Successful GmbH shareholders are often interested in emigrating to other countries. A particularly attractive destination is, among other things, the city-state of Monaco. This is due to the combination of Mediterranean flair and sophisticated habitus, which has radiated splendor and luxury for a long time. This also includes the famous Formula 1 races and the Rally Monte-Carlo, which take place in this unique environment. However, it is also due to the fact that private income in Monaco remains tax-free. However, a move to Monaco stands in the way of the removal tax. Therefore, in the following article we present three options with which a move to Monaco remains tax-free. In addition, these designs also offer approaches to save further taxes, in particular the inheritance and gift tax.

1st Tax Free to Monaco – Introduction

Monaco is synonymous with luxury, glamour, savoir-vivre. As a port city on the Mediterranean Sea, Monaco is particularly famous for its prestigious marina Port Hercule. No wonder, then, that high society has felt at home here for many decades and among its peers. Among other things, tennis star Boris Becker once made the decision to emigrate to Monaco. However, this was to some extent due to the fact that Monaco was and still is a tax haven for wealthy individuals.

This may be astonishing because Monaco is almost completely surrounded geographically by France (except on the coastal strip) as well as politically tied to France to some extent. For example, the monetary union of the two unequal states requires that Monaco’s currency is the euro (with its own coinage). As far as tax laws are concerned, Monaco is independent. In addition, Monaco is not a member of the EU, which explains many a peculiarity of the Monaco tax law. In fact, in the past, this has even led to the EU blacklisting Monaco.

For us, this is a good opportunity to think about tax arrangements where we want to take advantage of these tax peculiarities of Monaco. In particular, this article is about how you can emigrate to Monaco tax-free as a GmbH shareholder and what tax advantages are possible with it.

Tax-free to Monaco: the holding model

In our first approach, we found a GmbH & Co. KG and contribute our shares in our operative GmbH to the KG. The limited partnership acts as a pure holding company, so that it does not develop its own economic activity and consequently does not have to employ its own employees. Then you can move to Monaco tax-free. The reason for this is that the departure of a shareholder of a partnership does not incur any exit tax.

However, this is only partially true. Because if you emigrate in this way to a country with which Germany has concluded a double taxation agreement (DTA), certain conditions must be fulfilled so that no exit tax is incurred in Germany. This includes that the partnership operates commercially. And it basically only manages this if it employs its own employees and also develops operational activity. The fulfillment of this condition, however, is so complex that it is usually avoided to use this design in order to avoid the exit tax.

In the case of a move to Monaco, however, this is completely different. There is no DBA with Monaco. Consequently, you can emigrate to Monaco tax-free with a GmbH & Co. KG as a holding company.

Nevertheless, it remains to be analyzed whether this design also has a positive effect on other taxes. In any case, after the tax-free move to Monaco, the current taxation basically remains the same. Taxes are also incurred in Germany in the event of a possible gift or inheritance of the shares. And in the event of a possible renewal of the property tax in Germany, the company assets will also remain tax-arrested in Germany.

Tax-free to Monaco: Moving to EU Abroad

Alternative two: You found a GmbH & Co. KG again, in which you bring the GmbH. Then you first move to another EU country. Because Germany has agreed DBAs with every other EU country, no tax-free departure is possible with a pure holding GmbH & Co. KG. Because, as explained earlier, this would normally be subject to an exit tax. However, we can avoid this by assigning a commercial function to the limited partnership, so that it is not a pure holding company. This in turn requires employees. Although this is complex, we simply assume that it is still worthwhile from the point of view of a client. This client is now setting up a capital company in other EU countries. In this case too, he transfers his shareholdings to the newly established company. In principle, this has created an international double holding structure. In any case, our client can now move to Monaco tax-free.

The analysis of further taxation remains. Here, too, the taxation of operative GmbH exists in Germany. In addition, there would be a possible additional tax on a profit distribution to the foreign corporation in the country. This could certainly be optimised. In the end, a comparable share of the original profit would ideally arrive at the entrepreneur in Monaco, where this dividend would remain tax-free. And yet with this model we have achieved another advantage besides avoiding the exit tax. If we now transfer the shares in the foreign corporation in Monaco by way of a gift or inheritance, this is tax-free in Germany.

Tax-free to Monaco: Foundation in Liechtenstein

We have already presented you with two design models, one more advantageous than the other. So our third model is probably the most advantageous.

We also design this case by transferring the GmbH to a GmbH & Co. KG, which will not be a pure holding company. However, we now donate this KG participation to a family foundation in Liechtenstein. The commercial design of the limited partnership results again from the fact that there is a DTA with Liechtenstein. Now one may assume that the gift of the limited partnership to the newly established family foundation in Liechtenstein requires the occurrence of a gift tax. However, the limited partnership holding is regarded as operating assets. Anyone who is familiar with inheritance and gift tax law knows that business assets are considered tax-advantaged assets. This means that the transfer of the KG shares to the Family Foundation in Liechtenstein is tax-free. Afterwards, the move to Monaco is also tax-free possible. After all, no GmbH shareholder has moved to Monaco anymore, but a person without assets in the broadest sense. Because the assets now belong to the foundation holding company.

And what more can we save on taxes? In the case of current taxation, everything remains the same in Germany. Furthermore, the withdrawal of the KG’s profits by the Liechtenstein Foundation is tax-free. This is because Liechtenstein only applies corporate tax to profits generated domestically. And if the foundation now makes statements to its destinataries in Monaco, these are completely tax-free in both Liechtenstein and Monaco. In essence, therefore, only Germany pays taxes, in the order of 30%. Inheritance and gift tax are also not an issue at a foundation. Even the substitute inheritance tax prescribed in Germany does not play a role here. And if Germany should at some point levy a property tax again, this is of no significance for the foundation in Liechtenstein. In such a case, the property tax should probably, as hitherto, only consider wealthy persons in Germany as taxable.

Tax-free to Monaco – our conclusion

Time for a quintessence: With the three presented design models, it is possible in different ways to achieve the goal of a tax-free departure of a GmbH shareholder. On the one hand, in two of the three cases, you have to make some efforts to get there. On the other hand, these alternatives offer some other tax advantages. Although there is a probability that both the advantage in avoiding the inheritance and gift tax and the advantage in the event of a new property tax in Germany will only become relevant in the distant future. But at least avoiding the inheritance and gift tax is a considerable bonus that should be secured. Even if you choose the simplest design and emigrate to Monaco after the foundation of the Holding-GmbH & Co. KG, there is still room for further design at a later date, so that ultimately an inheritance or gift remains tax-free or the property tax is warded off. After all, it is a question of the individual relations of each client.