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.
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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
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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.
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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.
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Monaco Withholding Tax
There are no withholding taxes in Monaco.
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