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 taxation laws and policies, which are relatively lax in comparison to most nations'.
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.
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 in the event that 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.
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. In addition, companies within Monaco will have profits taxed if they engage in selling the licensing of trademarks, patents, manufacturing processes or artistic copyrights.
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.