. Here are some examples of the rates applied:
Rate %
Transfer of real estate in Monaco 7.5/4.5
Transfer of shares in a real estate company, which owns real estate in Monaco 4.5
Leases of real estate for life or unlimited duration 6.5
Leases of movable property for unlimited duration 5.0
Leases of real estate and movable property for limited duration 1.0
Subscription for shares on formation of a company 1.0
Transfer of shares and negotiable instruments 1.0
In the case of a SAM (Corporation), submitting the transfer of shares to registration formalities, so the tax is optional, is not required.
2.4 Value added tax
The existence of the French-Monégasque Customs Union means that V.A.T. is applicable at the same rate as in France. European community tax is applicable since
January 1, 1993.
The following are subject to V.A.T.:
On the one hand, the operations due to economic activity carried out for a fee by a tax payer, i.e. by a person acting on an independent basis as of custom or occasionally, whatever his legal status;
On the other hand, the operations expressly named by law as being subject to V.A.T. (delivery of goods to oneself, certain purchases, imports…)
And lastly, operations which would normally be exempt, but which become eligible for the application of V.A.T. according to a choice made by the person carrying them out (operation carried out by persons performing exempted commercial activities, banking and financial establishment operations, empty property rentals for industrial, commercial or professional use).
The most frequently applicable rates are as follows:
The normal rate of 20.6% is used when there is no reason to apply the reduced rate.
The reduced rate of 5.5% is applicable as follows:
On various services: transports of travelers, hotel or furnished accommodation, certain shows (cinema, theater, concert…), entrance fees for certain attractions (museums, monuments, cultural exhibition), private television subscription, provision of meals in works cafeterias, services related to the supply and evacuation of water;
On certain products: water, food products (except alcoholic beverages and certain solid food product), medicines (except medicines which are reimbursed to social security contributors belonging to the 2.10% category), products with agricultural origins, books, special apparatus and equipment for the handicapped, certain products for animal feed.
Goods physically in Monaco and supplied there by an enterprise fall within the scope of the tax. Goods exported from Monaco to a foreign country (other than France) are zero-rated, subject to certain conditions.
The general principle with regard to the supply of services is that they are considered to be made where the supplier has its head office. However, many services when supplied to an overseas person are zero-rated.
The following rates of VAT are currently applied:
Rate:
19.6% - Standard rate for the supply of goods and services
5.5% - Various goods and services, such as foodstuffs, water, books, transport, and entertainment
2.1% - Daily newspapers and periodicals.
2.5 Excises
Monaco businesses must pay French excise rates.
Excise tax as a percent of the retail price of alcoholic beverages:
Beer: 3.8
Wine: 1.2
Spirits: 22.5
Products where applicable excise duties:
Alcohol, alcoholic drinks (EU directives 92/83/EC and 92/84/EC) beer or mixtures of beer with non alcoholic drinks wine other fermented drinks such as cider intermediate products such as sherry or port ethyl alcohol - except when it used to manufacture other products not intended for human consumption (if used for heating or propulsion it may be classified as an energy product) spirits * Excise duty does not need to be paid on homemade products not produced for commercial purposes, except for spirits.
Reduced rates of excise duty may apply to wine and fermented drinks of 8.5% alcohol or less by volume.
Energy products & electricity (EU directive 2003/96/EC)
These are taxed when used as: motor fuel heating fuel
* There is no excise duty on energy products when they are used for purposes other than as motor or heating fuel.
Tobacco products (EU directive 2010/12/EU) cigarettes cigars cigarillos smoking tobacco, such as fine cut rolling tobacco
* Excise goods are generally exempted from the duty when they are used: in diplomatic or consular relations by the armed forces of any NATO member by international organisations
2.6 Recurrent taxes on capital
Property added value tax
V.A.T. is applicable on operations contributing to the production and commissioning of real estate.
It is based on:
The sales price, the amount of compensation or the value of the social rights corresponding to the gain, plus the additional charges;
The real, venal value of the property, if this real market value is higher than the price, the amount of the expenses or the value of the social dues, increased by the charges.
V.A.T. is generated by the act which defines the transaction, or if no such act exists, the transfer of ownership.
However, V.A.T. is not applicable to operations involving buildings or parts of buildings of over five years of age or, which, during the five years following completion, have already been sold to a person other than an estate or property agent. Such operations are normally subject to transfer dues.
The V.A.T. rate applicable on property transactions, whatever their nature, is 20.6%.
There are no restrictions on the acquisition of real estate or on portfolio investments in Monegasque companies. As there is no income tax or capital gains tax, Monaco is an attractive place for such investments.
Rental Income
Rental properties are taxed at 1% of the annual rent plus estimated service charges. This tax is payable by the tenant.
Bank accounts offer security and confidentiality and, due to the large number of international banks present, interest rates on bank deposits are competitive. No withholding tax is levied on interest derived from such deposit accounts, unless it falls within the scope of the EU Savings Directive, whereby a rate of 35% will be applied.
2.7 Non-recurrent taxes on capital
Tax on inheritance and gifts only applies to assets that are situated in the Principality of Monaco or with situs in Monaco, regardless of the domicile, residence or nationality of the deceased person or donor (subject to the provisions of the Convention between France and Monaco of 1st April 1950).
The level of taxation depends on the nature of the relationship between the deceased person and their heir:
Direct filiation between parents and children or spouses
0 %
Between brothers and sisters
8 %
Between uncles, aunts, nephews and nieces
10 %
Between relatives other than brothers, sisters, uncles, aunts, nephews or nieces
13 %
Between persons who are not related
16 %
2.8 Compulsory social security contributions paid to government
The Monegasque social security system is similar to that in France for employed and self-employed people and their dependents. However, the French system typically reimburses 70 percent of medical costs, but the Monegasque system reimburses 80 percent and up to 100 percent for certain procedures and some hospitalisations.
Reimbursements are fairly comprehensive and include primary and specialist treatment, hospital stays, lab work, drugs, dental care and transportation. The rates applied by medical practitioners and services are classified into three categories according to income and family size: a standard rate, a rate that is 20 percent above the standard rate, and a fee set by prior agreement with the service provider.
Foreigners living in Monaco, not in employment or self-employed, require full private medical insurance. Proof of such cover will be required to obtain resident status.
Employers are required to make contributions to social security, pension, and unemployment organisations for each employee. In addition, the provision of life insurance cover and supplementary pension benefits is mandatory for executives. The total contributions are relatively high, potentially reaching 40% for employers and 15% for employees.
Because so many residents commute to work in France and Italy, Monaco has reciprocal social security agreements with both countries in place, so that contributions paid in one state are treated as qualifying contributions in the other state.
As well as obtaining an employment authorisation (une autorisation d'embauche), each employer must register his employee(s) at the Caisse de Compensation des Services Sociaux (CCSS) and at the Caisse Autonome des Retraites (CAR).
Such registration entitles the employee to the following (subject to certain conditions):-
Child benefit: the chef de famille (father or single parent) must be employed in Monaco. The level of benefit depends on the age of the child.
In the event of illness, payment of half of the employee's salary together with reimbursement of a part of any medical costs incurred.
Retirement pension: the employee must have worked for at least ten years in Monaco.
1
At present, the social security contributions are as follows:
CCSS: 16% of the monthly gross salary paid exclusively by the employer up to a ceiling of € 7,600.
CAR: 13.19 % ( 7.04% of monthly gross salary payable by the employer, and 6.15% of monthly gross salary payable by the employee) up to a ceiling of € 4,192.
The employer must also take out an insurance policy to cover accidents at work. The premium is calculated at about 0.60% of the total of the annual salary paid by the employer.
In addition, employers in Monaco must ensure that contributions are made to certain organisations, these contributions being the same as those made by employers in France. The contributions provide cover in the event of redundancy and also provide for supplementary pension benefits (the rate depends on whether the employee is an executive (cadre) or not) and life insurance cover.
2.9 Environmental taxes
The Monaco authorities, pushed by the war on terror and increased international co-ordination on money laundering, have tightened controls. Many investors run their businesses from Monaco, taking advantage of the tax free environment.
2.10 Other taxes
Registration fees are levied at either a fixed rate or a proportional rate, depending on the nature of the document. The fixed rate fee is usually 10€.
The duties most commonly applied are:
Duty of 1 % for tenancy agreements, levied on the annual rent plus charges
Duty of 2% for convictions
Duty of 3 % for mortgage agreement documents, for the engrossed copy
Duty of 5 % on the sale of movable property. This duty is reduced to 2 % for some sales at public auctions
Duty of 6.5 % on the sale of real estate
Duty of 7.5 % on transferring business or customer list
Transaction fees of 1 % for land publication
Transaction fees of 0.65 % for mortgages
Act n. 1.381 of 19/06/2011 on registration fees payable on transfers of property and property duties is intended, in particular, to amend the rates of duty on the sale of real estate (6.5%) and transaction fees for land publication (1%).
When carried out for the benefit of persons who meet the criteria of transparency laid down by law, property sales are now subject to proportional duty of 4.5% (instead of 6.5%). In other cases, these transactions are subject to proportional duty of 7.5%.
With regard to land publication a fixed fee of 10 euros replaces the proportional duty of 1%. Transactions involving a transfer of ownership remains subject to duty of 1%, when these transactions are subject to VAT.
Stamp tax (a form of document registration tax)
Stamp duty is a tax that is levied on all documents used for civil and legal purposes and for documents that are required as legal proof in court.
It is also a means of levying tax when administrative formalities are carried out (for example a certificate of domicile, work permit, family record book, passport, etc.)
Stamp duty is either applied at a fixed rate, or according to the size of paper used.
Other taxes:
Tax on the distribution and consumption of alcohol
Tax on insurance contracts
Tax on beverages
Tax on precious metals
In the Principality of Monaco, duties and taxes on beverages and precious metals are subject to the same regulations as those applicable in France. They are established on the same basis and at the same rates.
3. MAIN DRIVERS OF TAX REFORMS SINCE 20001
3.1 What have been the main drivers of tax reform since 2000? (e.g. the changing economic, political and social environment within which tax systems have to operate, the need for extra revenue, the need to improve tax competitiveness, the need to reduce inequalities in income and wealth, the need to simplify the system) Have the trade-offs between these objectives changed?
The Monaco Reforms Property Tax Law determined to ensure greater equity in its property tax provisions, to boost the attractiveness of the country as a location, and to encourage property investment, Monaco has passed a new law amending the taxation on the transfer and purchase of real estate.
The new law provides crucially for a substantial reduction from 7.5% (6.5% registration tax plus 1% tax on the registration of a mortgage) to 4.5% of the registration tax levied on individuals electing to purchase a property in Monaco either directly or indirectly, via a registered Monaco SCI (property company) or similar “civil” companies, where shareholders’ identities are disclosed to the tax authorities. The 4.5% reduced rate is, however, dependent on the circumstances of the transaction.
The existing 7.5% rate will continue to apply to purchases by 'offshore' entities. In addition, the new law provides that the transfer of beneficial ownership in an offshore entity that owns real estate in Monaco will be subject to registration tax at 4.5%, based on the market value of the property. Previously, such transfers have been exempt from taxation.
Other measures contained in the new tax law provide for certain disclosure requirements by offshore entities in Monaco, as well as for penalties imposed for late filing and for failure to appoint an authorised representative.
Transitional provisions are set to apply for one year following the passing of the new law, whereby any real estate that is transferred from an offshore entity to the requisite Monaco entity, such as an SCI or to an individual will be subject to registration tax of 1%, subject to certain conditions.
3.2 Have there been any major tax reform commissions (e.g. Mirrlees report, Henry report)? If so, what influence did they have?
There is no major tax reform.
3.3 What influence did independent research institutes (e.g. IFS in UK) and universities have on reforms?
There was not such an influence.
3.4 Does your country publish a tax expenditures budget? What is the benchmark used to measure tax expenditure (i.e. what is considered the “normal structure”)? What is the size of the tax expenditures compared to tax revenues? Have these figures been used to drive tax reform?
There was not published a tax expenditure budget.
3.5 Is there data available to assess the impact of the tax reforms?
Monaco boasts the world's highest GDP nominal per capita at US$153,177, GDP PPP per capita at $132,571 and GNI per capita at $183,150. It also has the lowest unemployment rate at 0%, with over 48,000 workers who commute from France and Italy each day. According to the CIA World Factbook, Monaco has the world's lowest poverty rate and the highest number of millionaires and billionaires per capita in the world. For the fourth year in a row, Monaco in 2012 had the world's most expensive real estate market, at $58,300 per square metre.
4. DRAFTING AND REVIEWING TAX LEGISLATION AND REGULATIONS
4.1 By whom are tax law provisions drafted (e.g. by experts in the government / Ministry of Finance, by members of parliament or their expert staff, by outside experts, by academics, by experts of those interest groups which are proposing the change in the law)?
According to the Constitution, ch. IV:
Art.52 The Council of State is in charge of advising on draft legislation and ordinances, which the Prince submitted for their perusal.
It can also be consulted on any other draft instrument.
Its organisation and operations are prescribed by sovereign ordinance.
The legislative power is jointly exercised by the Prince and the National Council.
After consulting the Crown Council, the Prince signs and ratifies treaties and international conventions. He acquaints the National Council through the Minister of State with them before their ratification.
Art.44 The Minister of State represents the Prince.
He oversees the executive services. He has the police force at his command. He chairs the
Government Council with a casting vote.
Art.47. Ministerial decrees are debated during the Government Council and signed by the Minister of State; they mention the relevant proceedings.
They are notified to the Prince within twenty-four hours after signature and become enforceable only in the absence of the Prince’s formal opposition within ten days after the Minister of State’s notification.
However, the Prince may let the Minister of State know He does not intend on exercising His right of opposition for some decrees or types of decrees.
These are thereby enforceable as soon as they are signed by the Minister of State.
4.2 Do outside stakeholders have an opportunity to comment on draft legislation? Are for example white and green papers issued on draft legislation? Is there a consultative forum with business?
There was not found such a mention in the constitution or other legal papers.
4.3 How does the drafting procedure of secondary instruments (e.g. regulations) of tax policy differ from that of legislative changes?
According to Constitution, Art.66:
The instigation of law implies the agreement of wills of both the Prince and the National Council.
The Prince alone may initiate law.
Deliberating and voting on bills are the National Council’s responsibility.
It falls to the Prince to sanction laws, which confers them a binding power through promulgation.
4.4 What is the influence of secondary law in the design of tax policy?
Control of financial management is ensured by a Higher Audit Commission.
4.5 Is there a process for verifying that the proposals are consistent with constitutional law, European law (if applicable), WTO agreements or other international agreements? If so, please describe.
According to the Constitution:
Art.14.(amended by Law n°1.249 dated April 2nd 2002) – After consulting the Crown Council, the Prince signs and ratifies treaties and international conventions. He acquaints the National Council through the Minister of State with them before their ratification.
However, the following treaties must be ratified in pursuance of a law:
1° - Treaties and international agreements affecting the organisation of the Constitution;
2° - Treaties and international agreements the ratification of which entails the modification of the existing legal provisions;
3° - Treaties and international agreements which entail the Principality’s adhesion to an international organisation and the functioning of which implies the participation of the National Council’s members;
4° - Treaties and international organisations the implementation of which results in a budget expenditure pertinent to expenditure type or use, which is not provided by the budget act.
The Principality’s external policy is accounted for in an annual report prepared by the Government and notified to the National Council.
Art.70. (amended by Law n°1.249 dated April 2nd 2002) – The National Council votes on the budget. No direct or indirect taxation may be introduced but through a law.
Any treaty or international agreement entailing such taxation may only be ratified by a law.
5. BUILDING UP TAX EXPERTISE
5.1. What formal training is available for those who want to work in the tax profession (e.g. at university, professional associations, other)?
There is one university located in Monaco, namely the International University of Monaco (IUM), an English-language school specializing in business education and operated by the Institut des hautes études économiques et commerciales (INSEEC) group of schools.
5.2. What are the professional qualifications normally available to people who work in the tax field?
Charted Accountant
5.3. What the mechanisms available are for the verification of the qualifications of professionals working in the tax area? What are the standards needed by public administration? Are these standards in constant review?
Examination
5.4. Is drafting of tax law “taught” at university level? Where do the persons that are responsible for drafting tax law get their training?
No
5.5. What could universities do to improve the situation? What kind of additional training is required?
There is only one University in Monaco with its field of interest in Business. Additional training is usually provided in France, mainly in Cannes which only 20 km far away.
6. MAJOR PLAYERS IN TAX POLICY
6.1 What is the formal procedure for changes of tax law? Are tax law changes proposed by the government or by (members of) parliament or by both? Are government proposals changed by parliament or just approved? Please give examples.
According to the Constitutions
Art.70. (amended by Law n°1.249 dated April 2nd 2002)
Any treaty or international agreement entailing such taxation may only be ratified by a law.
The National Council votes on the budget. No direct or indirect taxation may be introduced but through a law.
Art.66: The instigation of law implies the agreement of wills of both the Prince and the National Council.
The Prince alone may initiate law.
Deliberating and voting on bills are the National Council’s responsibility.
It falls to the Prince to sanction laws, which confers them a binding power through promulgation.
6.2 What is the relative influence on tax policy formulation of political parties, lobbying groups, public officials in the Ministry of Finance and in other ministries?
There are not influences.
6.3 Taxes are increasingly used for social engineering, e.g. to reduce consumption of alcohol and tobacco. In these areas what influence is exerted by the health and other ministries? Does the Ministry of Finance have a veto power over tax proposals coming from other ministries? Or are there other arrangements in place to ensure that tax policy remains the domain of the Ministry of Finance?"
There are applicable the same taxes as in Frnace.
6.4 What is the role of academia, media, trade unions, associations of employers or other interest groups? In which way do they influence tax policy decisions? Please give examples.
They can propose and recommend certain issues. Tax policy decisions are taken only by changing the laws, voting article by article, since the Principality of Monaco is well recognized for its taxes issues. Recommendations of international organizations are taken into consideration and are subject to further negotiations. Related to the interest groups, being a democratic state, the Principality of Monaco has an open dialogue with its population being quite easy to take into consideration serious proposals for further improvements.
6.5 Have there been cases where your country has been forced to adopt measures which are seen as not being in its long-term interests or which conflict with its culture / habits (e.g. removing bank secrecy)?
Regarding the savings taxation income the Council of European Union go ahead to negotiate Monaco by gaving a mandate to the Commission to negotiate amendments to the EU's agreements. The decision represents an important step in the EU's efforts to clamp down on tax evasion and tax fraud.
The aim is to ensure that the five countries continue to apply measures that are equivalent to the EU's directive on the taxation of savings income, which is being updated. The Commission will negotiate on the basis of a draft directive amending the savings directive (2003/48/EC), aimed at improving its effectiveness and closing certain loopholes so as to prevent its circumvention.
The draft amendments to the directive reflect changes to savings products and developments in investor behaviour since it came into force in 2005. They are aimed at enlarging the directive's scope to include all types of savings income, as well as products that generate interest or equivalent income, and at providing a "look-through" approach for the identification of beneficial owners.
6.6 What role do international and regional organizations play in influencing your country’s tax policy? Please provide example of areas where these organizations have had an impact.
Monaco joined the United Nations on 28 May 1993 and is a member of the ECE and several nonregional specialized agencies, such as the FAO, IAEA, ICAO, IMO, ITU, UNCTAD, UNESCO, WHO, and WIPO. Monaco is also a member of the Council of Europe and the OSCE. The headquarters of the International Hydrographic Bureau (IHB) is located in Monaco.
A treaty providing in detail for mutual administrative assistance between France and Monaco became operative on 14 December 1954. Fiscal relations between the two countries are governed by a convention signed on 18 May 1963. France may station troops in Monaco and make use of Monaco's territorial waters. As a result of a customs union with France and French control of Monaco's foreign policy, the principality operates within the European Union.
In environmental cooperation, Monaco is part of the Basel Convention; Conventions on Biological Diversity, Whaling, and Air Pollution; Ramsar; CITES; the London Convention; the Montréal Protocol; MARPOL; and the UN Conventions on the Law of the Sea, Climate Change, and Desertification.
In august 2012, India and Monaco have inked a tax information exchange agreement (TIEA), the ninth such deal signed by India.
The TIEA was signed by India's new Finance Minister Shri S S Palanimanickam and Marco Piccinini, Monaco's Counsellor of Government for Finances and Economy.
The agreement provides for the exchange of banking and ownership information. Minimum details will have to be provided by the requesting State regarding the information required.
All information will have to be treated as secret. It may only be disclosed to relevant specified authorities.
In November 2013, The Principality of Monaco has taken note of its rating by the OECD as "largely compliant" with international standards on tax transparency.
Indeed, Monaco is one of 26 jurisdictions deemed by the OECD to be "largely compliant" in terms of tax transparency standards, alongside the UK and Italy. According to the Monegasque Government, this positive evaluation is recognition of the significant efforts implemented by Monaco over the course of the last few years.
In its communiqué, the Government reiterated that Monaco signed a letter of intention to join the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters on November 5. In so doing, the Principality is pursuing the policy endorsed by Prince Albert II in terms of fiscal transparency and information exchange, the Government emphasized, noting that the country has therefore positioned itself as a stakeholder in the current international movement.
6.7 How does your government try to influence the debates and outcomes of the discussions in these organizations?
The Principality of Monaco is open through negotiations. Of course it will be on its own interest to keep the opportunities open for investors. Bank accounts offer security and confidentiality and, due to the large number of international banks present, interest rates on bank deposits are competitive. No withholding tax is levied on interest derived from such deposit accounts, unless it falls within the scope of the EU Savings Directive, whereby a rate of 35% will be applied.
6.8 Are there specialized bodies (e.g. OMB in the US), established by government to provide objective data on public finances and the impact of any tax reform? If so, please describe briefly.
There is not such a specialized body, but is supervised by France authorities and International Organizations due to its tax policy advantages.
Monaco is presently one of the very few countries not to have sovereign debt. Thanks to its Constitutional Reserve Fund, the Principality continues to enjoy undeniably robust financial independence.
This financial independence and the specific nature of the Principality's economic model, which is based on maintaining a stringent budgetary discipline, are the driving forces behind Monaco’s continued worldwide attractiveness and influe
CONCLUSION
In the end, it is important to remember that first of all the tax system is one of the main reasons investors are attracted to Principality of Monaco. The Principality has its own democratic and freely legislative assembly. The Prince's government runs our small country in consensus with the assembly and in accordance with internationally recognised principles of good governance. Monaco has managed to maintain its policy of not charging its residents income tax – a historic concession which has existed since the Principality was founded – and has often been accused of taking extreme measures to protect the privacy of its wealthy and, in some cases, controversial residents.
The Principality has its own democratic and freely legislative assembly. The Prince's government runs the small country in consensus with the assembly and in accordance with internationally recognised principles of good governance. Monaco is a member of the international community and, although not part of the European Union, it complies with international as well as many European laws and regulations. Moreover it is represented in the United Nations and in the Council of Europe.
Some of the key attractions of Monaco for foreign investors include:
Low taxation – including an absence of income tax, capital gains tax, wealth tax, and local taxes. Monaco also has a limited gift and inheritance tax and a favourable regime for business profits
Political stability
Euro as official currency
Hallmark as a responsible country, with strict controls to eliminate non-legitimate business
Benefits of the European Union (EU), without the disadvantages of membership (the single European market has the potential to reach 500 million consumers).
Confidentiality of business and private matters
Excellent communications and transport facilities
Strong professional infrastructure
Good climate
Reputable education system.
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