Monaco: Offshore Business Sectors
Although private banking for rich Monagesque residents was the original basis of the Principality's banking sector, this has changed. Many factors have contributed to Monaco's rise as a banking centre in the last 10 years, including the presence of a secure legislative base (the Bank of France is responsible for regulatory oversight), the absence of withholding tax on interest payments, and a rush of Italians away from their ever-tighter domestic tax regime.
At the time of writing there were some 79 banks and financial institutions in Monaco, with more than 300,000 accounts (remember that there are 7,600 Monagesque nationals, and another 28,000 foreign residents). Approximately 85% of the banks' customers are non-resident. Banking turnover is in excess of EUR2bn, and assets under management top EUR78bn.
Although the majority of banking is still for private individuals, commercial banking has grown substantially, particularly in real-estate lending and in shipping.
Much of the legal basis of banking in Monaco stems from the French Banking Law, supplemented by provisions of Monaco Criminal and Company law. Banking secrecy is imposed by Clause 57 of the French law, while defences against money-laundering are contained in Monagesque laws nos. 1157 of 23/12/92 and 1162 of 7/7/93. Secrecy is adequate for individuals with no French connections, but somewhat compromised for French residents (see Double Tax Treaties).
In October 2001 France's Finance Ministry confirmed that France and Monaco had reached an agreement on initiatives to counter money laundering in the principality. According to the Ministry, Monaco 'significantly strengthened' its stance against money laundering activities by doubling the number of staff who trace the money launderers as well as pledging to report more suspicious transactions.
In 2004, Monaco was forced to join the EU's Savings Tax Directive regime, and agreed to impose a withholding tax on the interest income of EU residents at the same rate as Austria, Belgium and Luxembourg (initially 15%, rising to 20% from July 1, 2008 and 35% from July 1, 2011) and to hand over 75% of such revenues to the Member State of the EU resident concerned. Monaco also agreed to exchange information on request in criminal or civil cases of tax fraud or similar misbehaviour. The new regime came into force from July 1, 2005.
In 2009, Monaco agreed to increase its transparency with foreign tax authorities in the hope that the OECD would remove it from its list of uncooperative jurisdictions. In its statement Monaco said that it would follow ‘recent evolutions in the area of bank secrecy and information exchange’ undertaken by jurisdictions such as Switzerland, Luxembourg and Austria and conform to standards laid down by the OECD (see Double Tax Treaties). Indeed, Monaco, along with Andorra and Liechtenstein, was removed from the OECD list of uncooperative jusdictions in May 2009. Since then, Monaco has signed 20 Tax Information Exchange Agreements.