The following article, written by Cecile Acolas of Rosemont Consulting SARL and Simon Huxford of Rosemont Monaco SAM, appeared in the 2016 winter edition of LP Luxury property - a Chinese based magazine (www.lpdibiao.com)
Monaco is a very special small country, like a diamond in the middle of Europe for a lot of wealthy and privileged families. It offers a strong and diversified economy, a safe state with balanced budget and a perfect door to enter Europe for businesses. The Principality has chosen to comply with the international regulatory standards especially with regard to exchange of information, whilst offering to its residents a unique possibility to live in a safe and international environment with a total exemption of personal taxation.
Monaco real estate historically represents an excellent investment opportunity, with good rental yields and strong capital growth and, currently, strong demand for all types of property. Furthermore, all income and capital gains generated by real estate are not subject to any taxation in Monaco.
There are two routes to real estate ownership in Monaco either a direct property purchase or indirect, through the purchase of the entire shareholding of a real estate owning company.
The buyer and the seller usually jointly instruct a notary to act on the purchase. Only a Monaco notary can validly transfer title to a property in Monaco.
The buyer should obtain legal advice before making a formal written purchase offer to the seller.
The notary or an independent lawyer prepares the contract, which is signed within 14 days of the buyer’s offer being accepted, and the deposit, usually 10% of the purchase price though 5% might be accepted, is paid.
The contract usually includes conditions precedent that if unfulfilled allow the buyer to withdraw within a fixed period and recover the deposit without penalty. Often the sale is subject to the buyer obtaining finance.
Completion is usually two to three months later, to allow the notary sufficient time to complete necessary searches and enquiries. At completion the formal purchase deed is signed by the parties and the balance of the purchase price paid. The buyer is registered as the owner and any loan registered against the property.
The preliminary contract might include a power of substitution, which will enable the buyer to structure the ownership of the property through a foreign company or through a Monaco property owning company, an SCI (“société civile immobilière”). Such a structure must be in place before completion; a later change will be expensive.
The buyer must pay the notary’s fixed fee, plus land registration and related fees, a total of about 6% of the purchase price on a direct purchase.
There are no property taxes levied on the ownership of property in Monaco.
In Monaco real estate is frequently held through a foreign property owning company. A buyer can purchase the company shares, so indirectly acquiring the company’s sole asset, the property. The transaction completes with the share transfer. The transaction usually proceeds without a notary.
After a share sale and purchase agreement is signed, the buyer completes due diligence on the company and property, to ensure there are no undisclosed liabilities. The transaction completes following an agreed timescale.
Usually a deposit of 10% is paid on signature of the agreement with the balance paid at completion. The new shareholders are registered and new directors appointed, if necessary.
A registration tax of 7.5% will be due on the purchase of a property by a company (other than a transparent Monegasque SCI). A registration tax of 4.5% is due on a transfer of shares in a non-transparent company owning property in Monaco. In both cases the tax is calculated on the open market value of the property.
A company that owns Monaco real estate must appoint an authorised representative in Monaco who will file an annual declaration.
The sale of property in Monaco is straightforward with the help of local real estate agencies. Capital gains realised by a seller are not subject to any tax or any withholding tax in Monaco, whether the property is held directly by an individual or indirectly by a company.
Monaco inheritance law will apply in case the property is owned by individuals. Monaco civil law reserves a significant part of an estate (“réserve héréditaire”) to a defined class of beneficiaries; often referred to as forced heirship.
Under these laws children enjoy priority over the surviving spouse, eg a couple with two children can freely dispose of only one third of the estate, with the remaining two thirds reserved to the children. This can result in inadequate provision and possible hardship for the surviving spouse.
The potential problem can be addressed through the use of a company, a trust, or other structure, depending on the personal circumstances of the family.
Indeed holding a property through a company creates the possibility to change the inheritance law applicable to the transfer of the property upon demise. The inheritance law applicable will no more be the Monaco one, but will be according to Monaco conflict of law rules, the law of the residence country of the deceased shareholder.
It has to be noted that since August this year the European Succession Regulation which is in force and harmonises the inheritance laws applicable within Europe does not apply to Monaco but has an impact when structuring the purchase of a property in Monaco by a citizen or a resident of the countries concerned by these rules.
For example, a French or Italian national living in China, and wishing to purchase a property in Monaco will have to take into account the conflict of law rules of Monaco and China as well as the new European Rules.
Individuals resident in Monaco are not subject to income tax in Monaco on their worldwide income, no capital gains tax nor any form of wealth tax.
Gift and inheritance taxes are levied but at modest levels, with the rate of tax determined by reference to the donor’s relationship to the recipient.
Lifetime gifts to a spouse, children or parents are not subject to tax, other relatives are taxed at 8% to 13%. Only gifts to unrelated recipients are taxed at the top rate of 16%. Inheritance tax is levied at the same rates as gift tax.
There is no property tax in Monaco.
Business entities in Monaco may be subject to business profits tax in Monaco. In general terms, a commercial entity that generates 75% or more of its revenue from within Monaco is not subject to tax. There are no withholding taxes levied on dividends. Social charges are payable by employers and employees in Monaco.
Monaco Tax Rates - At a glance:
Nature of Tax - Rate %
Income tax - All income - Nil
Withholding Tax on Dividends - Nil
Capital gains tax - Nil
Wealth Tax - Nil
Annual Property Taxes: - Nil
Gift and Inheritance Tax Rates:
Relationship to Donor - Rate
Spouse, children & grandchildren - 0%
Parents & grandparents - 0%
Brother or sister - 8%
Uncle, aunt, nephew or niece - 10%
Other relative - 13%
Non-relative - 16%
Tax planning for Monaco residents
Whilst Monaco taxation is limited, it is necessary to structure wealth and income of a Monaco resident to optimise potential tax exposure in countries where they receive income or hold assets. Indeed Monaco has signed very few Double Tax Agreements and in consequence income distributed to a Monaco resident could be subject to high withholding tax in the source country. It therefore requires some planning, for example through the constitution of an appropriate holding structure.
Monaco is an attractive location for internationally based individuals and families, entrepreneurs and sportspeople wishing to manage their family affairs and business in an attractive European location. Monaco is a regional centre for international banking and financial services, with high quality accommodation and quality of life.
Young families can take advantage of the excellent education system to university level and internationally recognised healthcare. There are many cultural and sporting events throughout the year.
The fiscal environment in Monaco offers residents the opportunity for financial planning, that may not be not available in other jurisdictions. Residents are not subject to tax in Monaco on their worldwide income, capital gains or subject to an annual wealth tax on the value of their global assets. Furthermore, inheritance and gift tax does not apply to gifts to immediate family.
Applicants from outside of the EEA must apply for a long stay visa to the French authorities in the territory where they reside. When granted the residence application can be made to Monaco.
Applicants must provide confirmation of identity, evidence of accommodation in Monaco, ie a lease or purchase deed, an attestation of means, confirmation of good character and pass an informal interview. The whole procedure usually takes about 18 weeks.
For the first three years of residence the resident’s card must be renewed annually, thereafter every third year, until after twelve year’s residence, when the card must then be renewed every tenth year
All domestic staff employed in Monaco must be registered with the authorities and may require a work permit. The employer must also be registered with the authorities.
Establishing a business in Monaco
All commercial activity is subject to a thorough approval process before a business activity can be established. An enterprise can only start work after authorisation by the Monaco regulator. The process varies according to activity and type of company.
Rosemont can provide assistance in all the above aspects, from the residency card, to property purchase assistance, tax representative for property holding structures, tax and estate planning for new arrivers and company structuring and set up.
Cecile Acolas: firstname.lastname@example.org
Simon Huxford: email@example.com