Monaco is an independent sovereign state. It is not a member of the EU, but customs laws, VAT and other matters are co-ordinated with France.

The population is under 30,000 in an area of around 200 hectares.

BANKING

Banking has grown significantly during the last 20 years. It is a natural centre for private banking because people with wealth are drawn to Monaco and the Côte d'Azur. There is banking secrecy and no withholding tax on bank interest.

PERSONAL TAXATION

Monaco has no personal tax, no capital gains tax, no wealth tax and no local taxes or rates.

French nationals are taxed at normal French income tax rates as if they were living in France, subject to certain exceptions. French nationals domiciled in Monaco at the time of their death are not subject to French inheritance taxes on non-French assets.Monaco has no double tax agreements other than with France. Monaco is therefore a very attractive location for weathly residents to live tax free in Europe.

CORPORATE TAXATION

There is no tax on company profits unless more than 25% of total turnover is generated from outside the principality.

Where turnover is generated from outside the principality (over 25%) then the tax rate in 35%. There are no withholding taxes on dividends paid abroad.

CORPORATIONS

Since Monaco corporations are taxed on a territorial basis, Monaco can be attractive for the management or administration of offshore companies not doing business in Monaco.

One can have one's own Monaco management company in the form of an société anonyme monegasque (SAM), or an established management company, provided normal fees are charged for services provided.

A Monegasque holding company is not generally authorised and this is where countries like Luxembourg, the Netherlands, Belgium and Denmark become complementary.

SETTING UP A COMPANY IN MONACO

Monaco does not believe in having "brass plate" companies and therefore if one wishes to set up an SAM one needs to show that one has offices and staff. All this takes times (plus or minus six months) and requires quite a high minimum paid in capital of around US$150,000.

Non-incorporated consultancies can also be set up, but the licence can just as easily be taken away.

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.

This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com