Published on and written by Cyril Jarnias
Setting up a so-called “offshore” company in Monaco is as fascinating as it is puzzling. With no personal income tax, a highly targeted corporate profits tax, VAT modeled on France’s, and generally untaxed dividends, the Monegasque tax framework is often portrayed as idyllic… but it is far from being without rules or constraints.
For an entrepreneur or investor, it is crucial to know the exact point at which a Monegasque company becomes taxable, how VAT works, and the conditions under which dividends can remain truly tax-free. It means moving beyond preconceived ideas to understand the actual tax mechanics.
The Foundation of the Monegasque Tax System
The first distinctive feature of the Monegasque system lies in what does not exist: there is no personal income tax (except for French nationals), no wealth tax, no property tax, no housing tax, and no conventional local tax. Direct taxation targets almost exclusively companies through the Business Profits Tax (BPT).
0% tax rate applied to wages, dividends, interest, capital gains, and wealth of non-French resident individuals in Monaco.
For companies, the message is more subtle. Monaco is not a “tax-free” territory for businesses: it is a territory with highly selective taxation, where only a certain category of activities meeting specific criteria falls within the scope of the BPT.
The Business Profits Tax: The Heart of Corporate Taxation
The BPT, often referred to as corporate tax or CIT in international documents, is the only real direct corporate tax in Monaco. Its operation rests on two main pillars: the nature of the activity (commercial or industrial) and the geographic source of revenue.
The BPT Rate and Its Changes
Today, the standard BPT rate is 25% on taxable net profit. This rate results from a gradual reduction from a historically high level:
| Tax year (starting date) | Applicable BPT rate |
|---|---|
| Before January 1, 2019 | 33.33% |
| From January 1, 2019 | 31% |
| From January 1, 2020 | 28% |
| From January 1, 2021 | 26.5% |
| From January 1, 2022 | 25% |
This 25% rate applies regardless of the company’s legal form: a Monegasque public limited company (SAM), SARL, SNC, branch, sole proprietor… It is the nature of the activity and the geographic breakdown of revenue that determine taxation, not the legal form.
The Key Criterion: 25% of Revenue Outside Monaco
The founding principle of corporate taxation in Monaco comes down to a simple rule: a business is subject to the BPT if it carries on an industrial or commercial activity and derives at least 25% of its revenue from operations carried out, directly or indirectly, outside Monegasque territory.
In concrete terms, this means that a company:
– that operates a commercial or industrial activity in Monaco,
– and whose more than a quarter of revenue comes from clients or activities located abroad,
falls within the scope of the BPT and has its profits taxed at 25%.
A Monegasque company generating at least 75% of its revenue within Monaco, such as a retail store, a restaurant, a local service provider, or a construction company, is completely exempt from the business profits tax.
To visualize this clearly, it can be summarized as follows:
| Share of revenue generated outside Monaco | BPT regime |
|---|---|
| 0% to 24% | Full exemption |
| 25% or more | Subject to BPT |
Commercial or Industrial Activity: A Qualitative Criterion
The second criterion rests on the very nature of the activity. Only activities of a broadly commercial or industrial type are targeted. This typically includes:
– the sale of goods or merchandise,
– manufacturing or industrial processing,
– certain service provisions treated as a commercial activity.
Conversely, more intellectual or strategic advisory activities that do not resemble a commercial or industrial activity within the meaning of the law may escape the BPT, even if they have an international dimension. The authorities closely examine the economic reality: the substance of the operations is what matters.
The Major Exception: Intellectual Property Income
One category of activity is subject to stricter treatment: intellectual property income received by a company. When a Monegasque company’s activity consists of receiving royalties or proceeds from:
– patents,
– trademarks,
– manufacturing processes or formulas,
– literary or artistic copyrights,
it is subject to the BPT, even if these revenues come from abroad or even if less than 25% of its revenue is generated outside Monaco. The geographic source of the royalties matters less than their nature.
This rule aims to prevent the use of structures that merely hold intellectual property rights for the purpose of artificial tax optimization.
Important point: when these intellectual property revenues are received directly by an individual, they are not subject to the BPT, since the BPT is not a personal income tax.
Territoriality: How Are Activities Abroad Treated?
Monaco applies a fairly specific territoriality principle. Profits made abroad through a permanent establishment, a complete cycle of operations outside Monaco, or a dependent agent authorized to contract on behalf of the company are excluded from the Monegasque taxable base.
In other words, these profits are not taxed in Monaco… but the corresponding revenue is still taken into account when assessing the 25% foreign revenue threshold. This logic can be summarized as follows:
| Type of foreign income | Included in the 25% threshold calculation | Included in the BPT taxable base |
|---|---|---|
| Income from a permanent establishment abroad | Yes | No |
| Income from a complete cycle of operations outside Monaco | Yes | No |
| Income via a dependent agent abroad | Yes | No |
| Intellectual property royalties received by a company | Yes | Yes |
This mechanism allows Monaco to preserve its territorial logic while controlling the international expansion of activities that would still be managed from its territory.
Taxable Base, Deductible Expenses, and a Numerical Example
The BPT is levied on net profit, determined after deducting all expenses incurred in the interest of the company. The compensation of directors, officers, or entrepreneurs who carry out real activities in the company is deductible within certain limits.
For small businesses (service revenue ≤ €3.5 million or other activities ≤ €7 million), a specific scale governs what may be deducted for director compensation. Above these thresholds, reference is made to international, particularly European, practices to assess what is reasonable.
A simple example illustrates the calculation, showing concretely the method to follow.
– Revenue: €1,500,000
– Profit margin: 10%
– Profit before BPT: €150,000
– Share of revenue generated abroad: > 25% (therefore company subject to BPT)
– Rate: 25%
Business profits tax: €150,000 × 25% = €37,500
Filing Deadlines and Installments
Payment of the BPT follows an installment system. Companies subject to the tax must:
– file their annual return within three months of the close of the tax year (for a fiscal year aligned with the calendar year, the deadline is generally before April 1);
– pay four provisional installments in February, May, August, and November, each equal to 20% of the tax paid for the previous year.
Upon filing the tax return, the actual BPT balance due is calculated. If the installments did not cover the full tax, the difference is paid immediately. If there was an overpayment, a credit is recorded in favor of the company.
Gradual Relief for New Companies
Monaco seeks to attract genuinely new projects by offering young companies a reduced regime when they fall within the scope of the BPT. Newly created companies carrying on a genuinely new activity and subject to the business profits tax benefit from a favorable period spread over five tax years:
| Years of activity | Share of profit subject to BPT | Effective tax rate |
|---|---|---|
| 1st year | 0% | 0% |
| 2nd year | 0% | 0% |
| 3rd year | 25% | 6.25% |
| 4th year | 50% | 12.5% |
| 5th year | 75% | 18.75% |
| 6th year and beyond | 100% | 25% |
This gradual ramp-up smooths the impact of the tax as the company grows, while requiring from the outset real activity and effective substance.
VAT: A Regime Aligned with France, Far from “Offshore”
It is often forgotten, because of the focus on the absence of income tax, that Monaco fully applies VAT. In terms of indirect taxation, the country has been integrated into the French customs territory since the 1960s and applies the same rules as France.
In concrete terms, this means that:
– Monegasque VAT follows the legal and technical rules of French VAT;
– intra-EU regimes apply in Monaco just as they do in a European Union member state, even though the country itself is legally a “third country” vis-à-vis the EU.
Applicable VAT Rates
Monaco’s VAT system is modeled on that of France, with different rates applied based on the nature of the goods and services:
| VAT rate in Monaco | Main applications (for reference) |
|---|---|
| 20% (standard rate) | Common goods and services, B2B and B2C services not eligible for a reduced rate |
| 10% | Certain agricultural products, transport, restaurants, residential work |
| 5.5% | Food products, books, event tickets, essential goods |
| 2.1% | Certain cultural performances, specific medicines, live animals |
VAT accounts for more than half of the Monegasque state’s budget revenue, making it by far the country’s main fiscal lever.
Scope of VAT for an Offshore Company
VAT applies to consumption, not profits. Any company that carries out transactions within the scope of VAT, for consideration, generally acts as a taxable person. This includes in particular:
VAT applies to sales of goods and services provided as part of an economic activity, as well as to imports, self-supplies, and certain transactions expressly specified by law.
For an offshore company in Monaco, several scenarios can arise:
For B2B services supplied abroad, the reverse charge applies and the Monegasque company invoices without VAT. B2C sales in Monaco or France are subject to Monegasque VAT at the appropriate rate. For digital B2C services sold by a non-resident to customers in Monaco, the provider charges and remits Monegasque VAT from the first euro of revenue.
A little-known point is that certain sectors that are usually exempt may, in Monaco as in France, opt for voluntary VAT taxation (for example, in banking or for certain professional property rentals), in order to recover VAT on their purchases.
VAT and Dividends, Interest, Royalties
Dividends, interest, and royalties are not themselves subject to VAT, since they are financial transactions or distributions of profits, which fall under a specific regime: the basis of taxation is not VAT but, where applicable, the BPT in the hands of the recipient subject to that tax.
In Monaco, the combination of no personal income tax and zero VAT on dividends, interest, and royalties means that a resident individual receives these flows in full, without any levy either by way of VAT or income tax.
The taxation of dividends is one of the most sought-after aspects in Monaco, particularly for offshore structures whose purpose is to centralize investment or participation income. Here again, the situation of individuals and companies must be clearly distinguished.
Dividends Received by Individuals
For a non-French resident, the situation is clear: dividends, whether from a Monegasque or foreign company, are not taxed in Monaco. They are not subject to any local withholding tax or income tax.
| Type of recipient | Dividends from Monegasque sources | Dividends from foreign sources |
|---|---|---|
| Non-French resident individual | 0% tax, 0% withholding | 0% local tax (potential foreign withholdings) |
| Non-resident individual | 0% withholding in Monaco | Not applicable (taxed at the foreign source) |
The only potential “tax cost” comes from withholding taxes applied abroad on incoming dividends, which Monaco does not offset with a tax credit, due to the lack of comprehensive double taxation treaties with many major countries.
Thus:
– dividends on U.S. stocks generally incur a 30% withholding tax for a Monaco resident;
– dividends on Swiss stocks are subject to 35% withholding, with no possibility of refund for a Monegasque resident.
Reduced withholding tax rate for French or British residents thanks to double taxation treaties, compared to a definitive charge for non-residents.
Dividends Received by Companies Subject to the BPT
For Monegasque companies themselves, when they fall within the scope of the BPT, the dividends they receive are, in principle, included in their taxable income. However, a parent-subsidiary type regime allows a significant partial exemption, subject to conditions.
The main features of this regime are as follows:
– the recipient company must hold at least 20% of the capital of the distributing company;
– this holding must be maintained for at least two years;
– the distributing company may be resident in Monaco or not.
Depending on the percentage held, the exempt portion of the dividend varies:
| Percentage held on the payment date | Portion of the dividend exempt from BPT |
|---|---|
| Less than 35% | 80% |
| 35% or more and less than 50% | 90% |
| 50% or more | 95% |
In practice, only a 5%, 10%, or 20% portion of the gross dividend is added back to taxable income, representing a flat “expenses and charges” amount. This mechanism brings Monaco closer to standard European parent-company regimes, while retaining its specificities (notably the general absence of withholding tax on outbound dividends).
If the conditions of this regime are not met, the dividends are fully taxable to the BPT. However, foreign withholding tax may, in some cases, give rise to a tax credit that can be offset against the Monegasque BPT on those dividends.
Dividends Distributed by a Monegasque Company: No Withholding
On the distribution side, a decisive advantage of the Monegasque framework is the complete absence of withholding tax on dividends paid by a company established in Monaco, whether the recipient is a resident or not.
| Outbound flow from Monaco | Monegasque withholding rate |
|---|---|
| Dividends paid to a non-resident | 0% |
| Interest paid to a non-resident | 0% |
| Royalties paid to a non-resident | 0% |
This means that an offshore company in Monaco can distribute gross dividends to its foreign shareholders, without any local levy. The tax question then shifts to the recipient’s state of residence, which may tax those dividends according to its own rules and tax treaties.
Capital Gains on Securities: No Taxation for Individuals
For resident individuals, capital gains realized on the sale of securities, including those of Monegasque companies, are not taxed in Monaco. There is no specific tax on capital gains from securities.
For companies subject to the BPT, capital gains realized in the course of business may be taxable as ordinary profit, sometimes with favorable regimes when the sale proceeds are reinvested in the company under certain conditions.
Offshore Companies in Monaco: Specifics and Limitations
In everyday language, “offshore company” is often used to describe an entity incorporated abroad to manage international activities or assets. In the context of Monaco, the term actually covers several clearly distinct configurations.
Two Main Ways to Operate “From” Monaco
For an international structure, there are essentially two ways to use Monaco in its architecture:
– open a Monegasque entity (SAM, SARL, branch) that carries on a commercial or service activity, with registered offices and resources on site;
– have a foreign entity (a classic offshore company) administered by a management company or an administrative office located in Monaco, without the foreign entity necessarily becoming a Monegasque tax resident.
An entity is subject to the full BPT rules if it meets the conditions of liability. For a foreign company, the analysis of its tax residence depends on the place of effective management and the criteria applied by the other states concerned.
No Preferential Holding Regime
Unlike certain European countries, Monaco has not developed an attractive specific status for pure holding companies. On the contrary, companies whose purpose is limited to holding interests without real local substance are clearly discouraged.
The Monegasque authorities require tangible presence (offices, staff, effective management) and demonstrable economic activity. Purely passive structures, such as “mailbox companies,” are rejected by banking compliance (KYC, AML/CFT) and by the refusal of approval from public authorities.
No CFC Rules and No Income Tax: A Flexible but Monitored Framework
Monaco has no controlled foreign corporation (CFC) rules. Income received through offshore companies held by a Monegasque resident is not “looked through” and re-taxed at the individual level. There is also no general anti-abuse rule (GAAR) in domestic law.
That said, the combination of international transparency standards (automatic exchange of information, CRS standards, information exchange agreements) and anti-abuse rules in the countries where the assets are located limits the abusive use of these structures. Monegasque banks, which are heavily regulated, require a high level of documentation on the origin of funds and the substance of the structures.
Other Taxes Not to Be Overlooked: Inheritance, Gifts, and the Absence of Wealth Taxation
While Monaco does not levy a wealth tax or an annual real estate tax, there are nevertheless transfer taxes on gratuitous transfers (inheritances, gifts) on assets located in the country.
Inheritance taxes apply only to assets located in Monaco, such as real estate, bank accounts, and shares in Monegasque companies. The rate scale varies according to the relationship to the deceased.
– 0% in the direct line (children, parents),
– up to 16% for transfers between unrelated persons, on assets located in Monaco.
Assets held abroad are not included in this base, which reinforces the country’s appeal as a place of residence for international wealth.
Documentation, Audits, and Regulatory Environment
Beyond purely tax aspects, an offshore company in Monaco must contend with a strict regulatory environment in terms of compliance and auditing.
All companies must keep proper accounting records. Those subject to the BPT must retain their accounting books for at least ten years. Large structures, particularly SAMs and SCAs, are subject to mandatory external audits, with the appointment of two statutory auditors registered in Monaco.
Tax authorities may request documents, question third parties (including banks), and carry out on-site inspections. The standard assessment period is three years for BPT and VAT.
In terms of transfer pricing, Monaco applies the arm’s length principles inspired by the OECD. International groups are encouraged to document the valuation of their intra-group transactions involving a Monegasque entity, even if the country does not have an arsenal as developed as the major OECD states.
Summary: What Profile for an Offshore Company in Monaco?
For an offshore company in Monaco to take full advantage of the local tax framework, several elements must be in place.
On one hand, the country offers:
A tax regime designed to attract and support international businesses.
Complete absence of income tax for non-French partners and directors, making it easier to attract foreign talent.
No withholding tax on outbound dividends, interest, and royalties, optimizing financial flows abroad.
A 25% tax applied only to certain companies, with a progressive start-up regime for new structures.
Harmonization with French VAT, ensuring smooth integration into European trade flows.
On the other hand, Monaco requires:
– real activity, with offices, employees, effective management;
– a careful review of the source of revenue and the nature of the activity, to determine BPT liability;
– increased transparency on financial flows, under the effect of international standards and banking vigilance.
In practice, an offshore company in Monaco is particularly well-suited when:
To remain outside the scope of the BPT, a company must carry on a service or commercial activity primarily directed at Monaco (at least 75% of local revenue), allowing it to benefit from the absence of tax on distributions. Otherwise, it may assume the 25% BPT, but the advantages related to the location (no withholding tax, regime for dividends received, regulatory framework, image of a stable financial center) offset that taxation.
The key point, for a targeted entrepreneur or investor, is not to seek at all costs to erase the tax, but to understand precisely when and how it applies in Monaco. Only under that condition can an offshore company in Monaco become a robust and lasting tool in a well-structured asset and international strategy.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
