As the explanatory memorandum to Bill no. 1048 points out, "contrary to popular opinion, taxation is the main source of income of the Monegasque State Budget". And yet, when it comes to increasing a State's tax receipts, tax measures based on real estate are usually most common.
Law 1.548 of 6 July 2023 containing various tax provisions, published in Monaco's Journal on 14th July 2023, will have an impact on property transactions and operations affecting real estate located in the Principality.
This major reform will apply to deeds registered from 1st October 2023. Pursuant to article 70 of the Monegasque Constitution which lays down the principle of the legality of taxation, this reform relating to direct or indirect tax contributions has been enacted by law.
This tax reform is of major importance, firstly because of its impact on property transfers, since it will:
- increase from 4.5% to 4.75% the registration fees applicable to property and property rights transfers made in favour of a "transparent" entity, i.e. a "natural person or a civil company registered in Monaco, other than those in the form of a limited company or a limited partnership, whose partners are exclusively natural persons acting on their own behalf when their identity is known to the Directorate of Tax Services, and whose corporate assets include real estate or real rights on real estate located in the Principality";
- but above all, it will increase from 7.5% to 10% the registration fees applicable to property and property rights transfers made in favour of a so-called "non-transparent" entity, i.e. a legal entity whose beneficial owners are not natural persons acting on their own behalf, or legal entities whose official documents make it possible to ascertain the identity of the beneficial owners on the day the transaction is carried out.
Besides participating to balance the Principality's budget, this law is a direct contribution to the vast project of strengthening the fight against money laundering and the financing of terrorism launched by the Principality following the publication of the MONEYVAL report on 23th January 2023. This measure significantly accentuates the advantage previously conferred on so-called "transparent" entities over so-called "non-transparent" entities. Transfers made to the latter are now taxed twice as much as those made to the former, thereby reducing the incentive to use complex and opaque structures.
Another major aspect of this law is that the registration of deeds that give rise to the payment of value-added tax will no longer benefit from a total exemption from transfer duties as previously, but, from 1st October 2023, only from a partial exemption of half of the registration fees applicable to transactions subject to this tax.
This applies in particular to property development transactions covered by Law 842 of 1 March 1968 and is therefore likely to have a definite impact on new construction transactions.
However, Law no. 1.044 of 8 July 1982, which exempts property dealers from registration fees, is not affected by the new law, probably because of the imminence of a law regulating the profession, which should in principle provide for a similar mechanism to replace the total exemption from registration fees with an exemption of half of these duties, subject to compliance with a certain number of conditions. To be continued.
It should also be noted that this law increases from 10 to 50 euros the fixed fee applicable to deeds that are not subject to the proportional fee.
To sum up, starting from now, the financial equilibrium of property transfer and property development will have to be assessed in light of these new rules.
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.