Monaco: Domestic Corporate Taxation
Scope of Income Tax
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.