Notwithstanding the fact that taxation in the Principality of Monaco is advantageous for both individuals and companies, it is the main source of revenues for the State budget, thanks in particular to value added tax (VAT). Indeed, in 2020, VAT represented 47.2% of the State's revenue, i.e. 804.2 million euros.

For several years, the tax system remained stable, with no significant changes. Therefore the draft law no. 1048 of October 15th, 2021, received by the National Council, provides for an increase in the amount of fixed registration fees, proportional fees and an overhaul of the registration fee system applicable to real estate transactions subject to VAT.

Registration fees are levied by the State, at the time of the registration formality, on transfers of property and real estate rights or civil or judicial acts, certain private acts (leases, transfer of business, wills, etc.) or certain company acts (e.g.: SCI to be registered, etc.). The rate applied is either proportional (usual rates between 0.5% and 7.5%) or fixed (10 euros).

In 2020, these registration fees and insurance taxes, gathered under the heading of "legal transactions", represented a revenue of 183.8 million euros for the State and formed the 3rd most important source of incomes (10.8% of overall revenue).

The text thus provides for three measures to maintain the state's budgetary balance.

The first consists of increasing, from 10 to 50 euros, the fixed registration fee applicable to all deeds that are not subject to the proportional fees referred to in Act No. 580 of July 29th, 195 on the adjustment of registration and mortgage duties, as amended, or in another text. It also constitutes the minimum collection when the product of a proportional duty is lower. For example, these acts concern the transfer of property located abroad, the registration of foreign acts and judgments, acts performed by foreign companies or the filing of declarations of change or absence of change of beneficial owners, in the context of property transfers and real estate rights.

The second aims to modify the proportional duties and, in particular, the registration duties payable on property transfers and real estate rights (property transfer taxes, mortgage transcription duties, collection of VAT on sales of new buildings). It should be remembered that in Monaco there is no property tax, capital gains tax, rental income tax. Only a registration fee of 1% is applicable annually on rents when they are not subject to VAT, and payable by all tenants in the Principality.

The bill provides for an increase in these duties from 4.50% to 4.75% when the transaction is carried out for the benefit of a natural person or a non-trading company registered in Monaco, other than a limited liability company or a limited partnership, whose partners are exclusively natural persons acting on their own behalf when their identity is known to the Department of Tax Services.

Conversely, when the transaction is carried out for the benefit of an opaque structure, i.e. other than a non-trading company registered in Monaco, whose partners are not exclusively natural persons acting on their own behalf and whose identity is not known to the aforementioned Department, the rate would be increased from 7.50% to 9.50%. The objective is to further encourage purchasers not to use opaque structures in line with the amended law no. 1.381 of June 29th, 2011. This measure will contribute to reinforce the numerous commitments made by the Principality in the fight against money laundering and terrorist financing to comply with international standards to guarantee greater transparency of financial transactions.

The third and final measure concerns the registration duty system applicable to real estate transactions subject to value added tax, as provided for by law no. 842 of March 1st, 1968. These transactions include those in which the purchaser undertakes to carry out, within a period of four years from the date of the deed, the work necessary, as the case may be, to build a building or a group of buildings, to restore them to their original state, to complete buildings under construction, to build new premises by raising the height of the building, or to transform buildings in order to create a new use. The purchaser must then prove, at the latest within three months following the expiry of this four-year period, that the said work has been carried out.

Indeed, these transactions, which are currently totally exempt from registration fees, subject to compliance with certain conditions, would now be only partially exempt, up to 50%.

If adopted, this measure will provide the Principality with new financial resources to continue to finance its development, which is essential to maintain its social and economic model, and thus its financial independence.

The Valeri Agency team, always aware of the legislation and taxation in force in the Principality, will be able to advise and help you in all your real estate projects and beyond.

Do not hesitate to contact us!

06 December 2021