2013 Investment Climate Statement - Monaco

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013

The Principality of Monaco, the world’s second smallest country, has an open economy that welcomes foreign investment. Monaco enjoys a high standard of living and low unemployment. Foreigners (and Monegasques) actually living and working in Monaco are not subject to personal income tax, with the exception of French citizens. Corporations may benefit from various tax incentives. There are no restrictions preventing foreigners and non-residents from buying property or opening bank or brokerage accounts in Monaco, though some banks have levied fees on American accounts. Non-residents likely account for more than half of real estate investments. Monaco is well known for its security and political stability.

Note: Monaco is not mentioned in the World Bank “Doing Business” report, the Transparency International “Country Corruption Report,” or the Heritage Foundation “Economic Freedom Index” report. End note.

Investment Regime

Monaco’s economic and regulatory system is closely tied to that of France, and Monaco uses the Euro as its currency. The convention of May 1, 1963 brought French and Monegasque territories, including territorial waters, under a customs union resulting in the application of French customs law in Monaco. Although Monaco is not a full member of the European Union, the customs union with France makes it subject to EU customs laws, thus guaranteeing that the transfer of goods and services from and into Monaco remains within the single European market.

Economic activity within Monaco, including commercial, craft and industrial activity is strictly monitored by the Government. Prior approval from the Direction de l'Expansion Economique is required before conducting any economic activity in the principality, and this applies to foreign companies which may establish a branch or an administrative unit in the principality. Monegasque authorities issue approvals based on type of business; approval is personal and may not be transferred. Any change in the terms requires a new approval. The government is streamlining the approval process by reducing the number of documents required to nine, or six for individual authorizations.

A body called "Espace Entreprises Monaco Business Office" helps new investors. The Monaco Welcome and Business office (MWBO) assists individuals and entrepreneurs in relocating to the principality. In the financial sector, creation of any financial organization is subject to the approval of both the French CECEI (Committee for Credit and Investment Institutions) in Paris and of Monegasque financial supervisory authorities. Offshore companies are subject to the same due diligence and suspicious transaction reporting regulations as other banking institutions.

Monaco has taken a number of initiatives to promote economic activity and make company operations more transparent while maintaining high ethical standards, including:

  • creation of the legal status of Limited Liability Company
  • adoption of systems to combat money laundering, organized crime and corruption (through the creation of the “Service d'Information et de Contrôle sur les Circuits Financiers” SICCFIN: www.siccfin.gouv.mc)
  • special exemptions for new companies and research

There is no direct taxation, with two exceptions:

  • companies earning more than 25% of their turnover outside of the principality, and companies whose activities consist of earning revenues from patents and literary or artistic property rights, subject to a tax of 33.33% on profits
  • French nationals unable to prove that they resided in the principality for 5 years before October 31, 1962 are subject to the French income tax.

To encourage the creation of companies, the principality offers tax incentives, exempting new companies developing a new activity from corporate tax in the first two years, and requiring them to pay only a portion of their full tax bill in the third year (25 percent), fourth year (50 percent), and fifth year (75 percent).

A research tax credit was created in March 2009. The Principality of Monaco announced that it would follow international norms in matters of tax transparency. In September 2009, Monaco was removed from the Organization for Economic Cooperation and Development (OECD) list of “non-cooperative” countries, or “grey list” in terms of provision of tax information. The principality has signed thirteen tax information exchange agreements (TIEA), including one with the United States on September 8, 2009.

Size of the Economy

Monaco's GDP was €4.37 billion in 2011. The country’s budget comes from taxes on industry, trade and services, a vibrant tourism sector, and several government-owned enterprises, most notably the country’s famous casinos. Approximately 50% of government revenue is estimated to come from the Value Added Tax (VAT) applied by the French Administration on Monaco.

There is a high concentration of financial professionals, as might be expected in this center of international business. French banking law applies in Monaco, subjecting banks to the same level of supervision as in France. Approximately 43 banks and 107 financial institutions operate in Monaco; the most recent figures available show them managing an estimated €750 billion for a clientele that is 46% non-resident.