A tax treaty was signed on 18 May 1963 in Paris between France and the Principality of Monaco.
The main purpose of this agreement is to introduce a tax in the Principality on the profits made by certain companies in Monaco. This agreement also defines the tax regime applicable to individuals of French nationality who have transferred their residence to the Principality.
The stipulations of this agreement were specified by various exchanges of letters between 1963 and 2010.
The tax administration updated its comments published in the BOFiP on 2 June 2021. The previous comments had been reported on 12 September 2012, the date of opening to the public of the website bofip.impots.gouv.fr (BOFiP).
This update is an opportunity to recall the main taxation rules applicable to persons with interests in France and Monaco.
- Main tax rules applicable to individuals
The Principality of Monaco does not impose income tax on individuals domiciled in its territory.
However, Article 7-1 of the tax treaty between France and the Principality of Monaco provides, under certain conditions, that French nationals domiciled in Monaco are subject to income tax in France on all their income, under the same conditions as if they were domiciled or resident in France.
Article 7-3 of the Franco-Monegasque tax treaty provides that individuals of French nationality who have transferred their domicile or residence to Monaco as from 1st January 1989 are subject, as from 1st January 2002, to the solidarity tax on wealth, now known as the Impôt sur la Fortune Immobilière (“IFI”), in France under the same conditions as if they had their domicile or residence there. They are therefore taxed on all their assets that are included in the tax base, whether they are located in France or abroad, including in Monaco.
On the other hand, persons established in Monaco before 1 January 1989 are subject to the IFI only in respect of their assets located in France.
French nationals born in Monaco and having constantly maintained their residence there since their birth are also considered for IFI purposes as persons domiciled for tax purposes outside France, subject to the production of a certificate of domicile.
- Main taxation rules applicable to companies
Article 1 of the Franco-Monegasque tax treaty introduced, as from 1 January 1963, a Tax on Profits (“ISB”) made by certain companies established in Monaco.
The scope of application of the ISB does not extend to all companies carrying out activities in the Principality. Only some of them, due to the nature of their activities, and under certain conditions, are subject to this tax.
In accordance with Article 2 of the Franco-Monegasque tax treaty, two categories of companies fall within the scope of the ISB:
- companies carrying out an industrial and commercial activity in Monaco and of which at least 25% of the turnover comes from operations carried out directly, or through intermediaries, outside the territory of the Principality; and/or
- companies whose activity in Monaco consists of receiving : (1) proceeds from the assignment or licensing of patents, trademarks, manufacturing processes or formulae; and (2) proceeds from literary or artistic property rights.
The tax treaty also contains specific tax base rules applicable to companies established in France or in the Principality of Monaco in respect of certain payments made to beneficiaries established or resident in the other State. Certain expenses are only deductible from taxable profits if the conditions set out in Articles 3 and 4 of the tax treaty are met. These articles have in particular introduced (1) a ceiling on certain deductible remuneration and (2) specific deductibility rules applicable to certain payments (not having the character of salaries) made to persons resident or established in Monaco by way of fees, royalties, brokerage and commissions.
Finally, subject to the provisions of Articles 3, 4 and 8 of the Franco-Monegasque tax treaty, the ISB is established and collected in Monaco under the same conditions as French corporation tax.
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