Monaco: Offshore Business Sectors
Although Monaco is an attractive location for individual residents, it does not seek to offer itself as an offshore jurisdiction for businesses, in fact the tax regime acts to discourage companies from making profits unless activity is strictly local, and the local market is inevitably small. Any business deriving more than 25% of its turnover from outside Monaco is taxed at 33.33% on its profits.
The absence of individual taxation favours the development of service centres, headquarters offices, logistics management, research labs and other cost centres which are not expected to make a profit. Even then, high social contributions (40% of salaries) are a disincentive.
Despite the poor tax regime for exporting businesses, it's even worse for them in neighbouring France and Italy, and Monaco has created many light industrial jobs in non-polluting, high value-added factories supplying regional markets, particularly in pharmaceuticals, cosmetics and electronics. Employees are drawn in from surrounding population centres. Some tax incentives for business start-ups have encouraged this type of development.
The usual types of offshore financial institution - banks, insurance companies, mutual funds - which populate offshore centres are unlikely to find Monaco interesting. The disadvantages include strict and cumbersome authorization requirements and high rentals caused by a limited supply of land, in addition to the unfavourable fiscal situation noted above.
The exception to this is private banking (see below), which has thrived in order to service the growing numbers of wealthy individuals who have settled in Monaco. Clearly, if a bank is handling assets for locally-resident individuals, it will escape the business profits tax.
As with offshore financial institutions, Monaco also does not attract licensing companies or other types of intellectual property-owning company with international royalty, interest or dividend income.
An IMF report on Monaco's financial supervisory and regulatory regimes in September, 2003, was complimentary, saying: "The Principality of Monaco has in place a comprehensive legal framework, supervisory structure, and practices that support a well regulated financial environment."
It went on to add that: "The authorities have over the past two years adopted a strongly proactive approach to supervision, especially in the AML/CFT area. This emphasis is appropriate to a system largely dominated by internationally active private banking and related financial services, the supervision of which benefits from close collaboration with the French supervisory authorities."
On the initiative of Monaco's Financial Activities Auditing Committee (CCAF), the annual meeting of the IFREFI (Francophone Institute for Financial Regulation) was held in the Principality in 2008. According to the Monegasque authorities, IFREFI's first meeting in Monaco, which was held from April 2 to 4, 2008, was of key importance to the future development of the Principality's financial management industry.
Established in 2002, the IFREFI groups together approximately twenty countries from Europe, French-speaking Africa and Quebec. The goal of the Institute is to strengthen cooperation and exchange between its members in the field of financial regulation, a burning issue in the light of the financial market crisis of the last few months.
The topics of the meetings, chosen by the regulators themselves, this year concerned the subprime crisis and potential regulatory solutions, group savings products, and codes of good conduct in financial information matters.
The opening of the April 4 session was held in the presence of Prince Albert II, and brought together the Presidents of the CCAF, Christian de Boissieu and the Authority for the French Financial Markets, Michel Prada, among others.
Established as an independent administrative authority, following the adoption of new legal provisions on financial activities in September 2007, the Financial Activities Auditing Committee is entrusted with the following:
- Making a decision on requests for start-up funds and the opening of management companies, as well as issuing authorizations;
- Monitoring the regularity of the transactions carried out by approved companies;
- Carrying out audits and putting a stop to any irregularities (if necessary, imposing administrative sanctions);and
- Cooperating with foreign counterparts in compliance with specific conditions and procedures.
President Christian de Boissieu pointed out that, far from acting as a brake for the development of the market, the regulator "is there to increase its security and consequently help Monaco compete as a financial market”.
Secretary General of the CCAF, Jean Castellini, added that:
“With the steady growth of consultancy and management firms setting up over the last few years (37 in October 2012), some of which are of high repute (Goldman Sachs, Citigroup and hedge funds such as SRM), on the one hand we need to ensure investors are given the best information possible on products available, and on the other hand, to promote efficient financial and operational risk control of the organisations supervised by the CCAF”.