Monaco Domestic Corporate Taxation

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Monaco 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.

Monaco Rates of Income Tax

When levied, the rate of business profits tax is 33.33%. Reduced rates apply to newly incorporated entities: a new trading entity less than 50% of whose share capital is held directly or indirectly by other companies pays a reduced rate of business profits tax on its activities for the first 5 years after its incorporation, as follows:

0% payable in the first 2 years;
tax calculated on 25% of the reduced profits in the third year;
tax calculated on 50 % of the reduced profits in the fourth year
tax calculated on 75 % of the reduced profits in the fifth year
tax calculated on 100 % of the reduced profits in the sixth year

Monaco Calculation of Taxable Base

Generally speaking, taxable income is based on GAAP financial statements. The following are some particular rules applied in Monaco:

Directors' fees are deductible up to a maximum based on turnover and the social security ceiling, and there is a reasonableness test;
Inventory is normally valued at the lower of cost or market value; cost is determined either by FIFO or by average cost;
One half of any increase in research costs is deductible, with an inflation adjustment;
Certain types of provision are deductible, including specific loss provisions and provisions against asset valuations;
Trading losses can be carried forward and set off against trading profits for a period of 5 years; trading losses can in some cases be carried back and set off against profits arising in the previous 3 years - a tax credit is issued;
There are some limitations on the deductibility of luxury goods and services, interest on loans, and expenses against foreign source income;
Capital gains on the disposal of business assets are taxable as income.

Monaco Filing Requirements and Payment of Tax

The tax year is the calendar year. Advance payments of one fifth of the previous year's tax bill are due on February 20th, May 20th, August 20th and November 20th. Tax returns are due three months after the end of the year, and any balance of tax due is immediately payable.

Monaco Withholding Tax