Monaco's fiscal system favors rich individuals and local business. Its main trait is the absence of direct taxation with the exception of:

• individuals that are French nationals who cannot prove their residence in the Principality 5 years before October 31, 1962;
• companies with more than 25% of their benefit earned from outside the Principality;
• companies earning revenues from patents and intellectual property rights (which are subject to a 33,3% tax on profits).

Main characteristics

Private persons

In February 1869 by a Sovereign Ordinance all land tax, personal and goods tax and business tax were abolished. Since then no direct personal taxation has been imposed.

• Residents of Monaco are exempted from all taxes on personal income, on capital or on betterment.
• French residents are subject to French income tax, with the exception of French nationals who can prove that they resided in Monaco 5 years before October 31, 1962. Monaco has a double taxation agreement only with France.

Companies

The establishment of a business in Monaco is subject to prior government authorization. The process takes at least three months. It involves:

• detailed analysis of the founders' financial soundness;
• the viability of the project from the commercial point of view;
• potential benefits for the Principality by founding the proposed firm.

The state encourages the creation of new businesses: since 1991 all newly founded companies holding more than 50% of the share capital are not subject to business income tax (33.33%) for the first two years of trading. For the following three years these companies are taxed at a reduced level.

Tax relief on profits

Since 1963 a tax on profits (33.33% since 1993) has been applied on:

• Businesses that derive more than 25% of their turnover outside the Principality. The offshore planning tax is rather discouraging, since the market is very limited, it is highly improbable that the IBCs' activity be strictly local.
• Entities receiving any type of income related to intellectual property (licensing and selling of copyrights, patents and trademarks).
• A company that holds 20% or more of the shares of a non-resident company. The profit tax will apply on dividends received from the non-resident company.

Special cases — exempted from business profits tax

• Local businesses (hotels, shops etc.) — businesses with at least 75% of their turnover from Monaco.
• Administrative head offices for foreign corporations. In these cases there is a charge of 2.66% related to the running of the office (33.33% applied to 8% of the sum of expenses).
• Non-commercial companies or entities not involved in intellectual property activities (such as service providers, consultancies etc).
• Non-resident companies regardless of the fact that the location of their board meetings is Monaco and that the directors and main shareholders are residents of Monaco.

Tax relief on turnover

• VAT normal rate is 19.6%
• VAT reduced rate is 5.5% applicable as follows:
  • on some services: travelers transport, hotel accommodation, certain shows such as cinema, theatre, concerts, entrance fees for museums, monuments, cultural exhibitions etc., private television subscriptions, services related to the supply and evacuation of water;
  • on some products such as water, some food products (except alcoholic beverages), some products for animal feed, some medicines, books, special equipment for the handicapped.

Registration fees and stamp duty

Are paid at business registration, real estate transfers or change of ownership or any other transaction or deed enhancing legal expenses.

The most commonly applied rates are as follows:

• leases, transfers of shares in a company — 1%
• sale of a real estate — 6,5%
• transfer of goodwill, clientele or real estate — 7,5%

Stamp duty

Represents indirect taxes (drinks, guarantee fees, axle tax).

Gift/Inheritance tax relief estate planning

Assets situated within Monaco are subject to taxes as follows:

• inheritance/gift in direct line of descent: 0%
• inheritance/gift to brothers and sisters: 8%
• inheritance/gift between uncles and nephews: 10%
• inheritance/gift between relatives: 13%
• inheritance/gift to unrelated persons: 16%

The personal affairs of an individual can be administrated and managed free from taxation or authorization from the Monegasque government.