Monaco is widely recognised as a favourable environment for wealth management since it offers a desirable tax regime: no income tax, no wealth tax, no local taxes, and no capital gains tax for residents. This has made Monaco a destination for high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs) looking to optimise their tax liabilities.
I. Monaco: a favourable environment for wealth management
Monaco is renowned for its favourable tax regime and prestigious business environment.
Key features include
- Types of business entities:
Monaco offers various business structures, including the Société Anonyme Monégasque (SAM) and the Société à Responsabilité Limitée (SARL).
| Feature | SAM | SARL |
| Minimum capital | €150,000 | €15,000 |
| Minimum shareholders/partners | 2 shareholders | 2 partners |
| Maximum shareholders/partners | No maximum | No maximum |
| Legal status | Can be commercial or civil | Commercial only |
| Shareholder/partner liability | Limited to capital contribution | Limited to capital contribution |
| Management structure | Board of Directors (Conseil d’Administration) | Managed by one or more gérants |
| Notary involvement | Required for statutes and capital declaration | Not required |
| Government approval | Required | Required |
| Ease of transferring ownership | Easier (shares freely transferable) | More difficult (requires government approval for new partners) |
| Suitable for | Larger businesses, those seeking to raise capital | Smaller businesses, simpler structures |
| Image and credibility | Perceived as more solid and reliable | Less formal |
| Tax implications | 33.33% on profits if >25% turnover outside Monaco | 33.33% on profits if >25% turnover outside Monaco |
The SAM is similar to a French Société Anonyme (SA), with a minimum capital requirement of €150,000, while the SARL is similar to a French SARL, with a minimum capital requirement of €15,000.
Key differences between Monegasque SAM and Monegasque SARL
1. Capital requirements: The SAM requires a much higher minimum capital (€150,000) than the SARL (€15,000).
2. Legal status: The SAM can have either commercial or civil purposes, whereas the SARL is limited to commercial activities.
3. Management structure: The SAM is managed by a board of directors, whereas the SARL is managed by one or more directors.
4. Involvement of a notary: The SAM requires a notary to draw up the statutes and the capital declaration, which is not necessary for the SARL.
5. Transferability of ownership: SAM offers easier transfer of ownership through sale of shares, whereas SARL requires government approval for new partners.
6. Perception and usage: SAM is often perceived as more solid and reliable and is therefore preferred for larger companies or those seeking to raise capital. SARL is typically used for smaller, simpler business structures.
Both SAMs and SARLs require government approval for incorporation, which can take up to 3 months. The choice between the two depends on the specific needs, size and future plans of the business.
- Ease of incorporation:
Incorporating a company in Monaco is a relatively straightforward process, but does require government authorisation, particularly for foreign investors.
1. Obtain government authorisation:
– All new business activities in Monaco must be specifically authorised by the government.
– An official application for authorisation must be submitted to the Direction de l’Expansion Economique.
– The authorities have up to 3 months to respond to the request for authorisation.
2. Choose a company structure:
– Common options include SARL (Limited Liability Company) and SAM (Monaco Public Limited Company).
– Each has different requirements in terms of minimum capital and number of shareholders.
3. Prepare the documentation:
– Draft articles of association and other necessary documents.
– For a SAM, a Monaco notary must be involved in the drafting of these documents.
4. Secure a registered address:
– The company must have a registered address in Monaco.
– This can be a business premises, the director’s home address (with restrictions) or a business centre offering domiciliation services.
5. Open a bank account:
– Open an account with a bank in Monaco to receive the share capital from the shareholders.
6. Register the company:
– Register with Monaco’s Trade Register, Statistical Office and Tax Administration.
– Pay the registration tax (1% of the share capital).
7. Hold the first shareholders’ meeting:
– Within 3 months of receiving authorisation, convene a general meeting of shareholders.
8. Complete the final steps:
– Record information on ultimate beneficial owners with the Monaco Trade Registry.
– Set up accounting and tax compliance procedures.
The entire process typically takes about 6 months from the initial application for authorisation, largely due to administrative deadlines and the opening of bank accounts.
Key points to consider:
– Government approval is required for all new businesses.
– The process is open to both residents and non-residents.
– Additional specific licences may be required for certain activities.
– Law firms or local notaries often manage the incorporation process.
While the process is relatively straightforward, it involves several steps and government oversight, particularly for foreign investors. The need for government approval and the potential 3-month wait for approval are notable aspects of the Monaco incorporation process.
- Banking secrecy:
Monaco maintains strict banking secrecy laws, attracting high net worth individuals and wealth management firms. However, Monaco’s banking secrecy is not absolute, but rather “relative”.
The principality is not considered a tax haven, as Prince Albert has emphasised. Banking secrecy in Monaco is governed by Article L.511-33 of the French Monetary and Financial Code (which applies to Monaco) and Article 308 of the Monegasque Criminal Code.
The main purpose of banking secrecy is to protect the privacy, personal data and family information of clients, subject to the maintenance of good public order.
Exceptions: The law provides for numerous exceptions to banking secrecy. These include
- Information requested by the Monegasque banking supervisory authorities
- Information requested by local judicial authorities involved in criminal investigations
- Information relating to persons resident in France for tax purposes, in accordance with the 1963 Tax Convention between France and Monaco.
- International cooperation: Monaco has signed tax information exchange agreements with other states. In 2016, Monaco signed a tax transparency agreement with the European Union for the automatic exchange of financial account information from 2018.
- Data protection: The Commission de Contrôle des Informations Nominatives (CCIN) is Monaco’s personal data protection authority, established by Law No. 1.165 of 23 December 1993.
- Efforts to combat money laundering: Monaco has an active policy to combat organised crime, money laundering and the financing of terrorism. The Principality has strengthened its Financial Intelligence Unit (SICCFIN) and is part of international efforts such as the FATF and MONEYVAL.
- Modernisation: Monaco is adapting its legislation to comply with new European data protection rules, including considerations related to the EU’s General Data Protection Regulation (GDPR).
- France: Robust and diverse business environment
France has a diverse and robust business environment, characterised by:
- Types of business entities:
France offers several types of companies, such as the Société par Actions Simplifiée (SAS), the Société Anonyme (SA) and the Société à Responsabilité Limitée (SARL). The SAS is particularly popular due to its flexibility and fewer regulatory requirements.
| Feature | SAS | SA | SARL |
| Minimum capital | €1 | €37,000 | €1 |
| Minimum shareholders/partners | 1 | 2 (7 for public SA) | 1 |
| Maximum shareholders/partners | No limit | No limit | 100 |
| Management structure | Flexible, defined in statutes | Board of Directors or Supervisory Board | One or more managers |
| Decision-making | Flexible, defined in statutes | Strict rules, shareholder meetings | Shareholder meetings |
| Liability of members | Limited to contributions | Limited to contributions | Limited to contributions |
| Transferability of shares | Flexible, can be restricted | Freely transferable | Restricted, subject to approval |
| Stock exchange listing | Not possible | Possible | Not possible |
| Statutory auditor | Required if certain thresholds are met | Always required | Required if certain thresholds are met |
| Taxation | Corporate tax (option for income tax possible) | Corporate tax | Corporate tax (option for income tax possible) |
| Social status of managers | Can be employees | Can be employees | Generally self-employed |
| Flexibility | High | Low | Medium |
| Suitable for | Start-ups, subsidiaries, flexible structures | Large companies, public offerings | Small to medium-sized businesses |
- Incorporation process: The process of incorporating a company in France is more bureaucratic than in Monaco, involving registration with the Centre de Formalités des Entreprises (CFE) and publication of the incorporation notice in a legal gazette.
- Business incentives: France offers numerous incentives for start-ups and innovation-driven companies, including research and development (R&D) tax credits and grants.
Here are the main steps to incorporate a company in France:
1. Choose the company structure (e.g. SAS, SARL, SA)
2. Develop a business plan
3. Secure a registered address in France
4. Choose a company name and check its availability
5. Prepare and draft the incorporation documents, including
– Articles of Association
– Minutes of the first board meeting
– Nomination of directors
– Declaration of ultimate beneficial owner
6. Open a French bank account and deposit initial share capital
7. Collect the required documents for shareholders and directors
8. Submit the incorporation application to the commercial court
9. Obtain government approval (can take up to 3 months)
10. Register with the French trade register, statistical office and tax authorities
11. Pay registration tax (1% of share capital)
12. Hold an initial general meeting (within 3 months of authorisation)
13. Obtain the company’s certificate of incorporation (Extrait Kbis) from the Commercial Court
14. Apply for a VAT number (issued within a few weeks of incorporation)
The process usually takes 1-2 weeks for the actual incorporation, but can take up to 6 months in total due to administrative deadlines. Many companies use incorporation services or law firms to manage the process due to its complexity and language requirements.
- Taxation in Monaco
- Monaco: low tax jurisdiction
Monaco’s tax regime is a major attraction for companies and individuals:
Corporate Tax: Monaco imposes no corporate tax on companies that generate more than 75% of their turnover within the Principality. Otherwise, a corporate tax rate of 33.33% applies.
Personal income tax: Residents of Monaco enjoy zero personal income tax, making it an attractive location for high-net-worth individuals and executives.
Value Added Tax (VAT): Monaco follows French VAT rates, which are generally set at 20%.
This table provides an overview of the main aspects of corporate taxation in Monaco. The actual application can be complex and depends on the specific circumstances of each company.
| Feature | Description |
| Corporate Tax Rate | – No corporate tax on companies that generate more than 75% of their turnover within Monaco. – A corporate tax rate of 33.33% applies to companies that generate more than 25% of their turnover outside Monaco. |
| Progressive Tax Exemption for New Businesses | – Qualifying new businesses benefit from a progressive five-year tax exemption: – 0% for the first two fiscal years – 25% of the tax profits in the third fiscal year – 50% in the fourth year – 75% in the fifth year. |
| R&D Tax Incentives | – Qualifying R&D businesses can benefit from R&D tax credits that can offset corporate income tax due by the company. |
| Headquarter Tax Regime | – Qualifying headquarters performing management, coordination, or control tasks for their group benefit from a reduced effective CIT rate of approximately 2%, calculated on a flat-rate basis of their operating costs. |
| Absence of Withholding Taxes | – No withholding tax on dividend distributions, interest payments, or royalties paid by a Monaco-based entity to non-Monaco beneficiaries. |
| Capital Gains | – Shareholders are not taxable on capital gains incurred upon the sale of shares in a Monaco company. |
| Tax Filing and Payment | – Companies must file a CIT return with the Monaco tax authorities within 3 months following the end of the financial year. – Tax liability is calculated based on the declaration of taxable income and must be settled within the same period by cheque, bank transfer, or cash. |
| VAT | – Monaco follows French VAT rates, which are generally set at 20%. |
| Personal Income Tax | – Residents of Monaco enjoy zero personal income tax, making it an attractive location for high-net-worth individuals and executives. |
Exemption from corporation tax: Companies that generate the majority of their income in Monaco are completely exempt from corporate tax.
Progressive tax relief: New companies benefit from a progressive tax exemption over five years.
R&D and headquarters incentives: Special incentives are available for R&D activities and qualified headquarters.
No withholding taxes: There are no withholding taxes on dividends, interest or royalties paid to non-residents.
Capital gains: Shareholders are not taxed on capital gains from the sale of shares.
VAT and income tax: Monaco follows French VAT rates and offers zero personal income tax for residents.
Monaco’s tax regime is designed to attract both companies and high net worth individuals through a combination of low or zero corporate taxes, special incentives for new and innovative companies and favourable personal tax conditions.
- France: Comprehensive tax system
France has a comprehensive tax system, with various taxes applicable to companies and individuals:
- Corporate tax: The standard corporate tax rate in France is 26.5% for 2021, which will fall to 25% in 2022. Small and medium-sized enterprises (SMEs) benefit from a reduced rate of 15% on the first €38,120 of profits.
- Personal income tax: France has a progressive income tax system with rates ranging from 0% to 45%, plus additional social security contributions.
- Value Added Tax (VAT): The standard VAT rate is 20%, with reduced rates of 10% and 5.5% for certain goods and services.
This table provides an overview of the main aspects of corporate taxation in France. The actual application can be complex and depends on the specific circumstances of each company.
| Tax Type | Rate | Details |
| Corporate Income Tax (CIT) | 25% | – Standard rate for all companies as of 2022 |
| Reduced CIT Rate | 15% | – Applies to first €38,120 of profits for small companies |
| Value Added Tax (VAT) | 20% | – Standard rate |
| 10% | – Reduced rate for certain goods and services | |
| 5.5% | – Super-reduced rate for essential goods | |
| 2.1% | – Particular reduced rate for specific items | |
| Social Security Contributions | Varies | – Employer contributions can be significant |
| Research Tax Credit | Up to 30% | – Of eligible R&D expenses |
| Territorial Economic Contribution | Varies | – Replaced the business tax in 2010 |
| Property Wealth Tax (IFI) | 0.5% to 1.5% | – On real estate assets above €1.3 million |
| Capital Gains Tax | 25% | – For sale of substantial shareholdings |
| Withholding Tax on Dividends | 0% to 30% | – Depends on recipient’s country of residence |
| Transfer Pricing Rules | N/A | – Arm’s length principle applies |
| Thin Capitalization Rules | N/A | – Limits on interest deductions |
| Participation Exemption | 95% | – On qualifying dividends and capital gains |
| Patent Box Regime | 10% | – Reduced rate on income from IP |
| Tax Group Regime | Available | – For 95% owned subsidiaries |
| CFC Rules | Applicable | – For low-taxed foreign subsidiaries |
Key points:
– Corporate tax rates have been progressively reduced to 25% from 2022.
– France offers various tax credits and incentives, particularly for R&D activities.
– The tax system includes measures to prevent tax avoidance, such as transfer pricing and thin capitalisation rules.
– There are special rules for intellectual property income and group taxation.
– Social security contributions can be a significant cost for employers.
- Labour Law
Monaco: Flexible labour regulations
Monaco offers a flexible labour market, with the following key features:
- Employment contracts: Employment contracts can be fixed-term or open-ended. Termination procedures are less stringent than in France.
- Work permits: Non-EU nationals require work permits, which may be a consideration for foreign companies hiring expatriates.
The basic rules of labour law in Monaco include:
1. Regulatory framework: Labour law in Monaco is not codified in a single comprehensive code. Instead, it consists of various legislative texts, international conventions and collective labour agreements.
2. Employment contracts: There is flexibility in the formulation of employment contracts. Consensus between the parties is considered valid, including verbal agreements on key elements such as work duties, working hours and remuneration.
3. Employee benefits: Monegasque law does not prescribe specific employee benefits. These are usually set out in collective agreements or individual employment contracts.
4. Work permits: Employers must obtain work permits from the Ministry of Employment before hiring foreign employees.
5. Hiring priority: Monaco gives hiring priority to nationals for private sector jobs, followed by certain categories of residents.
6. Dismissal rules:
– Employers cannot dismiss employees without a legally valid reason.
– Dismissals must be in writing.
– Notice periods vary according to the employee’s length of service.
– There are special protections for certain categories of workers, such as pregnant women, staff representatives and trade union delegates.
7. Non-competition clauses: These are enforceable in Monaco if they meet certain criteria, including being essential to protect the employer’s interests, being limited in time and geographically, and providing for financial compensation.
8. Dispute resolution: The Labour Court, composed of representatives of employers’ organisations and trade unions and presided over by a professional judge, has exclusive jurisdiction over disputes relating to the termination of employment contracts.
9. Collective redundancies: Procedural steps are required to implement collective redundancies, including notification to the relevant labour authority.
10. Social dialogue: The government emphasises dialogue and consensus-building in industrial relations, with the Ministry of Labour playing a key role.
11. Working conditions: The government aims to improve working conditions while allowing businesses to develop, focusing on safety, hygiene and health in the workplace.
This framework reflects Monaco’s approach to labour law, which balances employee protection with business flexibility.
- France: Employee-centric regulations
France has a more rigid and employee-oriented labour market:
Employment contracts: Similar to Monaco, but with stricter rules on termination and severance pay.
Trade unions: Strong union presence and collective bargaining agreements that companies must navigate.
Social security contributions: Employers face higher social security contributions, which can affect labour costs.
The basic rules of labour law in France include:
1. Strong employee protection: French labour laws are generally favourable to workers and provide robust protection for workers’ rights.
2. 35-hour working week: The standard working week in France is 35 hours, although employees can work more with overtime pay.
3. Employment contracts: There are different types of employment contracts, including permanent (CDI), fixed-term (CDD) and apprenticeship contracts. Permanent contracts are the norm.
4. No at-will employment: Employers cannot dismiss workers without a legally valid reason and must follow strict procedures for dismissal.
5. Minimum wage: France has a national minimum wage (SMIC), which is one of the highest in the EU. From 2023 it will be €11.52 per hour, or €1,747.20 per month.
6. Collective bargaining agreements: CBAs play an important role in setting industry-specific working conditions and benefits.
7. Paid leave: Employees are entitled to a minimum of 5 weeks paid vacation per year, plus 11 public holidays.
8. Social security: There is a comprehensive social security system covering health insurance, pensions and other benefits.
9. Protection against discrimination: The law prohibits discrimination in the workplace on a number of grounds, including race, sex, religion and trade union membership.
10. Right to leave: Employees have the right not to respond to work-related communications outside of working hours.
11. Training and development: Employees have access to a personal training account with employer-provided credits for professional development.
12. Strict rules on worker classification: Misclassifying workers as independent contractors can result in severe penalties.
13. Overtime rules: Overtime is compensated at higher rates (125% for the first 8 hours, 150% beyond that).
These labour laws aim to strike a balance between employee protection and business flexibility, although overall they tend to favour workers’ rights.
- Regulatory environment
Monaco: a business-friendly regulatory environment
Monaco’s regulatory environment is designed to attract and retain business:
Ease of doing business: Monaco ranks highly in terms of ease of doing business due to its streamlined regulatory processes.
Compliance requirements: Compliance is straightforward, but businesses must adhere to anti-money laundering (AML) regulations and ensure transparency in financial transactions.
- France: Comprehensive but complex regulations
France has a comprehensive regulatory environment, which can be complex for new businesses to navigate:
Bureaucracy: The regulatory framework involves multiple layers of bureaucracy, which can slow down business operations.
Compliance requirements: Strict compliance requirements, particularly in areas such as data protection (GDPR) and financial reporting.
Conclusion
The choice between Monaco and France for business operations depends on specific needs and strategic objectives. Monaco offers a low-tax, flexible environment that is ideal for wealth management and luxury businesses. In contrast, France offers a robust, innovation-friendly environment with significant incentives for start-ups and R&D-driven businesses.
Investors should carefully consider these factors and consult with legal experts in both jurisdictions to navigate the complexities and maximise the benefits of each unique business environment.
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The content provided on this website, accurate as of the stated publication dates, is intended for informational purposes only. This material should not be construed as legal advice or relied upon as such. Each individual’s situation is unique, and therefore, we strongly recommend seeking personalised legal counsel before taking any action based on the information presented here. The publishers and authors of this content cannot be held responsible for any actions taken or not taken based on the information provided.
Our law firm can help you with:
- Assessing your business needs: Assessing your business objectives to determine the most appropriate jurisdiction.
- Legal compliance: Ensuring compliance with local laws and regulations in both Monaco and France.
- Tax Optimisation: Identifying tax benefits and structuring your business to minimise tax liabilities.
- Operational strategy: Developing a strategy that takes into account the regulatory and economic environment of your chosen location.
- Ongoing support: Ongoing legal support to adapt to changes in the legal and business environment.
Contact us to explore how we can help you make an informed decision and establish a successful presence in Monaco or France.
For further information, feel free to contact us at contact@bamdad-shams.com.
