Monaco has a reputation as a tax haven (paradis fiscal) for the very wealthy as it is only French nationals who pay income tax (impôt sur le revenu) in the principality. This is calculated by and paid to the French government. There are some exceptions to this rule, including tax exemption (exonération d’impôt) for those who work in the Prince’s household or if they married a foreign national before 1986 and live in the principality. However, foreign nationals should be aware that if they have their own business in the region they will be liable for business taxes and the exemptions do not apply to social security contributions. If French nationals can prove that they lived in Monaco for a minimum of five years before 1962 then they are not taxed by the French authorities and are entitled to tax free earnings.

Foreign nationals who have an income (les revenus) from a source outside of Monaco should be aware that they will be liable for taxes in that country. The only tax treaty that Monaco has in place is with France, and this was designed to allow the French authorities to impose taxes on French nationals that have taken up residence in the principality. There are moves to create tax treaties with other countries such as Germany.

There are deductions from a worker’s salary in the form of social security contributions. These can range from 10-14% of the gross salary which is added to by contributions from the employer which can be as much as 40%, depending on the total amount earned.

Taxes are payable on the sale of real estate and businesses and these rates are variable. For example, personal assets (les biens) that are sold incur a tax of 5%, but if they are sold at auction this is reduced to 2%. Sales of businesses attract a rate of more than 7% and real estate is 6.5%.

Monaco has an inheritance tax (droits de succession) system, although residents only pay this on property and assets which are located within the principality. Gifts to charitable organisations are not taxable. The inheritance tax payable depends a great deal on the relationship between the deceased and the beneficiary. If the relationship between the two is close then the tax rate is lower. Inheritances passed between spouses or parents and children then the rate payable is zero. Brothers and sisters pay a rate of 8%. Bequests between aunts and uncles and nieces and nephews bring a rate of 10%. Any other relationship is a rate of 13% but unrelated people will pay a rate of 16%. Any assets which are held outside the principality of Monaco are taxed at the rate of that country and the monies paid to that country.

VAT (taxe sur le valeur ajouté) in Monaco is applicable at the same rates as those in France. The standard French rate is 20.6% but there is also a second rate of 5.5% which is added to some utilities, medicines, foods and public transport, amongst others. There is also a much lower rate of 2.1% but this is very rare and only applied in special circumstances. Most goods and services will attract a tax payment.

There is a tax payable on rented properties. This is 1% of the annual rent and is payable by the tenant of the property. It should be noted that there are no other property taxes applicable in the principality. There are also no wealth taxes (impôt sur le fortune) in the country, which again makes it a particularly popular destination with the rich and famous.

The country relies heavily on its income from tourism and businesses, which is how it can allow its residents to live there paying little or no tax.

The tax year in Monaco runs from January to December. Tax returns (déclaration de revenus) for VAT can be filed either by post or online to the Tax Services Department at the Department of Finance and Economy. The tax office is open between 9.30 am and 5 pm. Payments can be made online or directly to the tax office. Many residents will seek the advice of a tax professional to ensure that they are submitting the correct information.