Is relocating to Monaco really the financial advantage it’s made out to be?
Monaco, a small yet glamorous principality nestled along the French Riviera, has long been a magnet for those seeking a tax-friendly environment. With its picturesque Mediterranean coastline, luxurious lifestyle, and aura of exclusivity, Monaco attracts wealthy individuals from across the globe.
Yet, is Monaco really a tax haven? While its prime location, attractive tax system, and reputation as a luxury hotspot make it appealing to the ultra-wealthy, its tax-friendly environment comes with caveats. Let’s explore what makes this iconic destination both desirable and financially complex.
A Glimpse into Monaco
Monaco is a small yet sovereign city-state on the French Riviera, bordered by France and the Mediterranean Sea. At just 2.02 square kilometers (0.78 sq mi), it is one of the world’s smallest countries but a major hub of economic activity.
The population is incredibly cosmopolitan, with over 120 nationalities calling the principality home according to Settling in the Principality of Monaco [1]. Among its approximately 36,000 residents are a majority of French nationals, a local Monégasque community, and sizeable populations of Italians, British citizens, Belgians, Swiss, Germans, and Americans.
While French is the official language, English and Italian are widely spoken and understood. The Monégasque language is primarily used by the older generation and taught to students in schools.
Since January 1, 1999, the Euro has been Monaco’s official currency. Monaco has an agreement with the European Union to adopt the Euro under the same conditions as other Eurozone countries. The principality continues to mint its own Euro coins, which are legal tender across all Eurozone nations.
Brief History of Monaco
Monaco was founded in the 13th century as a colony of Genoa and has been ruled by the House of Grimaldi since François Grimaldi famously seized the fortress in 1297. Disguised as a monk, he tricked the guards into letting him in, only to kill them and capture the fortress for his family. Monaco briefly fell under French control from 1789 to 1814, and after the Treaty of Vienna in 1815, it became a protectorate of Sardinia until 1860. Its sovereignty was officially recognized in 1861 through the Franco-Monégasque Treaty.
The Prince of Monaco remained an absolute ruler until a constitution was introduced in 1911. In 1918, a treaty was signed that provided limited French protection over the principality, aligning the principality’s policies with French political, military, and economic interests. This arrangement was later formalized in the 1919 Treaty of Versailles.
Monaco’s global presence grew when it became a full member of the United Nations, gaining voting rights in 1993. The principality also increased its international standing by joining the Council of Europe in 2004.
Succession in Monaco
The legal system of Monaco, largely inspired by French law, has evolved to address the principality’s specific needs. After applying the French Napoleonic Codes, the principality gradually introduced its own legal codes throughout the 19th and 20th century. The 1962 Constitution of Monaco serves as the fundamental law, with treaties ratified by the Prince under certain conditions. Legislative power is shared between the Prince and a national council, while the judiciary is delegated to courts administering justice in the Prince’s name.
In Monaco, children are entitled to a reserved portion of their deceased parent’s estate. If there are no children, a portion of the estate is reserved for the deceased’s ascendants. However, the surviving spouse is not a forced heir and can only inherit from the estate’s disposable portion.
If the deceased made gifts that violate the reserved portion, the forced heirs have the right to challenge and potentially cancel those gifts. In addition to the forced heirship laws, Monaco also has an inheritance tax that is relatively low compared to neighboring countries. The inheritance tax rates depend on the relationship between the deceased and the heir(s).
- 0% – Spouse and direct beneficiaries
- 4% – Partners in civil union
- 8% – Siblings
- 10% – Uncle, aunt, nephew, niece
- 13% – Other relatives
- 16% – Unrelated beneficiaries
When it comes to determining who inherits the throne and becomes the next Prince, the royal succession has undergone multiple changes. Interestingly, Prince Rainier III’s grandfather took steps to modify the succession laws, ensuring that his illegitimate daughter could ascend to the throne. However, it was Rainier III himself who, in 2002, amended the constitution to specify that only direct and legitimate descendants of the reigning Prince could inherit the throne. According to the updated constitution, if there are no direct and legitimate descendants, the succession passes to the Prince’s siblings and their direct and legitimate descendants. Currently, Prince Albert II has two illegitimate children, born in 1992 and 2003.
Monaco Tax-Friendly Laws
Monégasque nationals and residents don’t have to worry about income tax – with one exception. French nationals are still subject to tax because of the 1963 Bilateral Convention between France and Monaco. For those who are truly living and working in the principality, the income tax break is one of the most appealing benefits of calling the Principality home.
Monaco only taxes inheritance and gifted assets that are physically located within the Principality, regardless of the deceased’s or donor’s nationality or residence. Once again, French citizens remain subject to French law as explained in the 1950 Convention between France and Monaco.
The corporate income tax rate ranges from 0% to 33%, other taxes include stamp duty, taxes on insurance contracts, registration fees, and more.
With no income tax, how does Monaco fund its government?
Taxation remains the primary source of revenue for the Monégasque state budget. As indicated in the official Focus: Public Finances 2023 [2], over half of the budget is supported by the revenue generated from the Value Added Tax (VAT), which is set at the same 20% standard rate used in France. This VAT is applied to goods and services within Monaco, despite the principality’s unique tax system. Additionally, it benefits from a range of other revenue sources, including taxes on business activity, tourism, and its state-owned enterprises, such as the world-famous casinos in the Monte Carlo area.
Another standout feature of Monaco’s tax system is the absence of capital gains tax. Coupled with its lack of income tax, this creates a strong incentive for individuals with large enough investment portfolios to consider relocating and liquidating assets in the principality without incurring taxes on profits. However, the sale of real estate in Monaco is subject to a 4.5% to 4.75% registration fee (or transfer tax), applied to the transfer of property and property rights.
Monaco: More Regulated Than You Think
Is Monaco really an offshore tax haven? Not quite. Despite being frequently compared to places such as the Cayman Islands or Bermuda, it is far more regulated due to its close ties with France. As a global business hub, the principality is home to a high concentration of financial professionals under French banking laws. This means that Monaco’s banks are subject to the same level of regulation as those in France. Interestingly, many of Monaco’s banking clients are non-residents.
Can You Move to Monaco?
Any foreign national over the age of 16 who wishes to move to Monaco must apply for a residence permit from the Monégasque authorities. All applicants for Monaco residency must meet several key requirements.
- First, they must have accommodation in Monaco, either by owning or renting a property.
- Applicants must also demonstrate sufficient financial resources. This can be done through one of the following options:
- a salary from employment in Monaco, professional income as a self-employed individual or company director,
- a significant bank deposit, or financial support from a spouse, partner, or close relative. While the exact amount required may vary, €1 million is generally considered the minimum deposit expected by Monégasque banks.
In addition to these financial and accommodation requirements, applicants must have a clear criminal record and provide proof of health insurance covering Monaco. Nationals from non-European Economic Area (EEA), countries must first apply for a visa through the French Embassy before requesting a residence permit, as Monaco relies on French embassies and consulates for many procedural matters.
Tax Relations Between Monaco and France
Tensions between Monaco and France escalated over France’s desire to control the principality in the early 1960s, partly driven by fears of American influence through Princess Grace. The crisis began over the control of Télévision Monte-Carlo, but at its core was France’s frustration with Monaco’s status as a tax haven, attracting wealthy French citizens and companies. France demanded a renegotiation of tax treaties, and when talks broke down, it imposed a blockade on Monaco in 1962. The blockade was short-lived, but the principality feared essential services could be cut off.
The crisis ended with a series of agreements in May 1963, that introduced new taxes on companies and French citizens in Monaco. These measures aimed to curb tax avoidance by French nationals moving to Monaco, while maintaining the principality’s tax benefits for residents of other nationalities.
Grace Kelly was an iconic American actress who became Princess after marrying Prince Rainier III of Monaco in 1956.
Tax relations between Monaco and France are mostly governed by two key agreements: the 1950 Treaty and the 1963 Franco-Monégasque Tax Treaty. The 1950 Treaty primarily addresses inheritance tax rules, while the 1963 treaty focuses on income taxation for both individuals and companies. French nationals residing in Monaco are generally subject to French income tax, as opposed to Monégasque and non-French foreign residents. Additionally, French citizens who moved to Monaco after 1988, remain subject to French wealth tax on their worldwide assets.
When it comes to governance, while Prince Albert II is the head of state representing the country in foreign relations, the Minister of State in Monaco manages it alongside a cabinet of councilors, each responsible for a specific ministry. Typically serving a three-year term, the position has existed since Monaco became a constitutional monarchy in 1911. Until the 2002 constitutional revision, the Minister of State had to be a French citizen, selected from senior civil servants proposed by the French government. Since 2002, the Prime Minister can be either French or Monégasque, chosen and appointed by the Prince after consulting with the Government of France.
As a result, French nationals residing in the principality are still subject to France’s progressive income tax system going up to 45%, along with additional social charges. The highest tax rate applies to those earning €177,106 or more annually.
Real Estate in Monaco
Due to high demand and limited space, the real estate market in the principality is one of the most expensive in the world. A key contributor to its economy, real estate represents the second most important source of revenue for Monaco [2]. The average price per square meter of resold real estate in the principality reached approximately €51,000 in 2023 according to the Real Estate Observatory 2023 [4]. This marks a 38% increase over the past decade, up from €37,000 in 2013, reflecting an average annual growth rate of 3.6%.
The high demand for properties in Monaco, particularly luxury real estate, continues to drive these impressive figures. For newly constructed apartments, more than 60% were sold for over €20 million, with a select few breaking the €100 million barrier.
The real estate market of Monaco is shaped by its tiny size which creates a highly competitive and limited supply. Combined with its status as a luxury destination, prices may continue to stay high and increase.
Is There a Future for Monaco?
The future of Monaco looks bright! This is thanks to its prime location, strong political ties, favorable tax system, and reputation as a luxury hotspot for the world’s wealthy. Despite its small size, the principality continues to attract high-net-worth individuals and remains home to one of the most exclusive real estate markets in the world. While these factors benefit current residents and property owners, they represent major obstacles for newcomers. The high demand for space, coupled with limited supply, drives the cost of living to astronomical levels. With its small population, Monaco is often overlooked in global statistics. However, its GDP per capita is more than double that of Luxembourg, widely regarded as the country with the highest GDP per capita in the world.
Although Monaco offers low taxes compared to neighboring European countries, it is not a tax haven for French nationals. For many, the high cost of living, driven by limited resources and the influx of wealthy tourists, far outweighs any tax savings.
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Cover Image: Flag of Monaco (1881)
References
- Settling in the Principality of Monaco, published by La Principauté de Monaco in 2012. ↩︎
- Focus: Public Finances 2023, publihed by Monaco Statistics. ↩︎
- Focus: Public Finances 2023, publihed by Monaco Statistics. ↩︎
- Real Estate Observatory 2023, published by Monaco Statistics. ↩︎
