ARTICLE
1 February 2023

Foreign Trusts: The Conditional Extension Of The Monegasque Tax Regime

CP
CMS Pasquier Ciulla Marquet Pastor & Svara

Contributor

CMS Monaco is a leading law firm, providing local and international clients with a one-stop shop service for all their legal challenges, both in counselling and litigation. The firm was created in 2009 and is strongly anchored in the Monegasque market and well familiar with its dynamic economy. In 2017 the firm joined CMS, an organisation of independent law firms, composed of 80+ offices in 45+ countries, with over 6,000 lawyers worldwide, making it the only law firm in Monaco with such significant international reach. Today CMS Monaco is composed of 80+ professionals, including five partners (Avocats Associés Monégasques) and over 50 associates, experts in Monegasque law. The firm is structured around seven practice groups: Private Clients, Business Law, Real Estate & Construction, Employment, Banking & Finance, Tax and Criminal law. The teams regularly work together on complex cross-practice cases with high stakes for a large variety of Monegasque and international clients, such as companies of various sect
Consequently, the use of a foreign law trust as a means of transmission prevented the application of this advantageous tax regime.
Monaco Tax

The Monegasque tax regime for inheritance and donation is known to be advantageous since it does not provide for any inheritance or donation tax in direct line (between ascendants and descendants or between spouses) when it comes to a property situated in the Principality.

However, the definition of direct lineage was for a long time strictly apprehended by the Monegasque legislator and, in order to be exempt from inheritance or donation tax, it was necessary for the transmission to be materially direct between ascendants and descendants or between spouses.

Consequently, the use of a foreign law trust as a means of transmission prevented the application of this advantageous tax regime.

However, on 27 July 2022, the National Council adopted the draft law n°1049 modifying the Monegasque interpretation of the notion of "direct line".

According to this law, the application of the Monegasque tax regime allowing an exemption from inheritance or donation tax depends on the identity of the final beneficiary of the transmission.

In practice, this means that if a trust is used as a transmission tool and the beneficiary is a direct line heir of the settlor, the Monegasque tax regime will apply.

This applies to trusts under foreign law, which have not been set up or transferred to the Principality of Monaco.

In summary, transfer duties will apply to inter vivos or mortis causa donations made to a foreign trust under two conditions:

  • These transfers must concern property, rights or proceeds capitalised in Monaco;
  • There must be a direct family relationship between the settlor and the beneficiary (i.e. between ascendants and descendants or between spouses).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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