Monaco: Executive Summary

Monaco Executive Summary

Monaco occupies barely 2 sq km on the French Riviera. Only 5,300 of its population of 30,539 people (July 2011 est) are original Monegasques. Monaco is well-connected by air, from Nice airport (22 km distant), by rail and by road. The time is GMT +1 hour, like France.

The famous Grimaldi family has ruled since 1297 under the protection of various countries, but mostly France - the 1963 Treaty with France created a monetary union, confirmed a constitutional monarchy with French responsibility for external affairs, and subjected most French residents to tax. The elected Council has little power, with Prince Albert II equivalent to a Chief Executive. Monaco has adopted the Euro, has a civil code judicial system and its official language is French.

The economy has a normal range of activities for an advanced country (GDP EUR55,000 per head), with special contributions from tourism, high-technology light industry and especially banking. However, Monaco does not want to be a tax haven, under any name, and has no 'offshore' sector as such. Like other continental jurisdictions, Monaco tends to be bureaucratic and cumbersome for international businesses.

Business profits tax is levied only on companies that trade predominantly outside the country, and there is no personal income tax or capital gains tax. Modest inheritance and gift taxes, and stamp duties add to Government revenue, along with customs duties and VAT at French levels.

Monaco came under attack in 2000, being included on the OECD blacklist (but then who wasn't?) and perhaps more seriously being the target of a hard-hitting French parliamentary report. Since then, the principality has been working hard to shed its image as a safe hiding place for money launderers and tax evaders. Measures undertaken have included cooperation agreements signed with Spain, Belgium, Portugal, and Luxembourg, and the tightening of laws relating to suspicious transactions.

In October 2001 France and Monaco reached agreement on initiatives to counter money laundering in the principality. According to the Ministry, Monaco has 'significantly strengthened' its stance against money laundering activities by doubling the number of staff who trace the money launderers as well as pledging to report more suspicious transactions. Monaco also undertook to increase its cooperation with the Financial Oversight Commission to revise the rules governing investment management companies and improve upon regulation and transparency in general.

The tax treaty between the two territories was also modified 'to correct abnormal evolutions in the deduction of executive pay from Monaco's tax on corporate profits.' This included a decision that French citizens living in Monaco since 1989 must pay a wealth tax in future.

In 2004, Monaco was forced to join the EU's Savings Tax Directive regime, and agreed to impose a withholding tax on the interest income of EU residents at the same rate as Austria, Belgium and Luxembourg (initially 15%, 20% from July 1, 2008 and 35% from July 1, 2011) and to hand over 75 per cent of such revenues to the Member State of the EU resident concerned. Monaco also agreed to exchange information on request in criminal or civil cases of tax fraud or similar misbehaviour. The new regime came into effect from July 1, 2005.

Following negotiations with the OECD, Monaco agreed in early 2009 to increase its transparency with foreign tax authorities in the hope that the OECD will remove it from its list of uncooperative jurisdictions. The Monaco government said that it was following "recent evolutions in the area of bank secrecy and information exchange" undertaken by jurisdictions such as Switzerland, Luxembourg and Austria. Indeed, Monaco, along with Andorra and Liechtenstein, was removed from the OECD list of uncooperative jurisdictions in May 2009.

Monaco trusts are useful only for residents, and in general Monaco will not be an attractive jurisdiction for companies or people wanting to find a classical offshore tax haven. But if you're just plain rich, and want a very civilised place to live, Monaco is for you.

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