MONACO: PERSONAL TAXATION

Monaco Residence and Liability for Taxation

Only French nationals pay income tax in Monaco. The amount payable is assessed according to the principles of French tax law and is paid directly to the French Government. By way of exception French nationals do not pay income tax if any one of the following 3 situations apply:

• they had been habitually resident in Monaco for 5 years on 13th of October 1962 and they hold dual French and Monegasque nationality;
• they are attached to the Prince's household; or
• they are the French spouses of foreigners residing in Monaco and the marriage took place before the 1st January 1986.

According to a revision of the tax treaty between Monaco and France agreed in 2001, French nationals who took up residence in Monaco after 1989 began to pay French wealth tax from 2002.

For other than French nationals, residence is not an issue affecting taxation in Monaco, since income tax and capital gains taxes do not apply. However, if an individual is in business as a sole trader or on his own account, he will be taxed according to the principles of the the Business Profits Tax (see Direct Corporate Taxation).

All employees in Monaco are liable to pay social insurance contributions; see below.

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Social insurance contributions payable by employers and employees are high. The employer's contribution is between 28%-40% (averaging 35%) of gross salary including benefits and the employee pays a further 10%-14% (averaging 13%).

An employee who is paid part of his wage by way of stock options which can be cashed in and sold at a future point in time may be required to pay social insurance on the value of the option at the time it is realized as if the option had been a salary.

Social insurance contributions, amounting to nearly 50% of salary, are a major disincentive to the hiring of staff and in many ways detract substantially from the advantageous income tax regime which exists in Monaco.

The Principality has concluded social security agreements with France and Italy for retirement and medical expense coverage.

Monaco Inheritance and Gift Taxes

Inheritance and gift taxes are only payable by residents on assets situated in Monaco and do not apply to assets located outside the jurisdiction. The tax payable arises on a transfer made at the time of a person's death or on a transfer made by way of inter vivos gift.

Gifts located within Monaco which are left to charitable institutions or to the nation are exempt from this tax whether the transfer occurs on death or inter vivos.

The rates of tax payable depend on how close the relationship is between the donor and the donee with the general rule being that the more distant the relationship the higher the tax payable.

The rates payable on transfers of property situate in Monaco whether by way of inter vivos gift or on death are as follows:

• Direct line spouses (wife, parents and children), nil;
• Brothers and Sisters, 8%;
• Uncles, Aunts, Nieces & Nephews, 10%;
• Other relatives, 13%;
• Unrelated persons, 16%.

If the deceased is a French national who had been resident in Monaco for 5 years at the time of his death then assets located in Monaco are governed by the laws of Monaco whereas assets located in France are taxed according to the principles of French tax law.

Monaco does not give tax credits for death duties, inheritance taxes and gift taxes. Thus if a person dies with assets in Monaco and tax has already been paid on the transfer of those assets by the laws of another jurisdiction Monaco will levy its own taxes if tax is payable under its own internal laws.

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Monaco Value Added Tax

For the purposes of VAT Monaco is part of the European Union. The Principality adopts the French system for collection. French customs operate the levying of VAT which relates to non European Union transactions whereas the Monegasque authorities operating the levying of VAT on all other transactions.

Two rates of VAT apply: the normal rate of 19.6% (which is the standard rate in France) and a reduced rate of 5.5%, which applies to water, food products, medicines, books, special equipment for handicapped people, hotel accommodation, public transport services and public entertainment services.

The standard rate of VAT is payable on sales of real estate whose construction was completed less than 5 years ago and which have never been transferred for value. Real estate which has been constructed more than 5 years ago and which has already had one purchaser who paid market value does not attract VAT.

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