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."
See
Direct Corporate Taxation
and Offshore Legal and Tax Regimes
for details of corporate tax regimes
in Monaco.
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Monaco Banking
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.
There
are some 70 banks and financial institutions
in Monaco, with more than 300,000 accounts
(remember that there are 5,000 Monagesque
nationals, and another 25,000 foreign
residents). Approximately 85% of the
banks' customers are non-resident. Banking
turnover is in excess of $1.5bn, and
assets under management top $60bn.
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%) 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 from 1st July
2005, and it remains to be seen what
kind of effect it will have on Monaco's
banking sector.
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