Corporate Tax 2022 Comparisons

Corporate Structures

Businesses set up in Monaco usually adopt a corporate form, however, private persons can also perform a business as sole traders and they will be registered in the Principality as such.

For the development of a commercial activity, the most common corporate forms are:

• the Monegasque public limited company (Société Anonyme Monégasque or SAM);
• the limited liability company (Société à Responsabilité Limitée or SARL).

The SAM’s company purpose may be of commercial or civil nature, making it suitable for commercial and non-commercial activities. However, it is mainly seen with a commercial purpose.

The choice between these two types of corporate form depends on facts and circumstances, specific to each business’ profile and objectives, because their corporate governance and share capital requirements vary.

There are also other corporate forms such as the general partnership (Société en Nom Collectif or SNC) and the limited partnership (Société en Commandite Simple or SCS). They are specific corporate forms where the liability of the partners is joint and unlimited:

• for all partners in the SNC; or
• for the general partners (associés commandités) in the SCS.

As regards sole traders, it should be noted that there is no separation between the personal assets and the private assets which entails a direct risk on the personal assets.

Furthermore, investors may set up a civil company: the private property company (Société Civile Particulière or SCP). It however shall have a civil purpose. Hence, it is not suited for developing a commercial business (see 1.2 Transparent Entities).

Finally, there are also financial investment structures (funds): the Fonds Commun de Placement (FCP) and Fonds d’Investissement (FI).

Tax Treatment

General considerations on the scope of the Monegasque Corporate Income Tax (CIT)

Monegasque enterprises are subject to CIT if they carry out commercial or industrial activities in or from Monaco and if at least 25% of their turnover is derived from operations carried out directly or indirectly outside Monaco.

Monaco CIT rules provide for examples of what should be regarded as an operation carried out outside of the Principality’s territory. For instance, services are regarded as generating turnover outside Monaco if they are used or exploited outside Monaco.

Since the above provisions refer to “enterprises” in a broad sense, CIT can apply to both Monaco-based companies and sole traders.

CIT can also apply to local branches and permanent establishments (under the form of either a fixed place of business or a dependent agent) of foreign corporations.

The specific situation of intellectual property income

CIT applies to companies, irrespective of whether their turnover is realised in Monaco or abroad, whose activity in Monaco consists in receiving income from:

• the sale or licensing of patents, trade marks, manufacturing processes or formulas; or
• literary or artistic copyrights.

The most used tax transparent entity in Monaco is the SCP. It is commonly used to hold real estate for private and family needs. Further, the SCP allows the detention of a diversified asset portfolio since it can also hold movable assets.

Given its civil nature, the SCP is most often not subject to CIT and cannot opt for it either. The SCP is tax transparent and tax is paid by the shareholders depending on their own tax residency and tax regime.

The only exception to the above is the SCP owning income-generating intellectual property. In this particular situation, see 1.1 Corporate Structures and Tax Treatment (The specific situation of intellectual property’s income), the SCP is subject to CIT and thus is not tax transparent.

Monegasque tax law does not include a general definition of the tax residence of legal persons, thus, there are no special rules that would define the conditions for transparent entities to be Monegasque tax residents.

Should the Monegasque tax authorities reflect upon the tax residence of a given company, they would (i) refer to the applicable bilateral tax treaty (if any) and (ii) use the international guidelines provided by the OECD and in particular Article 4 of the OECD Model Tax Convention on Income and Capital on the concept of residence and the related OECD Commentaries, in order to have a definition of the residence on which grounds assess this given situation.

In this context, situations are assessed on a case-by-case basis.

Note that in the bilateral tax treaties signed by Monaco, a resident is usually defined as “any person who, under Monegasque law, has its domicile, its residence or its place of management in Monaco and also applies to Monaco and all its local authorities” and the conflict of residence for legal persons is usually settled by using the concept of effective place of management.

In practice, a company is often considered to be a Monegasque tax resident if it is headquartered in Monaco or has its effective place of management (siège de direction effective) in Monaco.

Incorporated businesses and sole traders are subject to CIT in Monaco. They are taxed at 25% (current CIT rate for tax year 2022). It was 26.5% for 2021, 28% for 2020, 31% for 2019 and 33.33% before.

Profits realised by Monegasque SCPs are taxed in the hands of their shareholders (see 1.2 Transparent Entities).

Enterprises subject to CIT are taxed on their worldwide income (see 6.1 Foreign Income of Local Corporations for indications on the exclusion of certain foreign income).

The tax base is equal to the accounting income of the tax year (calculated in accordance with Monegasque accounting principles), to which certain tax adjustments are applied (add-backs and deductions).

Most Substantial Add-Backs

Expenses are normally tax deductible except if:

• they are connected with exempt foreign income (see 6.1 Foreign Income of Local Corporations);
• they do not meet the arm’s length principle (see 4.4 Transfer Pricing Issues);
• a special rule prevents their tax deductibility.

Below are some examples of these special rules.

• Monegasque CIT law provides for various limitations to the tax deductibility of financial expenses (see 2.5 Imposed Limits on Deduction of Interest).
• Reserves (provisions) are tax deductible provided that:
1. they are correctly recorded in the financial statements;
2. they are mentioned in the statement of reserves included in the CIT return;
3. the underlying expense or loss is clearly identifiable and probable based on ongoing events; and
4. they have not become purposeless.
• Monegasque CIT law provides for limitations to the tax deductibility of directors’ fees. The applicable rules depend on the activity and turnover of the company at stake.
• Monegasque CIT law prevents the tax deductibility of the so-called “extravagant spendings” (or “sumptuary expenses”). Indeed, whether they are borne directly by the company in the form of lump-sum allowances or reimbursement of expenses, the following are non-tax deductible:
1. expenses related to hunting and non-professional fishing;
2. expenses, except those of a social nature, resulting from the purchase, rental or any other operation carried out with a view to obtaining the disposal of recreational or pleasure residences, as well as the maintenance of these residences; and
3. expenses resulting from the purchase, rental or any other operation carried out with a view to obtaining the disposal of yachts or pleasure boats with sail or motor, as well as their maintenance.
• Certain fees, royalties, brokerage and commission fees paid to Monegasque residents are tax deductible provided that there is no “dependency link” between the recipient and the paying company, and the payer provides sufficient evidence to establish that the act or undertaking under which such payments are made is genuine and cannot be regarded as concealing profit shifting.

Most Substantial Deductions

For instance, dividends eligible to the participation exemption regime are non-taxable (see 6.3 Taxation on Dividends from Foreign Subsidiaries).

R&D Tax Credit

Monaco has a R&D tax incentive scheme, providing for a tax credit for eligible R&D expenses.

The R&D tax credit amounts to 30% for the portion of eligible expenses up to EUR100 million and 5% for the portion exceeding this amount. It is capped at EUR10 million.

The R&D tax credit is netted off against CIT for the year in which the R&D expenses were incurred.

Sometimes the tax credit cannot be entirely set off against the CIT payable by the company. Indeed, the tax credit may not be applied for more than half of the amount of CIT owed by the company for the year during which the R&D expenses taken into account for the calculation of the tax credit were incurred. The excess can be carried forward for five years, with the same limitation (half of the amount of CIT each year). After this period, the unused portion of the tax credit cannot be carried forward or refunded.

Patent Box

Monaco has no patent box regime.

Three of the incentives are described below.

Temporary Exemption from CIT for Newly Created Businesses

Subject to certain conditions, newly incorporated legal entities are entitled to a progressive CIT exemption scheme for five years as from their incorporation.

The conditions relate mainly to the type of activity performed and the shareholding structure.

They are fully exempt from CIT for the first two years and benefit from a partial CIT exemption for the third to fifth years, as follows:

• third year – 25% of the tax base is subject to CIT;
• fourth year – 50% of the tax base is subject to CIT; and
• fifth year – 75% of the tax base is subject to CIT.

Philanthropy

Under conditions, profits derived from profit-generating operations carried out by social or philanthropic organisations are exempt from CIT.

International Maritime and Air Operations

There is a special tax regime for certain activities in connection with international maritime or air operations.

Carry-Forward of Tax Losses

Tax losses may be carried forward indefinitely and netted off against the taxable income realised during the following tax years. However, the amount of tax losses carried forward that can be netted off against taxable income of a given tax year is capped at EUR1 million plus 50% of the portion of taxable income exceeding that amount.

In other words, there is a minimum taxable profit for each tax year in so far as the profits realised during that year exceed EUR1 million.

If the taxable profits are not sufficient for the offset to be made in full, the excess of tax losses is carried forward under the same conditions the following years.

The same applies to the fraction of the tax losses that cannot be offset in application of the cap indicated above.

Carry-Back of Tax Losses

Under certain conditions, tax losses may also be carried back, upon election, to offset the taxable income of the previous tax year only, caped to the higher amount between EUR1 million and the taxable income of that previous year.

The excess results in a tax credit that can be used during the following five years and is refunded after that period.

Monegasque tax law provides for three different limitations to the tax deductibility of interest expenses.

The Maximum Interest Rate Rule

Interest paid by a Monegasque company to its shareholders is generally deductible provided the interest rate charged does not exceed a maximum interest rate, which is determined as per a foreign banking rate.

The Limit Depending on the Monegasque Company’s Share Capital

Interest paid by a Monegasque company to its controlling shareholders (ie, who in law or in fact control the company) are not tax deductible when the aggregate sum of the shareholders’ loans exceeds 50% of the borrower’s share capital.

Limitations to the Tax Deductibility of Net Interest Expenses

General cap

Net interest expenses are tax deductible up to the higher of the following two amounts:

• EUR3 million per tax year; or
• 30% of the taxable income subject to CIT plus net interest expenses, amortisation and reserves allowed for deduction, as well as capital gains and losses on assets disposal, and before offsetting tax losses carried forward (this is the so-called “tax-adjusted EBITDA”).

Net financial expenses are defined, for a given tax year, as the excess of deductible financial expenses over taxable financial income and other equivalent income received by the company.

Non-deductible interest expenses may be carried forward with no time limit.

Unused deduction capacity may also be carried forward for five years.

For thin capitalised companies

If the event of related party debt (ie, debt from associated companies – see the definition below), where the average yearly amount granted to the borrower by such companies exceeds a debt-to-equity ratio of 1.5:1, net interest expenses accrued on related party debt are tax deductible only up to the higher of:

• EUR1 million per tax year; or
• 10% of the “tax-adjusted EBITDA”.

In this respect, associated companies are defined as follows:

• one company, directly or through an interposed entity, holds the majority of the share capital of the other or exercises the power of decision over the other; or
• both companies are under the control of a third entity.

Non-deductible interest expenses may be carried forward but only for one third of their amount.

Thin-capitalised companies may not carry forward their unused deduction capacity.

There are no tax consolidated groups in Monaco.

The taxable income includes capital gains, which is regarded as ordinary business income, except when incentive schemes apply.

The Reinvestment Commitment

Under certain conditions, capital gains realised during the life of the company upon the sale of fixed assets are exempt from CIT if the company makes a commitment to reinvest, within a three-year period, the amount of the capital gains increased by the cost price (prix de revient) of the assets sold, in certain qualifying assets.

The non-qualifying expenses include for instance the acquisition of certain movable or immovable property of a sumptuary nature when they are not acquired in the interest of the company's entire staff.

Capital Gains on Goodwill (Fonds de Commerce) at the End of a Business

Under certain conditions, capital gains realised on a goodwill at the time of the death of an individual sole trader or at the time of the sale or termination of his/her business, are exempt from CIT provided the business is continued by specified persons (for instance one or more heirs in direct line or the surviving spouse). 

Capital Gains on Fixed Assets at the End of a Business

Under certain conditions, capital gains deriving from fixed assets upon the sale or termination of a business may benefit from tax base reductions:

• only one half of the capital gain is taxable if the sale or termination of the business takes place less than five years after its establishment or acquisition; and
• the taxable portion is reduced to one fifth if the sale or termination takes place more than five years after the establishment or acquisition of the business.

Capital Gains Derived from Certain Reorganisations

Under certain conditions and in particular commitments to be taken by the absorbing company, capital gains derived from certain reorganisations (mergers) are exempt from CIT.

Registration Duties

Registration duties have a wide scope of application.

In particular, companies that enter into a transaction for the acquisition of assets may have to pay Monegasque registration duties. For instance:

• the acquisition of real estate assets located in Monaco is subject to a registration duty of 7.5% (or 4.5% under certain conditions);
• the acquisition of shares in a SAM, which registration is optional, is subject to a registration duty of 1%;
• the acquisition of shares in a SARL is, in practice, subject to a registration duty of 1%; or
• the acquisition of shares in a SCP is subject to a registration duty of 1% (except if the SCP holds, directly or indirectly through other civil companies, real estate property or rights relating to real estate situated in Monaco, because in this situation the registration duty is either 4.5% or 7.5%).

Registration duties are generally computed based on the higher of:

• the purchase price; or
• the fair market value of the asset.

Stamp Duties

Stamp duties are levied at the time of registration of certain documents (leases, shareholders meetings minutes, transfers of shares, etc).

Value Added Tax (VAT)

The European Union’s VAT applies in Monaco because for the purpose of this tax Monaco and France form a single territory and a customs union.

VAT is classically levied on the supply of goods and services, in exchange for consideration, by a taxable person carrying out an economic activity.

The standard rate of VAT is 20% in Monaco but reduced rates can also apply.

Special Tax on Insurance Contracts

A special annual tax applies to payments made for the benefit of insurers in respect of specified types of insurance contracts. The rate varies depending on the nature of the insurance contract.

Other Taxes

Other specific taxes may apply, for instance:

• a 11% tax on precious metal sales; and
• taxes on certain beverages.

“Closely held businesses” is not a distinct category of business or corporation in Monaco.

Small local businesses are usually set up either as sole traders or as corporations when there is more than one individual involved in the business (mainly SARLs because they have lower share capital requirements than SAMs).

The tax transparent entities (SCPs) cannot be used to perform commercial activities (see 1.1 Corporate Structures and Tax Treatment).

The same CIT rate applies to both corporations (eg, SAMs and SARLs) and sole traders when they are subject to CIT in Monaco.

However, if a “closely held” local business focuses on the Monaco market, it will not be in the scope of CIT.

There are no limitations on the amount of earnings that can be accumulated by Monegasque companies.

There is no personal income tax in Monaco. Thus, Monaco will not tax a Monegasque tax resident individual on dividends’ income nor on gains from the sale of shares.

There is no personal income tax in Monaco. Thus, Monaco will not tax a Monegasque tax resident individual on dividends’ income nor on gains from the sale of shares.

There are no withholding taxes in Monaco.

Monaco has signed 36 tax information exchange agreements, tax assistance agreements and so-called “double tax treaties”, out of which 33 are in force.

While some of these treaties are “double tax treaties” (the ten in force signed with Guernsey, Liechtenstein, Luxembourg, Mali, Malta, Mauritius, Montenegro, Qatar, Saint Kitts and Nevis and Seychelles) which aim at avoiding double taxation, many treaties simply cover exchange of information in tax matters.

In this context, foreign investors would tend to use the ten double tax treaties signed by Monaco, as well as the one signed with France which has a particular format but covers income taxes, VAT and other tax matters.

However, because of the absence of withholding taxes in Monaco, foreign investors can also be established in any country, even one which has not signed a double tax treaty with Monaco. Nevertheless, in this situation, there would be no legal security, for instance should a situation of tax residency conflict arise and need to be solved.

The use of treaty country entities by non-treaty country residents may be challenged by the Monegasque tax authorities based on the “anti-abuse” provisions included in the double tax treaties (see 7.1 Overarching Anti-avoidance Provisions).

Monaco’s CIT provisions include the need to perform transactions (eg, transfer of goods and assets, provision of services, royalties) under normal conditions (this is the so-called “arm length principle”), between affiliated companies, but not only.

These provisions, together with the Country-by-Country (CbC) reporting (see 9.11 Transparency and Country-by-Country Reporting), constitute the only transfer pricing requirements included in Monegasque tax provisions. However, they are broadly drafted so that they cover various situations.

• Commercial or financial transactions between a Monegasque company and non-resident individuals or legal entities (affiliated or not) must be carried out under arm’s-length conditions. When the conditions established cannot be considered as normal, the operations are reinstated in the accounts of the Monegasque company, as they should have been for the assessment of CIT and VAT.
• This is the case, in particular, when a Monegasque company grants or imposes on a foreign company in whose capital or management it participates conditions different from those which would exist in a normal market or resulting from the application of the usual rates for the provision of services.
• Similarly, for the purpose of determining the tax due by Monegasque companies that are under control of or control companies located outside the Principality, profits indirectly transferred to the latter, either by way of an increase or decrease in purchase or sale prices, or by any other means, are reinstated in the taxable results.

As of now, there is no Monaco tax case law on related-party limited risk distribution arrangements.

As within any intra-group relationship, the way the limited risk distribution arrangement is designed should follow the Monegasque transfer pricing requirements.

Yet Monaco embraces the arm’s length principle and implemented the CbC reporting (because it is a minimum standard issued of Action 13 of BEPS Project), Monaco transfer pricing legislation is not as dense as the OECD’s standards.

For instance, Monaco has no master/local file filing requirements.

However, as regards the assessment of the respect of the arm’s length principle and transfer pricing methods, in practice, the Monaco tax authorities would refer to the OECD Transfer Pricing Guidelines.

International transfer pricing disputes are not resolved through mutual agreement procedures (MAPs):

• the OECD “Making Dispute Resolution More Effective – MAP Peer Review Report, Monaco (Stage 1)” indicated that Monaco had no experience with resolving MAP cases as it had not yet been involved in any cases (report published on 24 February 2020);
• the OECD “Making Dispute Resolution More Effective – MAP Peer Review Report, Monaco (Stage 2)” also indicated that Monaco had no experience with resolving MAP cases as it had not yet been involved in any cases (report published on 24 January 2022);
• the latest version of the OECD MAP Statistics per jurisdiction, released on 22 November 2021 for 2020, indicates that Monaco still has not dealt with MAP cases.

There is no provision on compensating adjustments in Monaco’s domestic tax law.

Monaco’s transfer pricing dispute settlement policy is not yet developed, at least it has not been made public in a tax doctrine (since there is no), thus we cannot provide a tendency on this topic.

Monegasque branches of foreign corporations are taxed the same way as Monegasque subsidiaries of foreign corporations.

Indeed, should they meet the requirements to be in the scope of CIT in Monaco, they would be taxed the same way (despite the legal difference of the absence of legal personality for the branch).

There is no branch tax in Monaco, but more generally there is no withholding tax in Monaco.

Monaco does not levy withholding tax on capital gains.

Registration Duties on Transfers of Shares

See 2.8 Other Taxes Payable by an Incorporated Business for the registration duties due on the transfer of shares in a SAM, SARL or SCP.

Other than the general arm’s-length principle (see 4.4 Transfer Pricing Issues) which applies in particular to transactions between related parties, no formulas are used in Monaco to determine the income of foreign-owned local affiliates selling goods or providing services.

Note that:

• a foreign corporation would only be taxable in Monaco should it have a permanent establishment (under the form of a fixed place of business or a “dependent agent”) subject to CIT in the Principality;
• the Monegasque branch or subsidiary of a foreign corporation would only be taxed in Monaco should it meet the scope of CIT requirements.

In order to be tax deductible, management and administrative expenses paid by local affiliates to non-resident affiliates must be considered arm’s length (see 4.4 Transfer Pricing Issues).

From a legal perspective, even if Monaco does not have a per se “mismanagement act” doctrine that would disregard so-called abnormal acts of management, the payments by Monaco companies for management and administrative services should be made in their corporate interest. Consequently, the services should be effectively rendered by the non-resident affiliate (the service provider) to the Monaco company and cannot be identical to functions already performed by the president/director(s) of the Monegasque company.

The Monegasque affiliates should always be able:

• to justify the prices they are invoiced by non-local affiliates; and
• to substantiate the services that were provided with proper documentation.

Some of the limitations to the tax deductibility of interest expenses concern related-party debt (see 2.5 Imposed Limits on Deduction of Interest).

Enterprises subject to CIT are taxed on their worldwide income.

Foreign income is aggregated with local income, however for the purpose of determining the basis of assessment of CIT, are excluded the net profits or losses attributable to:

• a permanent establishment abroad of the Monaco company;
• a “complete cycle of operations”, such as the purchase and sale of goods, which the company usually carries out outside Monegasque territory;
• operations carried out outside Monaco through so-called “dependent agents”, defined as representatives without a distinct personality from that of the company, when these representatives hold abroad powers which they usually exercise in order to conclude contracts in the name of company, or have there a stock of goods to usually satisfy the orders received through them.

Foreign income attributed to foreign permanent establishments, “complete cycles of operations” or so-called “dependent agents” is not subject to CIT in Monaco. Accordingly, local expenses attributed to them are not deductible for CIT purposes.

Dividend’s income is included in the taxable basis, except when the following participation exemption regime applies.

The participation exemption regime applies to the dividends received by Monegasque parent stock companies (the broad term sociétés par actions refers to SAMs) from their Monegasque or foreign qualifying subsidiaries.

It comes into effect provided the parent company has held at least 20% of the share capital of the subsidiary for more than two consecutive years at the time of the distribution.

In this situation, the dividends received are exempt from CIT, except for a taxable portion which depends on the percentage held in the subsidiary’s share capital:

• taxable portion of 5% when the parent company holds 50% or more of the subsidiary’s share capital;
• taxable portion of 10% when the parent company holds at least 35% of the subsidiary’s share capital but less than 50%;
• taxable portion of 20% when the parent company holds less than 35% of the subsidiary’s share capital.

The taxable portion may not exceed the aggregate sum of business expenses incurred by the parent company during the relevant tax year.

In order to use the intangibles developed by its Monegasque mother company, a foreign subsidiary has to pay royalties to its parent, which amount shall be considered an arm’s-length remuneration. If not, the Monegasque tax authorities could reinstate into the taxable profit of the parent an amount equal to the royalties it should have received.

The royalties’ income is subject to CIT at the standard CIT rate.

There are no CFC rules in Monaco.

On a case-by-case basis, the Monegasque tax authorities could disregard an entity with no substance and accordingly deny the benefit of the application of a bilateral tax treaty to such entity. However, there is no specific rule in Monaco’s CIT provisions on the substance of non-local affiliates.

Monegasque companies are subject to CIT on capital gains derived from the sale of shares in non-local affiliates, subject to any contrary provisions under applicable double tax treaties.

Monaco’s CIT law does not include general anti-avoidance mechanisms.

From a legal perspective, even if Monaco does not have a per se “mismanagement act” doctrine that would disregard so-called abnormal acts of management, Monegasque companies should perform activities in line with their legal purpose and corporate interest.

This principle is reflected in specific CIT provisions, for instance the disallowance of tax deductibility for expenses that are not incurred for sound business reasons (see 2.1 Calculation for Taxable Profits for the prevention of the tax deductibility of the so-called “extravagant spendings”).

As regards international anti-avoidance provisions, Monaco committed to adopt all of the compulsory BEPS Project measures (see 9. BEPS), including Action 6 which covers the prevention of tax treaty abuse. This is why on 7 June 2017 Monaco signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the “Multilateral Instrument” or MLI), which affects certain double tax treaties to which Monaco is a party by adding anti-treaty abuse provisions.

There is no routine audit cycle in Monaco.

Tax audits are subject to the constraints of the statute of limitations. As regards CIT, the statute of limitations expires at the end of the third calendar year following the year for which the tax is due (eg, the fiscal year which ended on 31 December 2021 may be audited and reassessed until 31 December 2024).

Monaco is committed to the OECD’s BEPS Project. Indeed, on 17 May 2016, Monaco committed to adopt all of the compulsory BEPS measures (ie, the minimum standards).

Action 6

To implement both Action 6 (Prevention of tax treaty abuse) and Action 14 (Mutual Agreement Procedure – MAP), on 7 June 2017 Monaco signed the MLI. It has been in force in Monaco since 1 May 2019.

BEPS Action 6 addresses treaty shopping through treaty provisions whose adoption forms part of a minimum standard that members of the BEPS Inclusive Framework have agreed to implement. Monaco 2021’s review is ongoing.

Action 14

As regards Action 14, which aims at making dispute resolution more effective:

• Stage 1 was reviewed and recommendations were made through the report of MAP Peer Review published on 24 February 2020, and it was indicated that overall Monaco meets almost all the elements of the Action 14 and that Monaco was working on the deficiencies to address them; for instance, Monaco signed and ratified the MLI to amend and update a certain number of tax treaties; and
• Stage 2 was also reviewed (recent report published on 24 January 2022). It was indicated that Monaco has worked to address the deficiencies identified in the first report and has solved all of them.

Action 5

Regarding Action 5 (Harmful tax practices), the OECD considers that no harmful tax regime is present in Monegasque law. Monaco is not listed in the latest “Harmful Tax Practices – Peer Review Results” (as updated in August 2021).

Action 13

To implement Action 13 (CbC Reporting), the CbC reporting requirements have been implemented by Monaco (see 9.11 Transparency and Country-by-Country Reporting for further details).

Monaco is a member of the Inclusive Framework on BEPS and a party to the Two-pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy of 8 October 2021.

This commitment to international tax standards and the resulting changes in Monaco’s tax law and double tax treaties are in line with H.S.H. the Sovereign Prince's desire to follow the international movement in the field of transparency.

The Monegasque government has shown a positive and committed attitude towards BEPS while preserving some Monegasque specificities.

Nothing has been announced so far as regards the implementation of Pillars One and Two in Monaco.

If Monaco is now particularly driven towards international tax standards, meaning that Monaco's tax law is influenced by the developments of the international stage and several BEPS recommendations have already been implemented (see 9.1 Recommended Changes), the situation appeared different in the early 2000s.

According to its report published in 2000, the OECD Committee on Fiscal Affairs had initially identified Monaco as a "non-cooperative jurisdiction" and “tax heaven” before placing it on the "black list" published in 2002, because of non-sufficient transparency and exchange of information requirements.

This situation lasted until May 2009 when Monaco was removed from the list by the OECD Committee on Fiscal Affairs following the commitment made by the Monegasque Government to conclude agreements respecting the standards developed by the OECD in terms of transparency and exchange of information.

Since then, Monaco has multiplied the favourable steps, in particular by committing to adopt all the mandatory measures of the BEPS Project and by signing the MLI with the aim of proceeding to the necessary modifications of the articles contained in its tax treaties concerned by the minimum standards.

Monaco received international recognition in this respect. For instance, in 2013, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes’ report noted Monaco as "largely compliant" with international standards in terms of tax transparency. Then, in 2018, the round 2 Peer Review Report on the Exchange of Information on Request (EOIR) rated Monaco as “compliant”.

Monaco’s legal framework for implementing the Automatic Exchange of Information (AEOI) is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference (according to the “Peer Review of the Automatic Exchange of Financial Account Information 2021”).

Monaco has been decreasing the CIT rate over the past few years, which is a competitive tax policy, but also the result of a tax agreement with France.

Monegasque tax law does not provide for withholding taxes, which is one of Monaco’s main competitive advantage.

Such policies should not be directly affected by BEPS.

The key features of the Monaco competitive tax system, as regards corporate tax, are:

• the absence of withholding tax;
• the participation-exemption regime for dividends (95% exemption provided certain conditions are met – see 6.3 Taxation on Dividends from Foreign Subsidiaries);
• the possibility to carry forward tax losses without time limitation (see 2.4 Basic Rules on Loss Relief);
• the R&D tax credit scheme to incentivise research and innovation activities (see 2.2 Special Incentives for Technology Investments); and
• the administrative offices regime which provides, under certain conditions, for a derogatory tax base’s calculation method.

The OECD considers that no harmful tax regime is present in Monaco’s law (see 9.1 Recommended Changes).

Monaco’s major competitive tax characteristic is its absence of tax for resident individuals.

For now, Monaco has not adopted BEPS measures related to hybrid instruments (Action 2) since they are not part of the minimum standards.

Monaco’s CIT system is based on the territoriality principle, meaning that a foreign corporation would only be taxable in Monaco if it has a permanent establishment (under the form of a fixed place of business or a “dependent agent”) subject to CIT.

Conversely, enterprises subject to CIT are taxed on their worldwide income with the exclusion of certain foreign income, and in particular foreign income attributable to a permanent establishment abroad (see 6.1 Foreign Income of Local Corporations).

Consequently, an expense not attributable to a taxable nexus in Monaco should not be considered for the purpose of calculating CIT due in Monaco. This applies to interest expenses and the application of domestic limitations to interest tax deductibility.

There are no CFC rules in Monaco.

As indicated in 7.1 Overarching Anti-avoidance Provisions, Monaco CIT law does not include general anti-avoidance mechanisms and Monaco committed to adopt Action 6 requirements which cover the prevention of tax treaty abuse. Therefore, on 7 June 2017 Monaco signed the MLI which affects certain double tax treaties to which Monaco is a party by adding anti-treaty abuse provisions.

Thus, Monaco’s anti-avoidance rules are mostly issued from the new anti-avoidance rules of the MLI.

These MLI rules are based on a principal purpose test, which will have to be defined on a case-by-case basis by Monegasque tax authorities’ practice and Monegasque case law.

The Monaco transfer pricing regime has been developed as a result of the BEPS Project, however the domestic arm’s length principle yet existed.

After the implementation of the CbC reporting, there could be next steps to the evolution of the Monegasque transfer pricing regime, however nothing has been announced so far.

Regarding the taxation of profits from intellectual property, the only available rule is that royalties shall be set according to the arm’s length principle.

Monaco implemented CbC reporting with the publication of Sovereign Ordinances No 6712 and No 6713 of 14 December 2017 which promulgated the Multilateral Competent Authority Agreement relating to the exchange of CbC Reports setting out the procedures for applying the regulations in the Principality.

The CbC threshold was set at EUR750 million of turnover which excludes almost all business actors in Monaco.

When a Monaco corporation belongs to a qualifying “MNE group” (Multinational Enterprises groups) without being the group’s reporting entity, it only has to declare that reporting entity to the Monegasque tax authorities, which is not a constraining reporting obligation.

However, the CbC reporting has a significant impact because the reported information becomes available to the tax authorities in various countries allowing them to assess the group’s transfer pricing policy and potentially readjust it.

In Monaco, there is no digital services tax.

Monaco has been party to the multilateral negotiations which resulted in the proposed Two-pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy of 8 October 2021 with:

• Pillar One, focused on new nexus and profit allocation rules in favour of market jurisdictions, with the rules affecting the taxation of multinationals, including large digital companies, so that they pay some of their income taxes where their consumers are located; and 
• Pillar Two, designed to ensure that MNEs pay a minimum level of tax regardless of where they are headquartered or operate.

Monaco does not levy withholding tax on outbound royalty payments.