We at MonacoAdvisers constantly receive requests from people looking to incorporate a company in the Principality with a business plan that assumes the absence of corporate tax.

Monaco has one of the best tax frameworks in the world and it is a great destination to do business, but there is something that has to be clarified: Monaco does have a corporate tax.

Here in the Principality there is no income tax, nor any taxes on capital gains, dividends, or interests. Of course, you are also free to donate money or leave an inheritance without paying taxes in most of the cases.

However, there is a corporate tax that is not very well known. For this reason, we wrote this brief guide explaining everything you need to know about Monaco’s corporate tax and how to incorporate a company in Monaco.

What’s the corporate tax in Monaco?

In Monaco, companies and sole traders that generate at least 75% of their turnover from activities inside Monaco are exempt from corporate tax. Nevertheless, if more than 25% of your turnover is generated outside Monaco, you will be subject to the 25% corporate tax.

You may be thinking, though, that if there is a corporate tax but no income tax, the solution is simply to resort to the sole trader figure and pay 0% income tax.

Unfortunately it is not that simple: in Monaco, the key to determining whether someone is liable to corporate tax or not is whether his activity is of a commercial or civil nature, two concepts inherited from the French legal system.

According to this tradition, some liberal professions (doctor, lawyer, accountant, etc.) are considered civil and not commercial, and are therefore exempt from corporate tax. However, the distinction is not always easy.

If you have doubts about your particular situation, we recommend that you contact us and tell us about your case and we will clarify whether you would be taxed by corporate tax or would be exempt.

Corporate tax rates

Historically the Monaco corporate tax rate has been 33.33%, even higher than in our European neighbors. Luckily, this rate has been progressively reduced in the last years aiming to align with French one, and is now only 25%.

Furthermore, there are generous and progressive tax exemptions for newly established companies:

• Years 1-2: Full exemption (0% CIT).
• Year 3: Taxed only on 25% of profits (25% of 25% = 6.25% CIT).
• Year 4: Taxed only on 50% of profits (25% of 50% = 12.5% CIT).
• Year 5: Taxed only on 75% of profits (25% of 75% = 18.75% CIT).
• Year 6 and beyond: Standard CIT rate applies.

Advantages of incorporating a company in Monaco

Despite the existence of that corporate tax, incorporating a company in Monaco offers several advantages that still make it a very attractive location for businesses.

Here are some of the main benefits:

• Other Low taxes: As mentioned, the Principality barely has other taxes.
  • There is no tax on dividends: if you wanted to distribute profits from the company to yourself, you would not be taxed again, unlike in many other European countries
  • There is no tax on capital gains: a potential sale of your company would not be taxed
  • There is no income tax: this means you can lower your tax base by giving yourself a salary as a company director, and this also offers an opportunity to minimise your corporate tax burden
• Strategic location: Monaco is located in the heart of Europe and very well-connected, making it easily accessible from major cities such as Paris, Milan, and Nice. Its central location makes it an ideal base for businesses looking to tap into the European market.
• Reputation as a financial hub: Monaco has a reputation as a financial hub, which can be beneficial for businesses looking to attract investment or establish partnerships with financial institutions and private banks.

Overall, incorporating a company in Monaco offers a combination of low taxes, strategic location, developed infrastructure, a pro-business environment, and a reputation as a financial hub.

However, it should be also noted that Monaco is not a member of the European Union and therefore Monegasque companies in some sectors may encounter certain restrictions when trading with other European countries.

Please contact us to find out if it is feasible to operate your specific line of business from Monaco.

Requirements to incorporate a company

The limited liability company (société à responsabilité limitée, or SARL) is the most common form of company in Monaco. It has the following characteristics:

• Its minimum capital is €15,000, and the company must have a bank account in Monaco.
• The company must have at least two shareholders (individuals or legal entities), and the manager (a natural person) must reside in Monaco or the surrounding cities in France or Italy due to the effective management requirements.
• The company’s registered address must be in Monaco, either at the manager’s home address (for a limited period of two years, and subject to the landlord’s approval — in this case, the company cannot have employees), or on private premises which need to be coherent with the company’s activity, or in a business center which offers domiciliation services.
• All new business activities in Monaco must be specifically authorised by the government, thus applicants must file an official authorisation request.

Authorization of activities

Some activities are sometimes denied because they are saturated or simply deemed unwanted (mainly businesses considered “without ethics or morals”). In addition, certain activities are subject to specific regulations in Monaco such as financial advice or real estate brokering.

The authorisation request includes information on the company’s purpose and the company’s shareholders and directors, as well as a copy of the articles of association duly registered with the tax office.

The authorities are required to provide their response within three months from the filing of the authorisation request. Once the authorisation is granted, it will be necessary to secure a registered address and open an account with a bank in Monaco to receive the share capital paid by the shareholders.

After this process, the registration of the company with the Monaco Trade Registry will then be possible. Commercial companies can become functional after approximately six months from the authorisation application, mostly due to administrative deadlines and the process of opening a bank account in Monaco.

Obligations for Monegasque companies

All companies must keep accounting records and, except for civil companies, must file yearly accounts with the Monaco authorities. Also, all companies must record information on their ultimate beneficiaries upon registration with the Monaco Trade Registry, and disclose any subsequent changes.

Amendments to the company’s articles of association and its management must also be disclosed.

Having a company in Monaco and living abroad

Some users contact us to incorporate a company in Monaco while living abroad.

Although this is possible, it could bring a lot of tax issues in the place of residence of the holders of the company.

Even if the company is Monegasque, the local tax authority could claim its income under the criteria of effective residence of the company, CFC rules, or international tax transparency.

Thus, we only recommend non-residents to create a company in Monaco if they are high-net-worth individuals who can comply with the following:

• Economic substance: that is, the holding company must have an office and some employees. If possible, the workers should be asset managers or qualified people.
• Effective management: if possible, have resident administrators in Monaco or arrange for the board of directors or administrators to travel to Monaco every time they have a meeting.
• Visible presence: the company should have a telephone number, a website, and a tangible representation in Monaco.

Interested in starting a company in Monaco?

If you are thinking of setting up a company in Monaco, we will be pleased to help you.

Also, if you are interested in changing your residence to Monaco, we recommend reading the report “The definitive guide to living in Monaco”, available below.

For any questions, you can contact us without obligation by sending an email to [email protected] or through the contact form.

Sources:

• https://monservicepublic.gouv.mc/en/themes/tax/information/general-information/tax-in-monaco
• https://monentreprise.gouv.mc/en/themes/accounting-obligations-and-tax/tax/other-taxes-and-duties/corporate-income-tax
• https://en.gouv.mc/Government-Institutions/The-Government/Ministry-of-Finance-and-Economy/Department-of-Tax-Services
• https://assets.kpmg.com/content/dam/kpmg/mc/images/mfo/pdf/KPMG-MFO_Relocation_to_the_Principality_of_Monaco.pdf
• https://taxfoundation.org/data/all/global/corporate-tax-rates-by-country-2022/
• https://uniset.ca/microstates2/4ModLegalSysCyclopedia490_Monaco.pdf