The main attribute of Monaco’s fiscal policies is the total absence of direct taxation for Monégasque residents, as there is no income tax, capital gains tax or wealth tax (except for French nationals).
However, despite all the common beliefs, the Principality of Monaco is not an offshore jurisdiction. It may offer zero percent personal tax for its residents, but many other taxes may apply.
The Principality’s main source of income is the value added tax (VAT) and is paid on goods and services in the usual way.
The main direct tax levied in the Principality of Monaco is corporation tax on industrial and commercial activities.
Companies earning more than 25% of their turnover outside of Monaco, and firms whose activities consist of earning revenues from patents or artistic property rights, must pay a tax on profits.
The tax on profit was 33% until 2018 and it will be progressively decreased to 25% in the few years:
31% as of 1 January, 2019;
28% as of 1 January, 2020;
26,5% as of 1 January, 2021;
25% as of 1 January, 2022.
Therefore, basically the Principality of Monaco will offer the exact same corporate tax regime as France.
French Nationals who are unable to prove that they have resided in the Principality for five years before October 31, 1962, are not allowed to enjoy the taxation benefits of the Principality of Monaco.
A highly important note: If you are investing in Monaco, but are not maintaining a residency in the Principality, you will be obliged to pay tax based on your actual residency.
The absence of personal income tax only applies if the person lives more than six months in the territory of the Principality of Monaco, and his/her activities do not infringe on any rules imposed by other countries.
The good news is that even if you are not living in the Principality for more than six months, you will find banks that are open to help you in taxation issues without disclosing your actual wealth held in the Principality to your country of origin. The name of this solution is Taxation of Saving Income.
The Taxation of Saving Income is a European directive, which introduced a withholding scheme as an alternative to the exchange information. This withholding tax has been applied in Monaco since July 1st, 2005 in accordance with a convention between the Principality of Monaco and the European Community. The revenue from this withholding tax is paid every year.
The best way to imagine this directive is to think about a common pot. The local banks collect all the taxation percentages from people who are non-residents in the Principality in a country-specific common pot. The taxation percentage is lower than in the country of original residency, and the banks provide proof that tax is paid.
The benefit of this system on the first hand is that you pay a considerably smaller amount of your tax, and secondly the bank only states that you have paid your duties and it keeps your actual wealth confidential. In addition, since they place the taxation amount into one pot, it is very hard to find out the actual individuals’ wealth indicators. For many individuals, the Taxation of Saving Income is a very useful concept.