Monaco Individual Tax Guide

Worldwide Personal Tax and Immigration Guide 2020–21

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Monaco ey.com/globaltaxguides

Nice

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EY Société d’Avocats 400, Promenade des Anglais BP 33124 06203 Nice Cedex 3 France Executive contacts Géraldine Garcin-Peiffert

Pierre-André Lormant

+33 (4) 97-18-81-06 Fax: +33 (1) 58-47-50-73 Email: geraldine.garcin-peiffert@ey-avocats.com +33 (4) 91-23-99-08 Fax: +33 (1) 58-47-50-73 Email: pierre-andre.lormant@ey-avocats.com

Immigration contact Géraldine Garcin-Peiffert

+33 (4) 97-18-81-06 Fax: +33 (1) 58-47-50-73 Email: geraldine.garcin-peiffert@ey-avocats.com

A. Income tax Monegasque nationals and foreign nationals residing in Monaco, with the exception of French nationals, who are regulated by the 1963 bilateral tax treaty between France and Monaco, are not liable for income tax.

However, the absence of income tax for individuals only relates to activities carried out and persons who are genuinely established in Monaco. Foreign-source income is subject to the domestic rules of the state in which the source of the income is located and is not subject to Monegasque tax.

B. Other taxes Wealth tax. Wealth tax does not apply in Monaco, except for

French assets.

Property tax. Property tax is not levied in Monaco.

Inheritance and gift taxes. Inheritance and gift taxes apply only to

assets located in Monaco or with a situs in Monaco, regardless of the domicile, residence or nationality of the deceased person or donor (subject to the provisions of the tax treaty between France and Monaco of 1 April 1950).

The standardization of international succession rules applicable in the European Union (EU) were introduced by Regulation (EU) No. 650/2012, dated 4 July 2012, which entered into force on 17 August 2015 (except in Denmark, Ireland and the United Kingdom, which have not ratified this regulation), appears to have served as a catalyst for the promulgation on 28 July 2017 of Monegasque Law No. 1448 on private international law.

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Monegasque Law No. 1448 provides numerous specifications concerning, among other items, the following: • The criteria for determining nationality and domicile • The jurisdiction of the Monegasque courts • The rules of recognition and performance of foreign judgments and foreign public deeds • Provisions on the scope and recognition in Monaco of trusts established outside of Monaco One of the important measures of the Monegasque private international law reform is the possibility to choose the law applicable to the succession, which facilitates new ways to organize the succession from both a civil law and a tax law standpoint.

The principle of a single law applicable to an entire succession has replaced the dual regime, which distinguished immovable succession, governed by the law of the state in which the property is located, and movable succession, which is attached to the deceased and governed by the law of the state of his or her last domicile or by the law of the state of which the deceased was a citizen.

The tax rates depend on the nature of the relationship between the deceased person or donor and his or her heir or donee. The following are the rates: • Between spouses or for children: no tax • Between partners of a civil union agreement: 4% • Between siblings: 8% • Between uncles and aunts, and nephew and nieces: 10% • Between other relatives: 13% • Between unrelated persons (including charities and corporate entities): 16% On 4 December 2019, the Monaco government and the National Council voted to adopt Law No. 1.481 of 17 December 2019, relating to civil union agreements. This law recognizes the following two forms of civil union agreements: • For couples living together: a shared life agreement applicable regardless of sexual orientation • For family members cohabiting together: cohabitation agreement This law provides for a new rate of 4% applicable to transfer by gift or inheritance between partners of a shared life agreement, subject to certain conditions.

The law entered into force on 27 June 2020, six months after its publication in the Official Journal of Monaco on 27 December 2019.

Transfer tax. Sales of real estate located in Monaco, shares in a

Monegasque Société Civile Particulière (SCP) and shares in other types of companies are subject to transfer tax.

The sale of real estate located in Monaco is subject to a 6.5% transfer tax on the sale proceeds (or the fair market value if the sale is for less than the fair market value). If the sale is realized

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for the benefit of persons who meet the criteria of transparency provided by law, property sales are now subject to proportional duty of 4.5% (instead of 6.5%). In other cases, these transactions are subject to proportional duty of 7.5%.

The sale of shares in a Monegasque SCP is subject to the following rates of transfer tax: • 6.5% transfer tax assessed on the sale proceeds relating to the underlying real estate • 1% transfer tax on the portion of the sale proceeds relating to other assets The sale of shares in other types of companies is subject to a 1% transfer tax. The sale of shares in foreign companies is exempt from transfer tax in Monaco.

Trusts. Trust incorporation (setting up of a trust) or trust transfer

in Monaco (transfer of an existing trust from a jurisdiction in which it was originally set up) is subject to a proportional rate of registration duty, varying according to the number of effective beneficiaries of the trust.

The capital of the trusts represented by Monegasque securities is subject to a reduced proportional duty, depending on the number of effective beneficiaries of the trust. The following are the rates of the duty: • One beneficiary: 0.05% • Two beneficiaries: 0.25% • More than two beneficiaries: 0.45% Tax on change of a beneficial owner. Under Monegasque Law No.

1381 of 29 June 2011, any foreign entity owning Monegasque property must appoint a Monegasque tax representative (authorized in a specific list by Monegasque authorities) and file a yearly declaration of change (or non-change) of beneficial owner.

A change of a beneficial owner requires the payment of a 4.5% transfer tax assessed on the fair market value of the Monegasque property.

Various questions have arisen with respect to the scope of the law.

The Monegasque tax authorities have provided an official position regarding the application of law and the definition of “change of a beneficial owner.” The following is a summary of this position: • Any change (regardless of how minor) in the beneficial ownership of a Monegasque property requires the payment of the 4.5% transfer duty on the entire fair market value of the property (no prorated taxation). For example, if a shareholder transfers a 1% stake to a new shareholder, the offshore entity is nevertheless liable for the transfer duty on 100% of the value of the underlying assets.

• The addition or withdrawal of a beneficial owner is considered to be a change in the beneficial ownership of the property and consequently requires the payment of the 4.5% transfer duty.

• If the identity and percentage of ownership of the ultimate beneficial owners is not modified and if he legal personality of the

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owning entity is not changed, changes in the intermediary structure (such as between the ultimate beneficial owners and the property holding company), the transfer duty is not payable.

Monegasque Law No. 1462 of 28 June 2018, which amended the provisions of Law No. 1362 of 3 August 2009 on the fight against money laundering, the financing of terrorism and corruption, has imposed a new obligation on companies and economic interest groups registered in Monaco.

Under the amended version of Article 22 of the law, the abovementioned entities must “communicate the beneficial ownership information to the Minister of State, for registration in a specific register entitled register of beneficial owners, annexed to the trade and industry directory and update them regularly.”

This communication is mandatory and must be repeated on each change of beneficiary.

The following are disclosure obligation’s deadlines: • For the incorporation of a company, the form must be submitted to the Economic Development Department (Direction de l’Expansion Economique) when applying for registration in the Trade and Industry Register (Répertoire du Commerce et de l’Industrie) or within 15 days after the issuance of the receipt.

• For companies that are operating, the form must be filed no later than two years after the date of publication of the law (that is, on 28 June 2020) or within 30 days of any fact or act requiring the revision of or addition to the information mentioned in the form.

C. Social security Contributions. Individuals’ social security taxes are withheld

monthly by employers. Monegasque social security tax contributions are due on compensation, including bonuses and benefits in kind, earned from performing an activity in Monaco and paid in Monaco. However, this rule may be modified by a social security totalization agreement. The total charge for 2018 (the 2019 rates will be available in October 2019) is approximately 10% to 14% (depending on retirement fund contributions and level of remuneration) of gross salary for employees and 28% to 40% for employers.

Some of the contributions are levied on wages up to certain ceilings. The following are the rates of these contributions and the amounts of the ceilings for 2018 (the 2019 rates and ceilings will be available in October 2019): • Sickness contribution and family allocation: employee share of 0% and employer share of 15.05% (monthly ceiling of EUR8,600) • Basic state pension contribution: employee share of 6.55% and employer share of 8.03% (monthly ceiling of EUR4,896) • Unemployment contribution: employee share of 2.40% and employer share of 4.05% (monthly ceiling of EUR13,508) Totalization agreements. To provide relief from double social

security taxes and to assure benefit coverage, Monaco has entered into totalization agreements with France and Italy.

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D. Double tax treaties and other agreements Double tax treaties. Monaco has entered into double tax treaties

with the following countries.

France Guernsey Italy Liechtenstein

Luxembourg Mali Malta Mauritius

Qatar St. Kitts and Nevis Seychelles

Other agreements. Monaco has ratified the Convention on

Mutual Administrative Assistance in Tax Matters, implemented the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the Organisation for Economic Co-operation and Development (OECD) and G20 countries as well as automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting Project. The convention entered into force for Monaco on 1 April 2017.

The agreement on the automatic exchange of information signed on 12 July 2016 between Monaco and the EU enables Monaco to comply with international standards on tax transparency that are in accordance with the OECD Common Reporting Standard.

Consequently, Monaco and the EU member states are collecting information on the financial accounts of nonresidents from 1 January 2017 and will automatically exchange this information from 2018.

Monaco has also negotiated with partner jurisdictions regarding movement to automatic exchange. A partner jurisdiction is a jurisdiction with which Monaco had not yet undertaken to exchange information. The list of partner jurisdictions is published by ministerial decree and is updated as new jurisdictions become partners. Currently, 20 jurisdictions are considered partner jurisdictions.

The Multilateral Competent Authority Agreement, signed on 15 December 2015, confirms the commitment of Monaco to implement automatic exchange of financial account information in time to commence exchanges in 2018. Monaco was the 76th jurisdiction to sign this agreement.

For financial information that was collected from 1 January 2016 with respect to approximately 50 jurisdictions, automatic exchange between authorities began in 2017.

F. Work and residence permits Anyone who is more than 16 years of age and wishes to reside in Monaco for more than three months in a year, must apply for a residence permit issued by the Monegasque authorities.

An identity card or valid passport is sufficient for European Economic Area nationals. No visa is required.

Before making an application for a resident permit in Monaco, the applicant must apply for a long-term visa for Monaco, issued by the French authorities. Minors also require a visa.

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In both cases, the applicant must fulfill a certain number of other conditions.

Applications for residence permits are handled by the Residents Section of the Police Department. The application process varies depending on the plans and the background of the applicant.