Worldwide Corporate Tax Guide 2021
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Monaco ey.com/GlobalTaxGuides
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A. At a glance Corporate Income Tax Rate (%) Capital Gains Tax Rate (%) Branch Tax Rate Withholding Tax (%) Net Operating Losses (Years) Carryback Carryforward
26.5 (a) 26.5 (a) 26.5 (a) 0 0 Unlimited (b)
(a) This is the corporate income tax rate for financial years beginning on or after 1 January 2021. The corporate income tax rate will be gradually decreased. For details, see Rates of corporate tax in Section B. (b) The amount of losses used in a given year may not exceed EUR1 million plus 50% of the taxable profit exceeding this limit for such year.
B. Taxes on corporate income and gains Corporate tax. In accordance with Article 1 of the tax treaty be-
tween France and Monaco of 18 May 1963, corporate income tax was introduced in Monaco.
The following entities are subject to this tax: • Companies of any legal status that carry out industrial or commercial activities, if at least 25% of the turnover is generated outside Monaco • Companies whose income relates to the sale or licensing of patents, trademarks, processes or formulas and to royalties from intellectual property rights Administrative offices are also subject to corporate income tax, but the tax is applied according to the specific terms relevant to
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their situation. The tax is determined by a flat rate, generally equal to 8% of the total annual operating expenses. The legal form of the company is irrelevant with respect to the application of the tax. The nature of the activities and the location of the transactions determine the liability for the tax. Taxable profit is calculated according to the profits derived from activities of any nature carried out by the company. It is determined after deduction of all costs. However, under specific rules, the salary of the owner or directors can only be deducted for individuals who carry out a real function within the company and at a total value that is reasonable for their role. For small businesses (defined as companies with a turnover of less than EUR3,500,000) for the provision of services or EUR7 million for other activities), a scale determines the maximum amount of deductible income per turnover bracket. For other companies, the director’s salary can only be deducted from taxable profit if the amount is not excessive in comparison to recognized practices on an international level, particularly within the European Union (EU). Rates of corporate tax. The corporate income tax rate is 26.5% for financial years beginning on or after 1 January 2021.
Capital gains from asset sales that are part of business activities may, under certain conditions, be exempt if they are reinvested in the company. Under Sovereign Order No. 7.174 of 24 October 2018, the rate of corporate income tax will be decreased from 26.5% to 25% for financial years beginning on or after 1 January 2022. Administrative offices are generally taxed at a reduced rate (see Corporate tax). Tax reliefs. In addition to the special rules applicable to adminis-
trative offices (see Corporate tax), Monaco has two categories of tax relief, which are discussed below.
Business startup scheme. Companies established in Monaco that fall within the scope of corporate income tax that carry on a genuinely new business are exempt from the tax for a period of two years and subsequently benefit from a favorable regime for the following three years. The following is the tax regime: • First and second years: no corporate income tax is imposed. • Third year: the tax is calculated on 25% of taxable profit. • Fourth year: the tax is calculated on 50% of taxable profit. • Fifth year: the tax is calculated on 75% of taxable profit. • Sixth year: the tax is calculated on 100% of taxable profit. Tax credit for research and development. A tax credit is granted for research and development. Administration. In general, companies must file a tax return within three months following the end of their financial year. If the financial year coincides with the calendar year, the tax return must be filed by 1 April of the following year.
Provisional tax installments of corporate income tax must be made in the months of February, May, August and November of
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each year. Each installment is equal to 20% of the tax calculated on taxable profit on the closing of accounts at the end of the preceding financial year. The balance of corporate tax is due by the deadline date for filing file the tax return, which is 1 April if the financial year coincides with the calendar year. In general, late filing is subject to a penalty averaging between EUR15 and EUR75. In case of the late payment of installments or of the balance of corporate tax, a 3% penalty is applied. An additional 1% penalty is charged per month in case of additional delay of payment. Dividends. In general, an individual or legal entity who pays investment income and interest on receivables, deposits or guarantees to individuals or legal entities domiciled or established in France or to persons of French nationality resident in Monaco who do not hold a certificate of residence must, within the first quarter of the year, declare to the Department of Tax Services the income or revenue earned by the beneficiaries in the preceding year.
Under the parent-subsidiary regime, dividends received by Monegasque companies from their Monegasque or foreign subsidiaries are exempt from corporate income tax, except for a 5%, 10% or 20% service charge computed on the gross dividend income that is added back to the recipient’s taxable income. Foreign tax relief. Any tax paid abroad is deductible from the amount of Monegasque tax on profits related to this income.
An enterprise that receives foreign-source income, such as products of industrial, artistic or literary property or income from movable capital, subject to withholding tax or to income tax in the country of its realization may, subject to justification, deduct the tax paid abroad of the tax on the profits for which it is liable in Monaco for the same income. For the calculation of the tax due in Monaco, the amount of the foreign tax is, in such case, added to the gross receipts of the company.
C. Determination of trading income General. The assessment is based on financial statements prepared
according to Monegasque generally accepted accounting principles, subject to certain adjustments. Deductibility of interest. Under Sovereign Order No. 7.334 of
1 February 2019, the general deduction of net financial expenses was replaced by new deduction limitation rules. These new rules apply to fiscal years beginning on or after 1 January 2019. Under the new rules, the deduction of net financial expenses is capped at the highest of the following amounts: • EUR3 million per fiscal year, reduced to 12 months where appropriate • 30% of the taxable income subject to corporate income tax, increased by the relevant net financial expenses; any amortizations and provisions allowed as deductions, as well as capital gains or losses resulting from the transfer of assets
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By way of exception, the portion of the net financial expenses paid by a company to related parties is subject to a more restrictive deduction limitation rule. Inventories. The inventory must be valued at the cost or the market
value at the closing date of the financial year if this market value is lower than the cost. Work-in-progress is valued at the cost.
Reserves. In determining accounting profit, companies must book certain reserves, such as reserves for a decrease in the value of assets, risk of loss or expenses. These reserves are normally deductible for tax purposes, subject to conditions. Capital allowances. In general, assets are depreciated using the
straight-line method. The calculation of depreciation by using the declining-balance method, when possible, is always optional. Companies may depreciate assets, falling within the scope of declining-balance method, on a straight-line basis. The following are some of the acceptable general straight-line rates:
Asset
Rates (%)
Commercial buildings Industrial buildings Office equipment Motor vehicles Plant and machinery
2 to 5 5 10 to 20 20 to 25 100
Relief for tax losses. Losses may be carried forward indefinitely.
However, for fiscal years closed on or after 31 December 2012, the amount of losses used in a given year may not exceed EUR1 million plus 50% of the taxable profit above that amount for such fiscal year (as is the case in France).
D. Other significant taxes The following table summarizes other significant taxes. Nature of tax
Value-added tax (VAT); an indirect tax on consumption; all persons (firms or self-employed workers) regularly involved in business transactions are subject to VAT; French and Monegasque territories, including their territorial waters, form a customs union organized by the Franco-Monegasque customs agreement of 18 May 1963; French customs regulations apply directly in Monaco; Monaco is incorporated into European customs territory (although it remains a third country with regard to the EU) and as a result, goods and services in the Single European Market can be accessed from Monaco; key transactions subject to VAT are transactions forming part of business activities that are performed for a charge by a taxpayer either ordinarily or occasionally, whatever the taxpayer’s legal status, transactions specifically designated by the law (for example, self-supplies of goods, certain purchases and imports), transactions that are usually exempt but may be taxed at the
Rate (%)
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option of the person performing them (transactions performed by persons carrying out exempt noncommercial activities, transactions performed by banking and financial institutions, and rentals of unfurnished property for industrial, commercial or professional use) and transactions contributing to the production and delivery of property Registration duties; levied at either a fixed rate or a proportional rate, depending on the nature of the document; the fixed rate duty is usually EUR10; the most commonly applied duties are listed below
Rate (%)
5.5/10/20
Tenancy agreements; levied on the annual rent plus charges 1 Convictions 2 Mortgage agreement documents, for the engrossed copy 3 Sale of movable property (the rate is reduced to 2% for some sales at public auctions) 5 Sales of real estate 6.5 Transfers of a business or customer list 7.5 Transaction fees for land publication 1 Transaction fees for mortgages 0.65
E. Country-by-Country Reports Monaco has made enforceable the multilateral agreement between competent authorities on the exchange of Country-byCountry Reports (CbCRs) (Sovereign Ordinance No. 6.712, dated 14 December 2017). This measure is part of the international project of countering Base Erosion and Profit Shifting, which led to the passing by the Organisation of Economic Co-operation and Development of a set of measures (15 Actions), including new rules on the documentation of transfer pricing to increase the transparency for the tax administrations (Action 13). Action 13 includes provisions regarding CbCRs.