Despite the common belief Monaco is not an offshore jurisdiction. Having a business in the Principality involves various taxation obligations as well. Luckily Monaco’s tax regime is built on some extremely supportive pillars.
Summarising the biggest taxation benefit, the first two years the income and profit of your business activity can be completely tax free in the Principality of Monaco. However it does not mean that the activities are Value Added Tax (VAT) free.
In Monaco you have to make a difference between Value Added Tax and Business Profit Tax.
The Value Added Tax is levied on the same basis and at the same rate as in France. The intra-Community tax regime has been applicable since 1 January 1993.
Any business carrying out an industrial or commercial activity and generating for more than 25% of their turnover outside Monaco is subject to Business Profit Tax from the third years of its operation. This is also true for firms whose activities consist of earning revenues from patents or artistic property rights.
The Business Profits Tax is 33.33% on profit. It is a great model, which truly motivates the businesses to gain revenue. In case your company is not profitable you have no obligation to pay tax.
Interestingly it is a small gap for some privately owned companies, because many owners take out the profit as an annual bonus, compensation or benefit and leave the company with a very small line of profit before taxation. Probably this is also the answer to the question why Monaco has so many sole trader companies. It is a question of morality, but frankly the legislation allows you this possibility and it is part of the local business life.
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