Overview of Doing Business in Monaco
(Article in 1994 Off Shore Financial Yearbook)
By: James P. Duffy, III
The Principality of Monaco is a
sovereign state with its own royal family, parliament, constitution, and laws.
S.A.S. Prince Rainier III, the current sovereign, traces his lineage to Guelfe
François Grimaldi in the thirteenth century.
Located by the sea near France's
south-eastern border with Italy, the Principality is a small state of about 456
acres. Well known throughout the world as an international business center with
an exceptional climate, Monaco has excellent cultural, educational, medical and
sports facilities. In addition to an intense business and international
conference activity, Monaco offers ballet, concert and opera performances, golf
and tennis tournaments, and international car races, such as, the Monte-Carlo
Rally and the Formula One Grand Prix, as well as a multitude of other events.
The business or non-business
traveler has ready access to London, Milan, New York, Paris, and other major
cities through nearby Nice International airport. Rail and road networks provide
alternative means of transport to other parts of Europe.
French is the official language,
but English and Italian are widely spoken, particularly in international
The Principality has a
code-based legal system that is often similar to the French system. However,
there are important differences between the two systems.
Investment in Monaco
No permission required.
A foreigner does not generally need to be a resident in Monaco or to get
permission from the government to invest. Thus, the foreign investor may
purchase and sell securities through one of the many well-known international
banks and brokerage houses, own shares in a mutual fund, open a non-resident
bank account, or acquire realty. Additionally, civil companies are easily formed
to own realty and for other forms of non-commercial investment. Prior
governmental approval is not currently required to form a civil company. The
general practice is to form the civil company with the minimum capital of 10,000
Frs. in about a week. The registered office must be in Monaco.
foreigner whose national law permits trusts may create a Monégasque trust
governed by his or her own national law. To form the trust, the founder must get
a deed of trust from a Monégasque notaire (an important legal official) and the
opinion of a lawyer listed with the Monaco court as an expert that the trust
complies with that foreigner's national law. Trustees must also be chosen on a
list maintained by the Monégasque court. Exceptionally, a co-trustee who is not
listed with the court may be appointed for one single trust in Monaco.
Trusts are subject to a 1.3% to
1.7% registration tax depending on the number of beneficiaries. The tax is
calculated on the value of the trust's assets at the time they are transferred
to the trust. Monégasque securities included in a trust's assets are taxed at a
reduced rate of 0.05% to 0.45%. The rate will also depend on the number of
The trust deed may expressly opt
for an annual registration tax of 0.20% instead of taxation at the time of
transfer of the assets to the trust. In that case, any Monégasque securities
will still be taxed at the special reduced rate. The trust is not subject to any
gift taxes or death duties.
Descent and Distribution.
The Principality has forced heirship laws in favor of direct heirs or close
parents. However, Monaco looks to a foreigner's national law to determine the
applicable law for distribution of personal property on death. Foreigners who
plan to reside in Monaco should find out if their national laws renvoi to Monégasque
law in such a case.
Thus, a foreigner who qualifies
may want to explore use of a trust to protect local realty (or personal property
in case of renvoi) from the forced heirship laws.
There is no inheritance or
estate tax on transfers in direct line or between spouses. In other cases, the
inheritance tax rate for residents will be 8%, 10%, 13% or 16%, depending on the
family relationship between the transferor and the transferee.
Doing Business in the Principality
Government approval is
required. One important difference between France and Monaco is that prior Monégasque
governmental approval is always required before a foreigner may engage in
commercial, industrial or professional activities inside or from Monaco.
Governmental authorization is discretionary, but will generally be granted if
the government considers the activity will be worthwhile for the Principality,
and the foreigners have a good reputation, experience and solid financial
backing. The activity must also be one that foreigners may lawfully engage in.
The choice of an appropriate
form of doing business will depend on several factors, such as the type of
business activity, the location of its sales, and the personal situation of its
directors and officers. The simplest form is the establishment of administrative
offices or commercial agencies in Monaco:
The administrative office is often the branch office of a foreign company. The
applicant agrees to allocate a minimum budget to its administrative office and
is taxed on a percentage of the office's operating cost. The effective rate of
taxation is 2.8% or 10.5% of the office's total operating cost, depending on the
scope of the office's activities. The governmental approval process for an
administrative office generally takes three months, assuming the file is
An administrative office cannot
do business in its own name.
After getting approval from the government, commercial agents are listed on a
special register. A commercial agent must provide at least one agency agreement
to get authorization to do business in Monaco and must supply information on his
or her background, including financial information. The commercial agent who is
not in breach of contract, is entitled to special compensation on termination of
the agency, even when the agency agreement prohibits it.
The simplest forms of companies
are the partnership ("société en nom collectif") and limited
partnership ("sociétés en commandite simple et par actions").
However, foreigners often prefer to seek permission to form a corporation in
order to get limited liability.
The Monégasque government
currently requires a minimum capital of 1,000,000 Frs. for a Monégasque
corporation ("société anonyme monégasque" or "SAM"),
which must be paid-in shortly after the formation meeting that follows
governmental approval. In recent years, the Principality has become very
selective in authorizing SAM's. This has created something of a market for the
sale of existing SAM's. However, Monégasque law does not authorize any major
change in activity for existing SAM's. Additionally, any change in a SAM's
purpose clause is subject to prior governmental approval.
The SAM must have at least two
directors, one of whom should plan on residing in Monaco, and a local address
for its registered office. The SAM must effectively engage in business or the
government will ultimately withdraw its charter. Additionally, the authorities
will not tolerate letter-box addresses or purely financial holding companies.
Would-be directors and
shareholders can expect to be required to provide background information as part
of the approval process, including accounting statements for the last three
years of activity. To avoid incurring unnecessary fees and expenses, the
prospective shareholders and management should plan, before starting the
approval process, on a preliminary contact with the finance ministry and, when
necessary, any other government administration, in order to determine the
likelihood of getting permission for the SAM. Experience also shows that it is
appropriate to involve a notaire as soon as possible, particularly in preparing
the SAM's purpose clause and articles of incorporation, and to review the
application file informally with the commerce department before formally
submitting it. The governmental approval process for a SAM generally takes about
Actual formation of a SAM
requires a notaire whose percentage fee of 0.9% is calculated on capital. There
is also a registration tax of 1.5% on capital. Other costs of around 25,000 Frs.
should be anticipated, including the cost of official notices in the local
gazette ("Journal de Monaco").
A SAM requires one or two
statutory auditors, depending on the amount of capital, who are chosen from a
list of locally registered experts ("commissaires aux comptes").
A SAM may not change the address
of its registered office inside Monaco without prior regulatory approval, which
will generally be granted if the move is to an appropriate location.
Income Tax. The
Principality does not have personal income or withholding taxes. French citizens
who were not resident in Monaco for 5 years or more on October 13, 1962, or who
are not otherwise exempt under the Franco-Monégasque Tax Treaty of May 18,
1963, are subject to French taxation as if they reside in France, even though
they live in Monaco. France is the only country that has a tax treaty with
Businesses are subject to
commercial and industrial profits tax at 33 1/3%, as soon as 25% or more of
their gross income comes directly or indirectly from outside the Principality.
The effective impact of the tax needs to be evaluated case-by-case.
Companies are also subject to
the 33 1/3% profits tax on income from intellectual property rights.
VAT. The most
prevalent value-added tax rates are 18.6% and 5,5%. The 18.6% rate is the
standard rate. However, the 5.5% rate applies to many products, such as medical
supplies, electricity, gas and water, as well as to certain services, such as
public entertainment, public transport and travel agencies.
Generally, registration tax is levied on documents or certificates prepared by
notaires or bailiffs, court decisions, lease agreements, sales agreements for
shops, wills, transfers of real estate located in Monaco and certain corporate
transactions and documents. Agreements that are not made before a notaire
("actes sous seing privé"), or that are concluded outside Monaco and
do not involve real estate in Monaco, are only subject to registration tax if
used as evidence in Monégasque legal proceedings. The rate of taxation will
vary considerably depending on the instrument. For example, an accounting
statement or sales agreement for an automobile is subject to a flat 5 Frs. tax,
whereas the sale of certain realty is subject to a 6.5% tax on the price plus a
1% title recordation fee. Certain instruments, such as birth or death
certificates or mortgage registry extracts are exempt from registration tax.
Many legal instruments need to be written on "stamped" paper, in fact
paper on which tax stamps are affixed. The rate depends on the legal nature of
the instrument, such as certain forms of commercial paper, including promissory
notes, most receipts, and official documents, such as work permits, officially
certified copies and mortgage registry extracts.
The Principality is part of France for customs and monetary purposes. Thus,
goods manufactured in Monaco are not subject to tariffs in the European Union.
Additionally, Monaco benefits from the progressive abolition of exchange
controls in France.
The Principality is a signatory
to the Convention of Paris on the Protection of Industrial Property, the
Arrangements of Madrid and Nice, and the European Patent Treaty.
Foreigners may reside in the
Principality for up to three months at a time without a residency permit.
However, anyone planning on significant presence and activity in the
Principality should apply for residency.
Any non-French foreigner who
wants to apply for residency in the Principality is required to apply first for
a French long-stay visa at the French Consulate nearest his or her place of
residency. The applicant will need to include the French long-stay visa with his
or her request to the Monégasque authorities ("Sûreté Publique")
for a Monégasque residency card, along with evidence of residency in the
Principality. Residency is evidenced by ownership of property or a residential
The applicant will also need to
show as part of the residency card application that he or she is legally
employed in the Principality under a currently valid employment agreement or to
provide a comfort letter from a local bank that the applicant has appropriate
means of support.
Residency cards are initially
issued for yearly periods during the first three years, followed by three year
periods over the next nine years. After which, the authorities may issue a ten
year residency card. Issuance and renewal of residency cards is discretionary
with the authorities.
The applicant for a Monégasque
residency card does not have to disclose the amount of his bank account or a
fortiori his world-wide financial situation, but can expect to be asked to
supply a police record and information on his background and activities.
The Service des Etrangers
insists on interviewing the applicant personally before issuing a residency
Legislative and Regulatory Developments in 1994
The Fight against
International Crime. The Fight against Money-Laundering from
Drug-Trafficking and Organized Criminal Activities: The Principality of Monaco
created the "Service d'Information et de Contrôle sur les Circuits
Financiers" ("SICCFIN"), which is the governmental department
that reviews and investigates reports by financial institutions, casinos and
certain professionals, whenever they suspect they are handling funds from drug
trafficking or from organized criminal activities (see, The OFC Report
1994/95, Banking, "Monaco's new rules to beat money-laundering," page
69, for a discussion of Law No. 1,162).
To date, the SICCFIN has
examined 33 transactions referred to it by the banks and conducted 10 oral
investigations. The SICCFIN has referred three matters to the public
prosecutor's office. Mr. Riey, the SICCFIN's director, says the cooperation of
the banks has been excellent. Mr. Deflassieux, president of the Monégasque
banking association ("Association Monégasque des Banques"), says all
banking matters remain strictly confidential, except for customers who break the
The Principality of Monaco and
France signed an administrative cooperation agreement on October 17, 1994,
authorizing the exchange of financial information about funds from drug
trafficking or from organized criminal activities. In response to a
parliamentary question, Mr. Jean Pastorelli, the Principality's Minister of
Economy and Finance at the time, said the Monégasque and French authorities
would exchange information whenever the suspect behavior or conduct is illegal
under the laws of both countries.
The Principality recently
modified its attachment procedures to henceforth authorize creditors to
temporarily block funds, securities or other movables owed to their debtors,
that are in the possession of third parties. A petition should be filed with the
court clerk's office stating the amount owed. The office issues a receipt which
is served on the third party.
The payor's right to block
payment of a check is restricted to cases of loss, theft, fraudulent use or the
The Principality ratified the
following treaties: The Conservation Treaty on Wildlife and Nature in Europe;
The United Nations Treaty on Global Warming; the Treaty on Biological Diversity;
The European Treaty on Culture; and the Treaty on Conciliation and Arbitration
within the frame-work of the Conference on Security and Cooperation in Europe.
The United Nations
In an interview published in
Monaco Actualité dated March 1994, SAS Prince Rainier III considered United
Nations membership was the single most important event for Monaco since 1985,
along with completion of the Fontvieille district conquered from the sea. Crown
Prince Albert is the head of the Monégasque delegation at the United Nations.