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Monaco is the world’s favourite tax haven, but that doesn’t mean there are no taxes in Monaco! In this episode of Monaco Insider I explain exactly how Monaco’s tax system works for individuals and companies.
Now let me start with a disclaimer. I’m not qualified to give tax advice but I can introduce you to people who are. So what I’m sharing with you today is for information and education purposes only and you must take expert advice before making any decisions.
Let’s start with the Big One – personal income tax. The income tax rate on Monaco residents is a nice round number – zero! It’s been that way since the casino was built in the nineteenth century when the ruling Grimaldi family decided they could cover the costs of running the Principality entirely from the money extracted from hapless gamblers who seem to forget that the house always wins in the end!
What’s interesting is that moving to Monaco for tax reasons only really took off after World War 2 as tax rates kept increasing in major economies until, by the 1960s, the Beatles were singing about the UK taxman where it was ‘one for me, nineteen for you’. That, and the glamour that resulted from Princess Grace’s arrival in 1956 started the boom period in the Principality’s attractiveness and growth.
The only exception to the zero income tax rate is for French citizens who moved to Monaco after 1957 – they are still hammered by France’s eye watering tax rates.
If you own property as an individual and rent it out, there’s no tax on your rental income. However if you own the property through a company then rental income will be taxable.
Unlike neighbouring France, there is no Wealth Tax in Monaco and there are no taxes for holding property such as the council tax paid in the UK.
Now, one tax you can’t escape in Monaco is Value Added or sales tax, which is levied at a standard rate of 20% and a reduced rate of 5.5% on certain goods and services.
There is also stamp duty to pay at different rates in different circumstances. This is applied to documents used for civil and legal purposes or which are needed to prove something in a court of law. If you rent a property in Monaco there’s a 1 % stamp duty payable on your tenancy agreements, calculated based on the annual rent and charges like maintenance fees.
If you buy a property with a mortgage there’s a stamp duty tax of 3% of the mortgage amount, while if you sell a property as an individual you pay 4.5% of the sale price as stamp duty. If the property is held in a company the stamp duty rises to 6.5%. If you sell movable assets like art there’s a 5% stamp duty levy though this reduces to 2% for certain sales at public auctions. Finally, if you you’re your business there a 7.5% stamp duty charge on the sale value.
I touched on company taxes so let’s clarify the position there. If you set up a company in Monaco and more than 25% of your business transactions take place outside the principality, then your trading profits are subject to CIT, Corporate Income Tax. The rate of CIT is 33.33% (NOT THE 25% I MISTAKENLY MENTION IN THE VIDEO) and there is another twist you can use if it’s relevant to your circumstances. It’s counter intuitive for most business owners who come from high income tax countries but it works well in the Monaco regime. If you are the main employee in your Monaco business, you can always pay yourself a high salary which will be free of income tax and will also have the effect of reducing taxable profits in your company to something adjacent to zero.
The last chapter we should look at in the story of Monaco taxation is what happens when you shuttle off your mortal coil – in other words, inheritance tax. This applies to any assets in Monaco regardless of where the deceased person lived, their domicile, their nationality or their country of tax residence. The amount you pay is based on the market value of the assets at the date of inheritance and ranges from zero to sixteen per cent. It all depends on how closely related the people inheriting were to the deceased. So if you leave your worldly goods to your surviving spouse or your children there’s zero tax to pay.
If you leave it to your brothers or sisters you’ll be charged 8% transfer tax, uncles, aunts, nephews and nieces pay 10% while more distant relatives pay 13%. Finally, anyone outside the family who inherits your Monaco assets will pay 16% to inherit them. Still much better than the 40% you’d pay in the UK and other high tax Western countries.
That’s a whistle stop tour of a complex subject, but hopefully it’s enough to whet your appetite to take a serious look at making Monaco your home.