Income Tax in Monaco
Corporate Income Tax:
In accordance with Article 1 of the tax treaty between France and Monaco of 18 May 1963, the Principality of Monaco introduced corporate income tax.
The following entities are subject to corporate income tax:
· Companies of any legal status that carry out industrial or commercial activities and that generate at least 25% of their turnover outside Monaco
· Companies whose income relates to the sale or licensing of patents, trademarks, processes or formulas and to royalties from intellectual property rights
Administrative offices are also subject to this tax, but the tax is applied according to the specific terms relevant to their situation. The tax is determined by a flat rate, generally equal to 8% of the total annual operating expenses.
The legal form of the company is irrelevant with respect to the application of the corporate income tax. The nature of the activities and location of the transactions determine the liability for this tax.
Rates of corporate tax:
The corporate income tax rate is 33.33%.
Under the business start-up scheme, enterprises created in Monaco and falling within the scope of corporate income tax that carry on a genuinely new business are exempt from corporate income tax for a period of two years and subsequently benefit from a favorable regime for the three following years. The following is the taxation under this scheme:
· First and second years: the enterprise is exempt from tax.
· Third year: tax is calculated on 25% of the taxable income.
· Fourth year: tax is calculated on 50% of the taxable income.
· Fifth year: tax is calculated on 75% of the taxable income.
· Sixth and future years: tax is calculated on 100% of the taxable income.
A tax credit is granted for research and development. This is the same credit granted by France.
Administrative offices are subject to corporate income tax and generally taxed at a reduced rate on a fixed basis. The tax is imposed at a flat rate, generally equal to 8% of their total annual operating expenses.
Capital gains are included in taxable income and subject to the corporate tax at a rate of 33.33%. However, capital gains from asset sales as part of business activities may, under certain conditions, be exempt if they are reinvested in the firm.
In general, companies must file a tax return within three months following the end of their financial year. If the period coincides with the calendar year, the tax return must be filed before 1 April of the following year.
Companies must pay provisional tax installments of corporate income tax. Payment of these installments must be made in the months of February, May, August and November of each year. Each installment equals 20% of the tax calculated on the taxable income for the preceding financial year.
The balance of corporate tax is due by the deadline for filing the tax return, which is before 1 April if the period coincides with the calendar year.
In general, late filing is subject to a penalty averaging between EUR15 and EUR75. In case of the late payment of installments or of the balance of corporate tax, a 3% penalty is applied. An additional 1% penalty is charged per month in case of additional delay of payment.
In general, individuals and legal entities that pay investment income and interest on receivables, deposits or guarantees to individuals or legal entities domiciled or established in France or to persons of French nationality resident in Monaco who do not hold a certificate of residence must, within the first quarter of the year, declare to the Department of Tax Services the income or revenue earned by the beneficiaries in the preceding year.
Under the parent-subsidiary regime, dividends received by Monegasque companies from their Monegasque or foreign subsidiaries are exempt from corporate income tax, except for a 5%, 10% or 20% service charge computed on the gross dividend income that is added back to the recipient’s taxable income.
Foreign tax relief:
Any tax paid abroad on income may be offset against the amount of Monegasque tax on the same income.
An enterprise that receives foreign-source income, such as products of industrial, artistic or literary property or income from movable capital, subject to withholding tax or income tax in the country of realization of income, may deduct the tax paid abroad from the tax on the profits for which it is liable in Monaco on the same income, subject to the production of proof of payment of the tax.
For the calculation of the tax due in Monaco, the amount of the foreign tax is in such case added to the gross receipts of the company.
Personal Income Tax:
Monegasque nationals and foreign nationals residing in Monaco are not liable for income tax in Monaco.
French nationals residing in Monaco are, however, liable for French income tax (under the terms of the Franco-Monegasque bilateral convention of 18 May 1963).
Real estate tax or local residence tax:
No real estate tax or local residence tax is levied in the Principality of Monaco.
Inheritance and gift taxes:
Inheritance and gift taxes apply only to assets situated in the Principality of Monaco and do not apply to assets located outside the jurisdiction. The nationality and place of domicile or residence of the testator or donor is thus immaterial.
The rate of taxation depends on the degree of relationship between the testator (or donor) and the heir (or donee):
· direct line between parents and children or between spouses : 0%
· between brothers and sisters: 8%
· between uncles, aunts, nephews and nieces : 10%
· between relatives other than the above: 13%
· between unrelated persons: 16%
Registration duties and other registration fees:
Registration duties and registration fees may be proportional or fixed.
Certain deeds must be registered within the periods laid down in law.
· official deeds drawn up by notaries and bailiffs;
· private deeds concerning leases, sales of businesses, wills;
· conveyance of real estate located in the Principality inter vivos;
· certain corporate deeds.
· Registration of other deeds is optional.
· The advantage of registration is that it confers a fixed date on any deeds so registered.
· Other duties are also levied, particularly on alcoholic beverages.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.