2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Openness to Foreign Investment

The Principality of Monaco, the world’s second smallest country, has an open economy which welcomes foreign investment. Monaco enjoys a high standard of living and low unemployment. Except for French citizens, foreigners (and Monegasques) actually living and working in Monaco are not subject to personal income tax. Corporations are also frequently able to benefit from various tax incentives. There are no restrictions preventing foreigners and non-residents from opening bank or brokerage accounts in Monaco or from buying property. More than half of the real estate investments in Monaco are estimated to be made by non-residents. Monaco is well known for its security and political stability.

Investment Regime

Monaco’s economic and regulatory system is closely tied to that of France and Monaco uses the Euro as its currency. The convention of May 1, 1963 brought French and Monegasque territories, including territorial waters, under one customs union resulting in the application of French customs law in Monaco. Although Monaco is not a full member of the European Union, the customs union with France brings it under EU customs laws, thus guaranteeing that the transfer of goods and services from and into Monaco remains within the single European market.

Economic activity within Monaco including commercial, craft or industrial activity is strictly monitored by the Government. Prior approval from the Direction de l'Expansion Economique is required before conducting any economic activity in The Principality, including by foreign companies which may establish a branch or an administrative unit in the Principality. The Monegasque authorities issue approvals based on the type of business; approval is personal and may not be transferred.. Any change in the terms requires a new approval. The government is working on ways to streamline the process, by reducing the number of documents required to nine, six for individual authorizations. A new body called "Espace Entreprises Monaco Business Office" will help new investors. In the financial sector, creation of any financial organization is subject to the approval both of the French CECEI (Committee for Credit and Investment Institutions) in Paris and of Monegasque financial supervisory authorities. Offshore companies are subject to the same due diligence and suspicious transaction reporting regulations as other banking institutions.

Monaco has taken a number of Initiatives to promote economic activity and make company operations more transparent while maintaining high ethical standards, including:

- Creation of the legal status of Limited Liability Company

- Introduction of the general principle of the criminal liability of people

- Adoption of systems to combat money laundering, organized crime and corruption.

- Special Exemptions for New Companies and Research.

There are two exceptions to the total absence of direct taxation:

- Companies earning more than 25% of their turnover outside of the Principality, and companies whose activities consist of earning revenues from patents and literary or artistic property rights, are subject to a tax of 33.33% on profits.

- French nationals who are unable to prove that they resided in the Principality for 5 years before October 31, 1962 are subject to the French income tax.

To encourage the creation of companies the Principality offers tax incentives, exempting new companies developing a new activity from the corporate tax in the first two years, and offering them lower tax rates in the third year (25 percent), in the fourth year (50 percent), and in the fifth year (75 percent.)

A research tax credit was created In March 2009. The Principality of Monaco announced that it would follow the international norms in matters of tax transparency. In September 2009, Monaco was removed from the Organization for Economic Cooperation and Development (OECD) list of “non-cooperative” countries in terms of provision of tax information. Thirteen tax information exchange agreements (TIEA) have been signed by the Principality of Monaco, including one with the United States on September 8, 2009.

Size of the economy

Monaco started to publish GDP figures in 2005. Monaco's GDP amounted to 4 billion euros in 2009. The country’s budget comes from taxes on industry, trade and services, a vibrant tourism sector, and several government-owned enterprises, most notably on the country’s famous casinos. Approximately 50% of government revenue is estimated to come from the Value Added Tax (VAT) applied by the French Administration on Monaco.

There is a high concentration of financial professionals, as might be expected, in this center of international business. French banking law applies in Monaco, thus subjecting banks in Monaco to the same level of supervision as French banks. There are approximately 46 banks and financial institutions operating in Monaco, managing an estimated 750 billion euros. 46% of the clientele is non-resident.

There is no World Bank “Doing Business” report for Monaco; no Transparency International “Country Corruption Report” for Monaco, and no Heritage Foundation “Economic Freedom Index” report for Monaco.

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