Real estate traders are natural or legal persons who, for their own account, on a professional, habitual and speculative basis, purchase real estate, business assets or shares in non-trading property companies with a view to reselling them and generating a capital gain, possibly by renovating or upgrading them.
 

They differ from real estate agents and brokers as long as they own the properties they sell, whereas the other two are intermediaries. Real estate traders are not statutorily classified as a real estate profession, as they are not subject to the regulations governing real estate professions. Real estate traders have merchant status and are therefore bound by the legal obligations associated with this (registration with the Trade and Industry Register, bookkeeping, drawing up annual accounts, etc.).

Legislation before the vote on Bill no 1.064 on June 27 th, 2024

In the Principality of Monaco, the activity of property trader was subject to the ordinary law regime of authorisation and declaration to operate, provided for by law no. 1.144 of 26 July 1991, concerning the exercise of certain economic activities, as amended. It was therefore not governed by a specific law, even though other property professionals are subject to the provisions of law no. 1.252 of 12 July 2002 on the conditions for carrying out activities relating to certain transactions involving real estate and business assets.
 

The profession benefited from favourable tax treatment, as it was also subject to law no. 1.044 of July 8th, 1982, in the same way as public sales of certain tangible movables and contracts for works, supplies or materials. Instead of the 6.25% notary's fees (1.5%) and registration fees (4.75%) on the market value of the property, which have to be paid, property dealers paid only 1.5% corresponding to the notary's fees (registration fees are exempt), on condition that they resell the property within 4 years, with no obligation to carry out any work.
 

In addition, property dealers had an option not to pay VAT on the margin provided that they waived the right to reclaim it, particularly in the case of works. In short, if the expected capital gain was greater than the cost of the works, it was more attractive to pay the VAT.

Issue

The undeniable tax advantages offered to property dealers have led to an exponential increase in their numbers in a limited and already highly competitive market, and today the profession is vastly over-represented in the Principality. For example, in 2011, there were just two property dealers registered with the Trade and Industry Register, whereas today there are around 230 (with a peak in 2019 of around 300 property dealers).
 

For this reason, the Government considered, on the one hand, that this number was sufficient to meet the Principality's needs and, on the other hand, that authorising new players would be likely to harm this sector of activity, and therefore part of the economy. With an area of 2 skm and around 20,000 flats in the private sector, it therefore seemed essential to contain this situation in order to stabilise the market and protect the economic players involved. At the time, the Government confirmed that it was not currently possible to examine the possibility of reopening this sector to new applications. It should be noted, however, that this restriction only applies to those subject to authorisation. In other words, those subject to declaration, i.e. Nationals, are not affected by this restriction.
 

Moreover, this tax advantage also increases the risk of property speculation. As there is no minimum investment required to carry out renovation work on the property acquired, it has been found that some property dealers have carried out buy-to-let transactions without any work at all, or just simple comfort work, reselling the property with a large, untaxed margin.
 

However, some actually renovate flats to a high standard, offering turnkey products and helping to improve the housing stock. They also provide work for local building companies and architects, but until now buyers have been offered no guarantees, apart from the professional liability of the building firms that have been called in, which are not always located in the Principality.
 

Finally, the National Council also reacted to the total absence of tax revenues collected by the State in the majority of operations.
 

Due to all the above, it was felt necessary to regulate the activity of a property trader and make it subject to specific conditions or constraints in the same way as other property professionals, such as estate agents.

The bill voted on June 27th,  2024

On May 10th, 2021, the elected members of the National Council adopted draft law no. 252 on the regulation of the profession. According to estimates, the additional revenue generated by this legislative change would be around 20 million euros a year. On June 27th, they passed Bill no. 1064, the result of the conversion of Bill 252, which seeks to regulate the activity of real estate traders.

Firstly, the draft text is based on the creation of conditions for carrying out the activity:

• property traders, individuals operating in their own name and managers of limited liability companies are required to prove that they are actually resident in the Principality (this is a condition for the issue of an administrative authorisation to operate). For legal entities, at least 75% of the share capital must be held directly or indirectly by individuals of Monegasque nationality or who can prove that they are actually resident in Monaco;
• obligation to obtain a financial guarantee on first demand from a bank or financial institution authorised to give security and having its registered office or branch in the Principality, for the exclusive benefit of the Prince's Treasury, in order to guarantee payment of all or part of the registration duties due in the event of default;
   
• property traders must provide evidence that they have taken out an insurance policy, with a general insurance agent or insurance broker approved in the Principality, to cover the financial consequences of professional civil liability arising from the activity carried out.

Secondly, this project relates to changes in registration fees for transfers for valuable consideration, which are as follows:

• abolition of the exemption of registration duties that the property dealers currently get ;
• introduction of an exemption of half of the applicable registration duties (depending on the case, these duties are 4.75%, 7.5% or 10%), subject to the property trader meeting four cumulative conditions, including the obligation to resell the property acquired within a period of three years, with a possible extension of one year (the conditions for obtaining which have been relaxed in the text voted), and to have provided proof that the property complies with the standards in force, in particular electrical and energy standards. In addition, the work must be carried out by companies domiciled in the Principality. On the other hand, and contrary to the initial discussions, the condition that the work be carried out by companies domiciled in the Principality, and that the amount paid, including all taxes, is at least equal to 5% of the purchase price of the property, has not been retained. 

If these conditions are not met, the duties normally incurred for the acquisition of the property will have to be paid in full by the defaulting property trader, plus interest at the statutory rate and a dissuasive additional duty of 5% (compared with the 6% initially stipulated).

The three-year period will also encourage the renewal of the property stock and ensure the regular generation of tax revenue for the State.
 

In addition, to ensure the effectiveness of the system, administrative and criminal penalties are provided for in the event of failure to comply with the provisions of the law.
 

In the case of property traders operating on the day the law comes into force, the proposed provisions creating new obligations will only apply to them within three months of its entry into force, scheduled for September 1st, to allow them to bring themselves into compliance.

The aim of this law is firstly to protect and provide guarantees to customers wishing to purchase a property resold by an real estate trader, and secondly to regulate the practice of this profession, which helps to generate added value and enrich Monaco's sometimes ageing real estate assets. Finally, the State's interests are now better protected thanks to the increased tax revenue that this will generate and the strengthening of its compliance policy.
 

This law is the fruit of a process of reflection initiated several years ago by property professionals, and which has been the subject of numerous discussions with the Government and the National Council to lead to this text, which is intended to be balanced. Despite the new rules in force, the law remains an incentive for practising property traders (in particular due to the absence of taxation on capital gains), who the Principality needs to contribute to the dynamism of its economy and the attractiveness of its real estate market.

If you are already settled in the Principality as a property trader and you would like to carry out new transactions, the Valeri Agency team will be delighted to select the most appropriate properties for you to buy and/or to market them for you.

Do not hesitate to contact us!