INHERITANCE, GIFT AND WEALTH TAXES IN MONACO

Wealth taxation in Monaco: an attractive framework to understand

The Principality has advantages for the holding and transmission of assets. To understand these advantages, it is necessary to distinguish between the taxes levied in Monaco, those that may be due abroad and the civil rules that determine the rights of the heirs.

1. No wealth tax

Monaco does not levy wealth tax, property tax or housing tax. However, this absence of local taxation does not exclude tax obligations in another State.

For French nationals, Article 7-3 of the 1963 Franco-Monegasque Tax Convention, as amended, provides for a special regime: persons who have transferred their domicile or residence to Monaco on or after 1 January 1989 are subject to real estate wealth tax (IFI) under the same conditions as if they were resident in France. The real estate assets and rights included in the IFI base are then taken into account in France and abroad, including in Monaco, according to the applicable thresholds, deductions and exemptions.

French nationals established in Monaco before this date are, in principle, taxable to IFI only on their French assets, according to the non-resident regime. French nationals born in Monaco and who have resided there constantly also benefit from this regime, subject to producing a certificate of residence. See the details of the French tax authorities, § 380 and 390.

2. Taxation of gifts in Monaco

Monegasque gift tax applies to property located in the Principality or which has its basis of assessment there, regardless of the donor's domicile, residence or nationality. The standard tax scale depends on the relationship between the donor and the beneficiary:

• In the direct line, in particular between parents and children or grandparents and grandchildren, and between spouses: 0%
• Between partners with a Monaco civil partnership agreement (contrat de vie commune): 4%
• Siblings: 8%
• Between uncles or aunts and nephews or nieces: 10%
• Among other collateral relatives: 13%
• Between non-relatives: 16%

The rate of 4% applies to the Monaco civil partnership agreement (contrat de vie commune). For gifts, this tax benefit is withdrawn if the contract is terminated less than ten years after its conclusion for a reason other than the marriage of the partners or the death of one of them. The formalities and registration fees must be verified according to the nature of the property and the deed. See Article 21-1 of Law No. 580.

Beware of gifts between Monaco and France: the 1950 inheritance treaty does not cover gifts. An exemption in Monaco does not therefore guarantee a French exemption. For example, when the beneficiary is domiciled for tax purposes in France and has been so for at least six of the ten years preceding the gift, the assets received abroad may be taxable in France, subject to the applicable rules and allowances. Consult the French rules relating to international gifts.

3. Inheritance taxation in Monaco

Monegasque inheritance tax applies to property located in Monaco or which has its basis of assessment there, regardless of the domicile, residence or nationality of the deceased, subject to the applicable conventions. The standard tax scale is as follows:

• In the direct line, in particular between parents and children or grandparents and grandchildren, and between spouses: 0%
• Between partners with a Monaco civil partnership agreement (contrat de vie commune): 4%
• Siblings: 8%
• Between uncles or aunts and nephews or nieces: 10%
• Among other collateral relatives: 13%
• Between non-relatives: 16%

These rates describe Monegasque taxation. Property located abroad, or certain links of the deceased or beneficiaries with another country, may result in foreign taxation. For Franco-Monegasque situations, the 1950 convention presented below should be examined.

The Monaco civil partnership agreement (contrat de vie commune) does not, in itself, confer the status of legal heir on the surviving partner. The benefit of a favourable tax rate does not remove the need for appropriate provisions in a will. See Law No. 1.481 on civil solidarity contracts.

4. Franco-Monegasque Tax Convention of 1 April 1950

This treaty aims to avoid double taxation in inheritance matters for French and Monegasque nationals. It does not apply to gifts. The distribution of the right to tax depends on the category of property:

• Directly owned properties: they are taxable in the country where they are located. An apartment in France is therefore subject to French inheritance tax, even if its owner lived in Monaco.
• Tangible movable property: it is generally taxed in the State where it is located at the time of death, with special rules for certain categories.
• Shares, company interests and other intangible assets covered by Article 6: they are, in principle, taxable in the State of domicile of the deceased when the latter is domiciled in one of the two States.

For a deceased French national, recognition of Monegasque domicile within the meaning of this convention generally requires at least five years of habitual residence in Monaco at the time of death, subject to the exceptions set out in the convention. Holding through a company requires a specific analysis. Consult the official commentary on the convention.

5. Estate planning in Monaco

The Code of Private International Law resulting from Law No. 1.448 of 28 June 2017 allows the law of a State whose nationality one possesses at the time of choice to be designated, to settle one's succession. This designation must be express and take the form of a disposition upon death, in particular a will.

This choice concerns the civil rules for the transfer of assets. It does not allow the choice of the country of taxation or the rates of inheritance tax. Its scope must be examined in conjunction with the rules relating to protected heirs and assets held abroad. See in particular Articles 56, 57 and 63 of the Code of Private International Law.

Appropriate preparation is based on an inventory of the assets, how they are held, the nationalities and residences of the persons concerned. A notary or a tax advisor can then coordinate the will, the planned gifts and the obligations in each country.

Conclusion

The absence of Monegasque wealth tax and the exemption of transfers in the direct line and between spouses make Monaco a favourable framework for wealth management. However, these advantages must be assessed in the light of each international situation. Anticipating civil and tax rules makes it possible to prepare a transfer that is consistent with your family objectives.

Disclaimer: This article presents general information and does not constitute personalised legal or tax advice. Monaco Properties will assist you in your real estate projects and can refer you to qualified local professionals for questions of residence and wealth transfer. Before making any decision, have the rules applicable to your situation checked by a notary, a lawyer or a tax advisor.