This country-specific Q&A provides an overview to tax laws and regulations that may occur in Monaco.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
Residence (for all Monegasque residents) and nationality (with respect to French nationals only).
Monaco law does not provide for an income tax for individuals acting within their private activities. There is no capital gains tax.
Monaco law does not provide for any income tax for Monegasque nationals and foreign nationals resident in Monaco, except for French nationals, subject to the 1963 Bilateral Tax Convention between France and Monaco. French nationals are deemed to be residents of France and accordingly liable to tax in France.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
None. See Question 1.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Individuals domiciled in Monaco are not subject to income tax (except for French citizens who are taxable in France as if they were resident there), therefore withholding taxes do not apply.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Monaco levies no wealth tax.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Tax on lifetime gifts only applies to assets that are situated in Monaco, regardless of the domicile, residence or nationality of the donor.
Gift tax is applicable to lifetime gifts evidenced in writing and/or by notarised deed. Gifts that can be made by a physical transfer of property (which does not require a written deed, such as a gift of a chattel) are not subject to tax. Gift tax is in principle paid by the donee but can be paid by the donor if intended so. Gift tax is paid when a triggering event of gift tax occurs (notary act for example).
Inheritance tax only applies to assets that are situated in Monaco, regardless of the domicile, residence or nationality of the deceased.
Inheritance or succession tax is payable at the same rate as lifetime gift tax. The rates are of:
- 0 per cent between spouses and in direct line;
- 8 per cent between brothers and sisters;
- 10 per cent between uncles or aunts, nephews or nieces;
- 13 per cent between other collateral relatives; and 16 per cent between unrelated persons.
Inheritance tax is paid by the heirs when the declaration of succession is filed with the Monegasque notary.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
No tax is levied on gifts between ascendants and descendants in direct line (ie parents and children) or between spouses. Otherwise, see question 5.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Gifts and bequests of Monaco-based assets to charities (other than specific foundations exempted under Monaco law) are subject to gift and succession tax at 16 per cent.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Monaco does not levy any wealth tax or local taxes on properties. There is no property occupancy tax.
Stamp duties are levied upon transfer of ownership of real property.
There is an annual reporting obligation for foreign companies, trusts and other entities holding real estate in Monaco to appoint a local fiscal agent whose duty is to file an annual declaration regarding the change or the absence of change of beneficial ownership. Subject to certain exemptions, if there has been a change of beneficial ownership, a transfer duty of 4.5 or 7.5 per cent of the market value of the property is due. The applicable tax rates vary depending on whether the transaction is carried out for the benefit of persons that meet the transparency criteria set out by the legislation enacted in 2011.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
An individual who intends to establish residence in Monaco must obtain a residence card.
In certain cases, foreign tax authorities may request from individuals a proof of residence in Monaco.
The residence certificate is a proof of an individual’s current residence in the Principality. It is issued by the Monegasque authorities to residents of the Principality who reside in Monaco for at least 6 months a year or have their main centre of activities in Monaco.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
As a general rule, individuals are free to dispose of their estates as they think fit during their lifetime. However, the freedom of disposition may be subject to certain restrictions depending on the matrimonial property regime that the donor adopted with his or her spouse as well as on mandatory rules which cannot be derogated from by voluntary act such as forced heirship rules.
Under Monaco law, the freedom of disposition over one’s estate on death is subject to statutory forced heirship rules. Forced heirship rules compel a particular distribution of a deceased’s estate which cannot be derogated from by Will.
An individual’s assets on death consist of the reserved portion and the disposable portion. The reserved portion limits the testator’s right to dispose freely of his or her estate by Will. It is determined by law.
The reserved portion must go to the protected or forced heirs, regardless of the provisions of the Will. Children are legally entitled to inherit a reserved portion of their parents’ estates on death. In the absence of children, a certain portion of the deceased’s estate is reserved to his or her ascendants in each paternal and maternal line. No other relatives are reserved heirs. In particular, the surviving spouse is not a reserved heir.
Whenever the value of the estate is inadequate to meet the reserved portion, the disappointed heirs can make a clawback claim against the value of any gifts made by the deceased. Lifetime gifts as well as gifts made in trust may be subject to clawback after the death of the donor.
The reserved portion in the presence of one child is half of the estate and the disposable part is therefore also half. If the deceased leaves two children, the reserved portion is two-thirds of the estate and the disposable part is the remaining one-third. If there are three or more children, the reserved portion is three-quarters and the disposable part is only one-quarter. If a child predeceases the deceased, leaving descendants of his or her own, his or her descendants represent the deceased child and are entitled to the share that the deceased child would have taken had he or she survived.
If there are no children but the deceased is survived by ascendants, they are the forced heirs. If there are ascendants alive in both the paternal and maternal lines, the reserved portion is half of the estate and the disposable portion is also half. If there are ascendants only in one line, the reserved portion is one-quarter and the disposable portion is three-quarters. Other remoter ascendants are entitled to a reserved portion only if the deceased leaves no siblings or their issue.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
Under Monegasque law, the statutory matrimonial property regime is that of separation of property.
As indicated in Question 12 above, the surviving spouse is not a reserved heir under Monegasque law. The surviving spouse can only benefit from the disposable portion of the estate.
If an individual dies without a Will and Monaco internal law applies to the succession pursuant to the existing conflict-of-law rules, the estate is distributed between the surviving members of the deceased’s family, according to the following rules of intestate succession as provided by the Monaco Civil Code.
The succession rights of the surviving spouse:
If the deceased leaves a spouse who was not judicially separated from the deceased at the time of his or her death, and also children, the surviving spouse receives the same share as a child. The spouse’s share cannot be less than one-quarter of the estate.
The following distribution is prescribed by law: if the deceased leaves a spouse and a child, each receives half of the estate; if the deceased leaves a spouse and two children, each receives one-third of the estate; if the deceased leaves a spouse and three or more children, the spouse receives one-quarter and the remaining three quarters are divided between the children in equal shares.
If the deceased leaves no descendants and no collaterals, but leaves one or both parents and also a spouse, each parent takes one-quarter and the spouse takes the remaining part. There are also specific rules to determine the distribution of the estate in the event when the deceased leaves a surviving spouse and other ascendants than his or her parents.
If the deceased leaves one or both parents and brothers or sisters or their descendants, the surviving spouse receives half of the estate, with one-quarter going to each parent and any remaining balance (if only one parent survives) going to the deceased’s brothers or sisters or their descendants.
The surviving spouse will inherit the entire estate if the deceased is survived by no descendants, no ascendants, no brothers or sisters or their descendants.
Civil partnerships are not recognised in Monaco. Under Monegasque law, civil partners do not have any succession rights.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
Under Monaco law, the place of the opening of the succession is the domicile of the deceased. Monegasque courts have jurisdiction to rule on successions opened on the territory of Monaco or when an immoveable asset belonging to the estate is located in Monaco.
The estate of a foreigner resident in Monaco is subject to Monaco private international law rules.
Monegasque law will apply to the estate of an individual domiciled in Monaco at the time of his/her death, unless the deceased has expressly elected his/her national law to govern the entirety of his/her estate.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
According to the Monegasque rules of private international law set out in the Code on Private International Law (which entered into force on 8 July 2017), the succession is governed by the law of the State in which the deceased was domiciled at the time of his/her death.
A person may designate, for the settlement of his/her succession, the law of a State of which he/she is a national when the choice is made. The law applicable to the succession governs the succession as a whole, from its opening to the final transfer of the estate to the beneficiaries. This law governs the distribution of both the moveable and the immoveable estate.
The law applicable to the succession may not deprive an heir of the reserved share granted to him/her by the law of the State of which the deceased was a national at the time of the death, nor apply the reserved share to the succession of a person who, at the time of the death, was a national of a State whose law does not recognise forced heirship rights.
The Monegasque law no longer accepts the renvoi. Within the meaning of the Code on Private International Law, the law of a State means the rules of substantive law of that State, excluding its rules of private international law.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
If an individual dies without a Will and Monaco internal law applies to the succession pursuant to the existing conflict-of-law rules, the estate is distributed according to the rules of intestate succession as provided by the Monaco Civil Code.
An individual may freely dispose of his/her estate by Will, subject to certain limitations pursuant to the law applicable to the succession. The testator may, by Will, expressly designate his/her national law to govern the settlement of his/her estate. A Will is therefore an effective tool for estate-planning.
Three types of will can be made under Monaco law: holographic will, the will by public act and mystic will.
A holographic will must be fully handwritten by the testator, signed and dated, without witnesses.
A will by public act may be received by two notaries in the presence of two witnesses or by one notary in the presence of four witnesses. Its contents must be read out to the testator. The will must be signed by the testator, the notaries and the witnesses.
A mystic will must be written and signed by the testator or another person on his or her behalf and sealed. The signed will must be handed to the notary in a sealed envelope in the presence of four witnesses.
Monaco has adopted legislation allowing residents whose national law incorporates trust law to create will trusts in Monaco under their national law. The creation of will trusts under Law 214 must comply with the formal requirements prescribed by Monegasque law for wills by public act or mystic wills.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Generally, the heirs have the right to administer the deceased’s estate. The heirs, unless they renounce the estate, are obliged to pay the debts and charges of the estate as well as any bequests made by the testator.
The testator may also appoint one or more testamentary executors.
In case of a Will trust established under Law 214, it is accepted that the executors and the trustees have the right to administer the estate.
A judicial administrator may be appointed by the court when the estate has not yet been accepted by the beneficiaries.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Monegasque law allows individuals to create trusts and family companies.
As a civil law country, Monaco does not have a substantive trust law. However, Monaco enacted special legislation (Law No. 214 of 1936) designed to recognise trusts and allow certain foreigners who are resident in Monaco to take advantage of their national law which enables them to create trusts either during their lifetime or by Will. The use of trusts under Law 214 (both inter vivos and will trusts) is therefore reserved to those persons whose national law provides for the possibility for settling one’s estate in a trust. Foreign residents who qualify may thus create a Monaco-based trust according to their national (foreign) law. For example, an English national, resident in Monaco, may establish an inter vivos trust or a will trust, pursuant to Monaco Law 214, governed by English law.
Regarding Monegasque foundations, Law n°56 of 29 January 1922 allows the setup of foundations. However, Monegasque foundations can only be of public or charity interest, to the exclusion of private foundations.
The creation of single family offices is also a common practice in Monaco, although single family offices are not specifically regulated.
Finally, Law 1.439 enacted on 2 December 2016 governs the creation of multi-family offices. These structures are being increasingly used.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
- Under Law 214 of 27 February 1936, the main criterion for an individual willing to settle a trust in Monaco is to be a national of a country providing for a substantive trust law, such as common law countries. The trust will thus be substantially settled according to the national law of the settlor.
A testamentary trust must be settled according to the formal requirements applicable under Monegasque law to wills by public act or mystic wills. Furthermore, for a trust to be valid under Law 214, the settlor must designate a trustee entitled to exercise in Monaco.
Inter vivos trusts must comply with the formal requirements applicable under Monegasque law to inter vivos gifts.
Under Article 11 of the Ministerial Decree n°2012-182 of 5 April 2012, Monaco-based trusts must keep on an annual basis an updated balance sheet.
- Single family offices: there are no statutory provisions under Monegasque law governing the creation of single family offices. However, the common practice is for an individual to set up a limited corporation with a civil purpose (Société Anonyme Monegasque, hereafter a “SAM”). These structures are governed by Sovereign Ordinance of 5 March 1895. A SAM must have at least two shareholders who can be either individuals or legal entities. The share capital must be at least 150.000 €. The Memorandum and Articles of Association are established by a Monegasque notary. The Memorandum and Articles of Association of the SAM must be approved by a ministerial order.
- Law 1.439 of 2 December 2016 governing the creation of multi-family offices provides that the activity of a multi-family office must be constituted in the form of a SAM, subject to the prior administrative authorisation issued by ministerial order and the authorisation of the Commission for the Control of Financial Activities, pursuant to the conditions set out by Law n°1.338 of 7 September 2007.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
General information about Monegasque corporations (Société Anonyme Monegasque, “SAM”), is publicly available such as legal denomination, address, corporate purpose, share capital, names of administrators of the company.
Legislation is currently being introduced to implement a register of beneficial owners the access to which shall be limited to public authorities as well as various entities subject to anti-money laundering duties. Any person demonstrating a legitimate interest may be granted access to information by a court decision.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
- Trusts settled in Monaco under Law 214
The settlement of trusts and/or the transfer of a foreign trust to Monaco under Law n°214 triggers stamp duties in Monaco. Article 7 of Law n°214 states that a deed of trust resulting from the creation or the transfer of foreign trusts to Monaco is subject to a stamp duty of 1,3% if there is only one beneficiary, 1,5% if there are two beneficiaries, 1,7% if there are more than two beneficiaries.
Alternatively, at the party’s request, an annual tax of 0.20% of the value of the trust assets may be paid.
If the assets settled into trust are shares of Monegasque companies, stamp duties ranging from 0.05% to 0.45% depending on the number of beneficiaries are due on the value of the shares.
Finally, since there is no capital gains nor income tax in Monaco, the beneficiaries domiciled in Monaco (except for French citizens) will not be liable for any tax.
Under Law 1.381 of 29 June 2011, trusts holding real property rights on immovable assets located in Monaco are subject to transfer tax in Monaco (see question 8 above).
- Single and Multi-family offices:
Single family offices, as civil SAM, are generally not subject to business profit tax.
Multi-family offices are generally subject to company taxes and VAT.
Finally, since there is no direct tax in Monaco, directors and shareholders domiciled in Monaco are not liable for any income or capital gains tax on their remuneration, they are only liable to Monegasque social contributions if applicable.
Are foreign trusts, private foundations etc recognised?
In 2007, Monaco has acceded to the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. The Code on Private International Law confirms the recognition of foreign trusts in accordance with the Hague Convention on the Law Applicable to Trusts and on their Recognition.
Foreign trusts are therefore fully recognised in Monaco.
Foreign private foundations are also recognised in Monaco.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Regarding foreign trusts, the rules provided by Law 1.381 apply. See question 20.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
Irrevocable and non-discretionary foreign trusts can, to a certain extent, protect one’s assets from creditors.
Monegasque courts do not have the power to undo a settlor’s transfer to a trust even if the creditor manages to prove that the transfer was made with the intention of defrauding creditors. However, Monegasque courts can order the settlor to repay the creditor the amount due, if the creditor manages to demonstrate the fraud.
What provision can be made to hold and manage assets for minor children and grandchildren?
The management of a minor’s property is generally entrusted by law to his or her parents. This is known as the legal administration of a minor’s assets.
There is, however, an important exception to this principle. The Monegasque law allows any person to exclude from the legal administration by the parents the assets that he or she donates or bequests to a minor, provided that they are administered by a third party designated by Will or deed of donation.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Legislation is currently being considered to amend the provisions of the Civil Code relating to the judicial protection of adults who, by reason of an impairment or insufficiency of their personal faculties, are not in position to protect their interests (Draft Law No. 958).
The main innovation of the proposed reform is the creation of the “mandate for future protection” (mandat de protection future) to allow any adult to make advance arrangements for his/her care or representation in the event of incapacity, but also for the protection of his/her children.
The Draft Law (No. 958) also includes conflict of law rules in line with those set out in
The Hague Convention of 13 January 2000 on the International Protection of Adults (ratified by Monaco in 2016).
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Under Monegasque law, a charity may be created in Monaco in the form of an association (Law 1.355 of 23 December 2008) or a foundation (Law 56 of 29 January 1922).
What important legislative changes do you anticipate so far as they affect your advice to private clients?
The codification of the conflict of law and jurisdiction rules following the recent enactment of the Code on Private International Law (Law no.1.448 of 28 June 2017, published in the Official Journal of Monaco on 7 July 2017) has a major impact on estate-planning.
There is currently growing consensus for the idea that cohabitation needs to be regulated. The current absence of legal provisions is clearly out-of-step with changing social realities and the consequent increasing frequency of cohabitation of both heterosexual and homosexual couples. New legislation is therefore currently under consideration which aims at filling such legal void.
Legislation is being considered to amend the provisions of the Civil Code relating to the judicial protection of adults who, by reason of an impairment or insufficiency of their personal faculties, are not in position to protect their interests. The new legal provisions aim at allowing individuals to make advance arrangements for their care and/or representation in the event of incapacity.