The Principality of Monaco has created a pearl on the French Riviera under the aegis of the Grimaldi dynasty. The establishment of a casino has played an important role. In fact, the success of this casino was decisive in the fact that today you no longer have to pay income tax in Monaco (unless you are a French citizen). However, taxes still apply in Monaco. We therefore shed light on the tax law of the Principality at all levels.

1st Taxation in the Principality of Monaco – Introduction

We are all familiar with the stories about the small Gallic village that hit the Romans in general and Julius Caesar in particular in antiquity because it refused to submit to the Roman Empire. What if we told you that such a place actually exists? Would you believe us?

Well, we better avoid a bet that we can’t win. But for this we now present you an almost comparable place. A city that resisted the stubborn pressures of the outside world for centuries and nowadays prefers to do everything to be considered a tax haven. So we investigate whether there are actually no taxes in the Principality of Monaco.

2. The Principality of Monaco in the mirror of time

If we want to understand why it came to the point that Monaco could come to the reputation of a place without taxes, we must first look back at the history of the small principality.

2.1. Origin of the Principality of Monaco

Apart from an early antiquity, when the port of the present-day city-state had economic importance among Phoenicians and Greeks, it took until well beyond the time of the Romans until Monaco made its voice heard again at the beginning of the Middle Ages.

At the beginning of the 13. In the 20th century, the rule over this coastal strip of the city of Genoa was incumbent. This decided to build a border fortification, so that today the 10.06.1215 is considered the founding date of Monaco. At that time, however, there was also a dispute between the Emperor and the Pope, or between the noble families of the Staufer on the side of the Emperor and the Welfen on the side of the Pope. This controversy was also reflected in politics in today’s Italy, especially in Genoa. The supporters of the emperor managed to expel the supporters of the pope from Genoa. But they retaliated by conquering the border fortress in a coup. A leading person in this action came from the house of Grimaldi. In fact, in the ensuing period the Grimaldis were to retain their dominion over this region until today, although with certain interruptions.

2.2. Monaco in modern times: sealing of independence

With this we make a time leap into the modern age. Meanwhile, Monaco had managed to enshrine its independence, especially from France, in a treaty. However, Monaco has had to make some concessions to France in the area of taxes; we will discuss these later. In any case, the Principality of Monaco has been preserved to this day. Moreover, it was able to develop successfully as an otherwise disadvantaged small state in many respects (after the Vatican, the second smallest state in the world). And this is also related to the tax law of Monaco.

This development had begun towards the prosperity of Monaco, which we also know today, with a street, a train station and a casino. In the middle of the 19th century, France took over the transport connection of Monaco. At the same time, Prince Charles III was founded. Together with his mother a casino, the later named after him and world famous Casino Monte-Carlo. Already at that time tourism on the Côte d’Azur came into fashion. Wealthy citizens from all over the world recovered and enjoyed themselves on these shores of the Mediterranean, thus also spent fortunes in the casino of the Principality. This quickly led to the fact that already in 1869, extraordinary things happened in the taxes in Monaco.

Taxes in Monaco: the tax law

Since 1869, direct taxation has largely been abolished in Monaco. What this means in detail, we now explore in this chapter.

3.1. Tax liability in Monaco

The tax law in Monaco offers a great special feature in terms of tax liability. In Monaco, all residents as well as all holders of a Monegasque passport and all persons born in Monaco are subject to tax law – with one exception: French citizens. For nationals of the neighboring country, France and Monaco have stipulated in a bilateral treaty in 1963 that they also remain taxable on the territory of Monaco in France. In this way, France wanted to effectively prevent tax evasion of its taxpayers into the small tax haven.

3.2. No income tax in Monaco

Because by Prince Charles III. In 1869, in a decree to abolish the direct taxation of his subjects, one pays there no more income tax. Of course, this regulation applies only to Monaco. If you are also taxable abroad, this foreign tax liability logically continues to exist. In any case, the exemption from income taxation in Monaco applies to both domestic and foreign income.

3.3. no taxes on capital gains in Monaco

The types of income that can be obtained without taxes in Monaco also include capital gains. This makes it easier for people who are solely resident in Monaco to collect capital income from abroad tax-free. In doing so, however, one must ensure that in the countries from which one obtains capital income, there is also no local taxation, for example via a withholding tax.

3.4. Corporate tax in Monaco

The abolition of direct taxation in the Principality of Monaco finds its limits in corporations. In certain cases, corporations in Monaco are subject to corporate tax. If companies make a profit share of at least 25% abroad through industrial production or trade, they are subject to corporate tax in Monaco. For financial years starting after 01.01.2022, the tax rate is 25%.

When determining the income of corporations, consideration must also be given to the amount of possible paid managing directors' salaries. In principle, these must be alien. For smaller companies with an annual turnover of up to EUR 3.5 million, there is a fixed framework within which managing directors’ salaries can operate. In addition, salaries of employees can only be taken into account in a profit-reducing manner if it can be proven that they have performed a real function in the company. False employment is therefore inadmissible for tax purposes.

Also taxed in Monaco are companies that are collectively expressed IP box. Thus, licence income and fees for services rendered abroad are also liable to corporate tax.

Another special feature applies to asset management companies. They only pay a tax of 40 % on the amount of their annual costs if this tax is lower than that which would be incurred in the case of flat-rate taxation.

3.5. Taxes on inheritance and gift in Monaco

Inheritances and gifts are taxable in Monaco under certain circumstances. At least in this regard, an exception applies to French citizens who are resident in the Principality and to whom French tax law applies. In this case, the inheritance and gift tax liability in Monaco concerns only property that is located there or that can be otherwise assigned to the territory of the Principality. Here even the world income principle applies, so that even if you are solely resident abroad in Monaco, the tax liability applies.

Taxes on assets in Monaco are staggered according to the degree of relatives. In the case of a transfer of property between spouses or to their children, there is no tax. Property transferred between siblings leads to taxation at a tax rate of 8%. For inheritances and gifts between aunts or uncles and their nieces or nephews, the tax rate is already 10%. In the case of transfers of assets between relatives of another degree of kinship, taxes of 13% are to be expected. However, if there is no family relationship at all, 16% of taxes are due in Monaco.

3.6. Stamp duty

If documents are drawn in civil legal traffic, they must be accompanied by a stamp duty. The amount of the tax in Monaco depends either on the size of the typeface or on a specific flat rate.

3.7. registration taxes

Similarly, levies on certain documents are subject to taxation in Monaco. These are documents for which there is an obligation to register in the Principality, for example in the case of conclusion of lease contracts as well as in the case of court convictions and other notarial or legal acts. Therefore, registration taxes apply when registering these documents. In this context, the specific deadlines for registration must also be observed.

Also in this context, the tax is incurred in Monaco either depending on the market value or on the basis of a lump sum. If it is a flat-rate levy, the registration tax is usually EUR 10.

It is interesting that in practice the registration tax has replaced the former real estate transfer tax and similar transfer duties. Thus, the registration tax on the transfer of land amounts to 6.5%. When transferring mobile assets (for example yachts), on the other hand, 5% of taxes are incurred in Monaco. Excluded are acquisitions by auction, where the tax is only 2%. Corporate transactions, including the purchase of customer lists, even lead to a tax of 7.5%.

What is also worth mentioning for people who want to emigrate to Monaco and live there for rent is the registration of rental contracts and the taxation of the transaction and the tenancy. This is because a registration tax of 1% of the total rental costs is due over the entire duration of the rental. If the agreed rental period is at least three years, however, you can pay the tax in corresponding installments on request.

3.8. VAT in Monaco

Finally, let’s turn to indirect taxes in Monaco. In principle, sales tax is payable on business transactions in the Principality. The VAT regime in Monaco is subject to a customs union with France and thus with the rest of the EU. These provisions also date back to the 1963 bilateral agreement. It stipulated that the level of VAT rates in Monaco always corresponds to those in France. For example, the regular tax rate is currently 20%, the reduced tax rate is 10% (for example, for the repair of residential buildings) and the VAT rate for basic products and services (such as food, energy supplies, assistance for disabled people) is 5.5%. Despite this contractually regulated approximation, the Principality of Monaco is still considered a third country from an EU point of view with regard to VAT. After all, the Principality of Monaco is not an EU member state either.

Taxes in the Principality of Monaco – Conclusion

The Principality of Monaco is truly a remarkable country, especially with regard to the taxes collected there. It is true that the general income taxation of natural persons is eliminated, which undoubtedly makes this dwarf state appear as a tax haven. On the other hand, Monaco also levies corporation tax under certain criteria – and at a significant level. This is aimed at the export of goods, so you can get the impression that Monaco, despite the image of a tax haven, has taken measures to appear abroad as a serious tax regime. This is also reinforced by the taxation of IP box companies. Otherwise, the current state revenues of Monaco seem to be sufficient for the budget of the Principality, because as a rule, Monaco can show a balanced budget or even a positive budget balance.

And this in turn benefits the inhabitants of Monaco, who are thus spared the taxation of their private income. Certainly, the glamour and prestige of Monaco is far more important for many people who want to emigrate there than the tax benefits they receive there. But for some, this may be more than just a small bonus. For example, tennis legend Boris Becker officially moved his residence to Monaco to save taxes. However, he preferred to stay in Germany, so that he committed tax evasion by maintaining a secret residence in Germany in this country – and was finally condemned for it.

In any case, with this article we were able to push the myth that everything is tax-free in Monaco back into the realm of modern myths. French citizens in particular have no associations with tax havens in Monaco – whether near or far.