The Monegasque financial landscape is made up of credit institutions and financial services companies. The presence of large foreign bank and finance industry groups with a wide range of nationalities make Monaco a resolutely international market.
Historically speaking, the Monegasque market has specialised in wealth management for affluent resident and non-resident clients. The dual aim of the 2007 overhaul of its legislative and regulatory framework was to boost the development of financial services and protect investors. It is now possible, subject to the accreditation of the Commission de Contrôle des Activités Financières, to provide a wide range of financial services in Monaco today: portfolio management on behalf of third parties naturally, Monegasque or foreign fund management, management advice and order reception/transmission.
Snapshot of the financial market at the end of December 2017
Principality employs a moderate taxation system. The absence of income tax in Monaco for effective residents in Monaco – except for French – is the result of a Sovereign Order passed in 1869. Tax on benefits is due under specific terms and conditions. From the international tax point of view, Monaco has currently signed 36 bilateral agreements and international agreements (at 31/12/2018) of which 35 are enforceable.
Value added tax “VAT” is payable on the same basis and at the same rates than in France. Intra-community VAT rules have been applicable since 1st January 1993..
Banking & Finance
Monaco not only has a unique status among the community of nations but is also home to a banking and financial platform unlike any other.
With some thirty banks and fifty financial management companies in little more than two square kilometres, Monaco has built its internationally renowned banking and financial market on the three pillars of competency, stability and confidentiality. As a unique market, it is also regulated by a unique set of standards and rules.
Monegasque banking and finance law is a composite system stemming from legislation passed not just in Monaco but also in France and Europe. Monaco has signed various conventions with France and the European Union, meaning that there is a constantly evolving body of law that applies in the Principality.
With a resident population of just 38,400 (of whom 8,000 are Monegasque citizens), the Principality of Monaco’s GDP was 5.7 billion euros in 2015. Monaco’s economy is very open to foreign trade and investment and benefits from the country’s excellent relations with France and the European Union.
There is no income tax (except for French and US citizens) or inheritance tax on real estate located in Monaco, making the Principality a particularly attractive residency option.
Companies registered in Monaco also enjoy a favourable tax environment.
– If they have no commercial or industrial activity, they are not liable for corporate tax.
– Commercial companies that generate at least 75% of their turnover in Monaco do not pay any tax there. For those below this threshold, the tax rate is 33.33%.
Corporate law in the Principality of Monaco is relatively flexible compared to neighbouring countries. There is very little legislation on corporate law, which leaves significant scope for freedom of contract between parties operating in Monaco.
Under Monaco law, business can be done in one’s own name or as a corporate entity and the Principality has four types of commercial companies, each with their own specific characteristics. These are general partnership (société en nom collectif), limited partnership (société en commandite), private limited company (société à responsabilité limitée) and limited company (société anonyme).
More than half of the Principality of Monaco’s revenue comes from its tax system.
Local companies are not taxed on their profits unless 25% or more of their turnover is generated outside Monaco. The rules determining the tax base and payment of Value Added Tax (VAT) are similar to those in France, and are applied with particular vigilance by Monaco’s tax authorities since more than 50% of the Principality’s current resources comes from VAT alone. Rules on registration duties were recently modified and the inherent tax implications of every transaction should always be carefully considered in advance.
Monaco funds may take the form of a mutual fund (FCP) or investment funds (IFs). A fund is subject to investment rules based on European standards but can also benefit from more flexible rules according to its target clientele. An investment fund offering, meanwhile, can benefit from sophisticated management strategies.
Monaco funds can be opened to the public or restricted to certain categories of people.
The fund is jointly established by a management company and a depositary, both established in the Principality. The request for approval comes as a minimum full prospectus of the funds (short form prospectus and settlement) and a joint statement of the management company and custodian (see Ministerial Order 2008-51). For investment funds, an investment program must also be provided (see Act 1339, Section 37)
On-shore clients are looking for competitive management services of the quality they are already accustomed to in the leading financial centres (London, New York, etc.). Off-shore clients, however, are looking above all for a “safe haven” with no special skills and with no real concern for management costs. In general, management companies offer high-quality services at very competitive rates. Consequently the number of financial companies in Monaco, and assets under management, are increasing. Over the last ten years asset management companies have developed strongly, creating jobs in Monaco. Today some possess a structure, a shareholder base, skills and a size that allow them to invest and become the driving force behind the management sector in the Principality.