The Principality of Monaco is an independent sovereign state and a member of the United Nations. Monaco is not a member of the EU but is part of the French franc zone. Consequently all French customs laws, including value added tax, apply to Monaco.
Exchange control restrictions were completely lifted during 1990 and only certain reporting requirements remain. However, investment controls are still in force which can restrict the acquisition of existing enterprises by foreigners.
BUSINESS ORGANISATIONS AVAILABLE TO FOREIGNERS
There are seven possible forms of conducting a business operation in Monaco:
With the exception of a civil partnership it is necessary to obtain permission from the Monegasque Government before commencing business operations. It usually takes at least three months to obtain such permissions. Special regulations govern certain activities such as banking, insurance, financial institutions, pharmaceuticals, transport, arms and ammunition, chartering of ships, as well as the legal, medical, and accountancy professions.
In contrast with many other jurisdictions, the objects clause of a SAM is drawn tightly and it is not possible to insert all-embracing clauses. The minimum issued share capital is EURO 150,000 which in practice must be paid up at the date of formation. Shares may also be issued in exchange for contributions in kind. There must be at least two shareholders and shares may be issued in either registered of bearer forms but those in bearer form must be deposited with an approved local bank. There must be at least two directors, one of whom should be a resident of Monaco with full powers to manage the company. There are no restrictions regarding the nationality of shareholders or directors. It is necessary to file annual audited accounts. Each SAM must have its own registered office and be either the owner or the tenant of the premises from which it operates. It cannot share the same premises with other companies and only certain premises are authorised by the Government for commercial or industrial use. Before granting authorisation, the Government will wish to be satisfied as to the adequacy and suitability of the premises selected. Each SAM must also be adequately staffed in order to carry out its business operations; there are no written rules on this, each case being treated on its own merits, but the Government prefers to see a minimum of four staff at least by the end of the first year of operation. Clearly “paper SAMs” cannot be formed and the Government looks for substance of operation.
Before establishing a business operation in Monaco, a BFC must obtain permission from the Monegasque authorities. A standard application form is filed with the Minister of State by the person designated by the foreign corporation to act as the local branch manager (“agent responsable”). The application form is accompanied by the foreign company’s statutes and certificate of incorporation, relevant board minutes, the last three years’ audited financial statements, a copy of the lease of premises at which it is intended to conduct the branch operation and a business plan. The “agent responsable” must be a resident of Monaco and have full powers to conduct the local branch operation. There are no minimum capital requirements for establishing a BFC however the local authorities would expect the BFC to be capitalised sufficiently to cover local set-up costs. It is difficult to obtain authorisation for the branch of a foreign corporation which has been in existence for less than three years. However, there are no fixed rules and each case is judged on its own merits. A BFC is normally initially granted a two-year licence, renewable on a three-year basis. Smaller enterprises tend to operate under the form of general or limited partnerships or sole proprietorships. There are no minimum share capital requirements for these smaller enterprises and the reporting requirements are less onerous.
Profits Tax Profits tax is levied on net profits at a rate of 33 1/3% and applies to:
(1) Foreign and local enterprises, which include companies, branches, partnerships, and sole proprietors which engage in industrial or commercial activities in Monaco and whose turnover is derived at least 25% directly or indirectly from non Monegasque sources; and (2) Companies whose activities in Monaco consist of receiving proceeds from the sale or licensing of patents, trade marks, manufacturing processes or formulae, and literary and artistic copyrights, irrespective of their source. Consequently the enterprises referred to in (1) above which derive more than 75% of their turnover from Monegasque sources are exempt from profits tax. Headquarters operations are often given favourable tax status and advance rulings may be negotiated with the Monegasque tax authorities. In principle, they are taxed by reference to the profits normally realised by a Monegasque enterprise conducting the same activities, using the prices which this enterprise would invoice for its services to a third party. In practice, due to the difficulties in establishing such a profit, they are normally taxed on a notional net profit, agreed in advance with the Monegasque tax authorities. The notional net profit is expressed as a percentage of local expenditure and is usually fixed at 8%. Social Security Employers are required to make contributions to social security, pension, and unemployment organisations for each employee. In addition, life insurance cover and supplementary pension benefits have to be provided for executives. The total contributions are relatively high. For example, a non-executive employee with annual earnings of FF 265,000 would attract employee contributions of about 34%. Monaco has social security agreements with both France and Italy so that contributions paid in one state are treated as qualifying contributions in the other state.
There is no income tax, capital gains tax, or wealth tax. There is a limited form of gift and inheritance tax which applies to assets in Monaco. Assets are exempt from the gift and inheritance tax if bequeathed or donated to a spouse, ancestors or descendants, the local community, public hospitals, charitable organisations, or authorised private charitable foundations. The rates of tax payable depend on the relationship between the donee and the donor or deceased as follows : Relationship Rate % Brothers and sisters 8 Uncles, aunts, nephews, nieces 10 Other relatives 13 Unrelated parties 16.
Monaco signed a limited form of agreement with France in 1963 and an agreement specifically covering inheritance taxes in 1950. These are the only tax agreements in force.
Value Added Tax Value added tax is levied in Monaco on the same basis and at the same rates as in France, pursuant to the customs union between the two countries. Monaco is therefore indirectly subject to the provisions of the EU Sixth Directive as amended, without actually being a member of the EU. The standard rate is currently 20.6%.
Registration Duty Registration duties are levied on the transfer of certain property in Monaco. Listed below are some examples of the rates application.
(Note that in the case of a SAM there is no obligation to submit the transfer of shares to registration formalities. The tax is therefore optional for a SAM)
Stamp duties exist in Monaco but are much less significant than registration duties and are normally fixed in amount. However, stamp duty of 0.5% is due on the nominal value of shares and bonds, increased by share premium if applicable, issued by companies.
There are no restrictions on the acquisition of real estate nor on portfolio investments in Monegasque companies. As there is no income tax or capital gains tax, Monaco is an attractive place for such investments. Bank accounts offer security and confidentiality and, due to the large number of international banks present, interest rates on bank deposits are competitive. No withholding tax is levied on interest derived from such deposit accounts.
As from 1st March 1998 the procedure for obtaining a Residence Permit in the Principality of Monaco has been simplified. The applicant should go in person to the Monégasque “Sureté Publique – Service des Etrangers” in order to obtain an application form entitled “Demande de Carte de Séjour”. At the same time the date for an interview will be arranged. At the interview, the applicant will have a meeting with an official and submit the duly completed application form together with the required documents. These documents will vary according to the personal situation of the applicant. Listed below are some of the documents frequently requested : a photograph A medical certificate A birth certificate “Casier Judiciaire” or ” Attestation” Reference from a bank in Monaco confirming that the applicant has sufficient funds available to live in the Principality Proof of ownership of residential accommodation or a lease If the person moves to Monaco for business or professional reasons, it will be necessary to produce a copy of the employment contract or the application for the authorisation to create a business. If there are no objections, the application should be processed in approximately two months. Initially the “Carte de Séjour” (Residence Card) will be a temporary “Carte de Séjour” valid for one year and renewable upon application. After three years it is possible to obtain an ordinary “Carte de Séjour” which is valid for a period of three years. After ten years of residence the status of “Privileged Resident” may be given and the “Carte de Séjour” will then be valid for ten years.
Nationals belonging to countries outside the E.E.A. wishing to obtain a Monégasque Residence Permit should first apply for a Long Stay Visa in France at the French Consulate General nearest to the place in which they reside. Once the French Visa is obtained the applicant should proceed as described under the heading “EUROPEAN ECONOMIC AREA (E.E.A.) NATIONALS”
Communications Monaco has excellent communications. Postal and telecommunication services are provided by France. In addition, private international courier firms collect documents daily in Monaco for delivery throughout the world. Monaco is linked to the French road and rail systems. The international airport of Nice is 25 kilometres away and there is a regular helicopter service between the airport and Monaco which takes six minutes. Language The official language is French, but English and Italian are widely spoken. Time In winter (October – March) time is GMT + 1 hour and in summer (April – October) GMT + 2 hours. Business hours Office hours are normally Monday to Friday 9 a.m. to 6 p.m. and shops open Monday to Saturday 9 a.m. to 7 p.m. Public holidays New Year’s Day 1 January Sainte Devote 27 January Easter Monday Labour Day 1 May Ascension (6th Thursday after Easter Sunday) Pentecost (8th Monday after Easter Sunday) Corpus Christi (9th Thursday after Easter Sunday) Assumption of our Lady 15 August All Saints’ Day 1 November National Day 19 November Immaculate Conception 8 December Christmas Day 25 December We can assist foreign companies planning to incorporate in Monaco and locate part of their business here so as to take advantage of the attractive environment : Security of people and goods Particularly Attractive Company and Private Tax Laws Confidentality of banking system Easy access Exceptional Quality of the Living Environment.