The Principality of Monaco, located on the French Riviera in Western Europe, is considered a high-profile tax haven because of its personal and business tax laws and policies, which are relatively lax in comparison to most other nations.

Key Takeaways

  • Monaco is considered a tax haven because of its tax laws and policies.
  • A person must live in the principality for six months and one day out of the year to be considered a resident.
  • Monaco does not collect capital gains taxes and does not levy net wealth taxes.
  • There are no property taxes in Monaco, but rental properties are taxed at 1% of the annual rent plus other applicable charges.
  • Monaco eliminated taxes on dividends paid by local companies' stocks and does not charge a general corporate income tax.

Personal Income Tax Avoidance

Since 1870, Monaco has not levied a personal income tax on its residents. To be considered a resident, a person must live in the principality for six months and one day out of the year. Considering the strategic location of Monaco, which is easily accessible by airplane, boat, or train, it is very common for residents of the principality to work and even live in other countries in Europe.

For example, in the United Kingdom, nonresidents are allowed a 90-day stay. Many businesspeople residing in Monaco work in the United Kingdom without surpassing the 90-day limit, which in turn makes them subject to Monaco tax laws—so any income earned in the UK avoids UK taxation. Many countries in Europe consider this tax evasion and try to impede it. For instance, French nationals residing in Monaco are subject to French income taxes, unless they can prove at least five years of habitual residence in Monaco.

Capital Gains and Wealth Tax

Residents of Monaco do not pay capital gains taxes, though current or prior French residents may be subject to some amount of taxation. Monaco also does not levy net wealth taxes. Nevertheless, French citizens who transfer their residence or domicile to Monaco will have their worldwide property subject to France's net wealth tax.

Although Monaco is known for financial secrecy, there have been increased efforts for transparency agreements with other countries.

Property Tax

Generally, there are no property taxes in Monaco, though rental properties are taxed at 1% of the annual rent plus other applicable charges. There is a 33.3% tax on profits if real estate is sold. However, losses on the sale of real estate can be carried forward for up to five years to offset any gains on other sales.

33.3%

The amount of tax on the profits of real estate sales.

Business Taxation

In 1963, Monaco eliminated taxes on dividends paid by local companies' stocks. Along with a large amount of data privacy, these policies greatly increased foreign investment in the principality. There isn't a general corporate income tax in Monaco either, but through a treaty that the principality has with France, certain types of business activities do have profits taxed—as in the case of companies that have 25% or more of their operations occurring outside of Monaco. Also, companies within Monaco will have profits taxed if they engage in selling the licensing of trademarks, patents, manufacturing processes, or artistic copyrights.

Privacy

Monaco is known for financial secrecy—maintaining a high degree of data privacy within its banking system—although it has been signing transparency agreements with other countries of late.