The Blevins Franks Guide To Taxes in Monaco

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Contents
Introduction 3
Have you actually left the UK? 4
The 91 day rule 5
Are you paying tax in the right place? 6
Residence in Monaco 7
Taxation in Monaco 8
Are your investments tax efficient for you? 9
What about your pension income? 9
What about your UK rental income? 10
What if you own a property in France? 11
Who is going to inherit your assets? 11
Inheritance tax 12
Summary 13
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Introduction
Moving abroad is something that many Britons yearn to do, and Monaco is a
popular destination for many of them, due to its very favourable tax regime.

Yet how much do you know about the tax implications of moving to Monaco?

This guide looks at many of the considerations facing people moving from the
UK to Monaco, to raise awareness of some of the issues that may affect you.
Depending on your circumstances, there are likely to be things that you can do to
minimise the problems and reduce your tax liabilities.

You should always take advice when looking to purchase property in and/or move
to any country, as tax rules and methods of calculation vary from country to country.
An adviser with a good understanding of both jurisdictions can help you understand
the tax implications of your move and work out how to make your money work for
you, protecting it against unnecessary taxation, and how to make the most of the
opportunities available.

The Blevins Franks Guide to Taxes in MONACO | February 2010

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Have you actually left the UK?

One of the biggest problems people can have when they decide to move abroad is that
although they think they have left the UK, they will actually remain UK resident under the
UK domestic tax rules.

There is no statutory definition of ‘residence’ in the UK, and the rules have been
developed over many years and court cases. Residence is a matter of physical presence
in a country, either in terms of time spent there, or the quality of the time spent there, and
the quality of your connections with that country, in some cases.

The UK has time-based residence rules: if you spend more than 183 days in the UK
during a UK tax year, which is a statutory test, or more than 91 days per UK tax year
(averaged over four UK tax years) in the UK, you are UK resident.
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The 91 day rule can be misleading and

is misunderstood by nearly everybody
First of all this ‘rule’ is NOT law and is completely ignored by the UK Courts. The Courts
only deal with law, and the 91 day calculation, or rule as it’s often referred to, appears in
a Revenue publication which HMRC preface by saying that it does not represent the law
and is for general guidance only and so cannot be relied upon.

Secondly, even if you spend far less than 91 days in the UK each year, you may still be
regarded as UK resident on the basis that you have not ‘left’ the UK. You first have to
leave the UK permanently or indefinitely for a settled purpose. UK case law is littered
with stories of people who claimed to have left the UK, and who subsequently spent less
than 91 days in the UK each year, but were found by UK Courts to have remained UK
tax resident because of the pattern of their lives, and the quality of their connections with
the UK.

Examples of individuals who were in the UK for less than 91 days, yet were found to have
remained UK resident include Mr Shepherd, the airline pilot who unsuccessfully claimed
he was resident in Cyprus; Robert Gaines-Cooper who claimed to be resident in the

The Blevins Franks Guide to Taxes in MONACO | February 2010

Seychelles; and Mr Grace, another airline pilot, claiming to be resident in South Africa.

The quality of your connections with the UK still count – an individual whose family all
live in the UK but who works abroad and commutes back to the UK on some weekends
could still well be UK resident. The same could apply if you retain accommodation for
your use in the UK; where your family is based, and where your business and social
connections are. So day counting in itself is not always an accurate guide as to where
you are resident.

What will your position be if you retain a property in the UK? Could it be argued that your
property overseas is much more of a holiday home rather than a permanent home base?

As the UK does not have a Double Tax Treaty with Monaco, it is very important that you
do not fall foul of the UK residence rules when you move to Monaco, as you will not have
any Treaty protection.

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Are you paying tax in the right place?

The opposite can also be true: many people move abroad and continue to wrongly
pay tax in the UK. This can happen particularly where some people just never declare
themselves to the Monaco tax authorities at all, assuming that they should continue
paying tax in the UK. It can be all very confusing unless you receive specialist advice.

People who do this may end up paying more tax than they should, and, had they taken
advice before they left the UK, could have put into place tax-efficient structures for their
money, saving them taxes and increasing their available income.
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Residence in Monaco
Monaco residency offers a person the unique advantage of living in a country which
does not tax its residents on their income or capital gains (unless you have French
nationality). Furthermore, a Monaco resident does not even have to lodge a tax return.
Thus, becoming a Monaco resident is the ultimate tax planning arrangement for medium
and high net worth individuals.

Becoming a Monaco resident is not difficult (providing you do not have a criminal record)
and is certainly not just for millionaires. Property is very expensive, and the city is tiny.
Residency requires renting a property suitable to meet the needs of those concerned (e.g.
if you have a wife and three children, renting a studio would not be suitable). After renting
a flat and making an application at your local French consulate for Monaco residency you
are interviewed by the Monegasque police who prepare a dossier on your life history.
The Monegasque authorities will want a certificate from your bank stating that you have
enough funds to support yourself and your family. While each bank has its own idea of
what ‘enough funds’ is, traditionally it has meant having enough money in your account
on the day that the certificate is requested to pay your rent for one year.

Monaco welcomes foreigners wishing to become resident although, given its physical
size, some degree of control is exercised.

The Blevins Franks Guide to Taxes in MONACO | February 2010

For any individual over sixteen years of age, and who wishes to spend more than three
months in Monaco, a Monegasque residence card must be obtained. The procedure to
become a resident will depend upon whether or not you are a national of an EU state.

EU nationals make an application for a residence card directly in Monaco. The process
takes approximately one and a half months.

The first residence card obtained is valid for one year and is renewed twice, after which
it is replaced by a card valid for three years. This is also generally replaced twice at
intervals of three years, after which you can receive a ten year residence card.

If you hold a one-year or a three-year residence card, you are expected to spend at least
three months in each year in the Principality. If you wish to obtain a ten-year residence
card, you will have to show that your ‘usual and effective’ place of residence is Monaco,
which generally means six months’ residence a year is required.

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Taxation in Monaco
There is no income tax, capital gains tax or withholding tax in Monaco on individuals
resident there.

However, French nationals who choose to reside in Monaco will continue to be taxed in
France as if resident in France, except in very limited cases.

Employees pay social taxes of around 14% on their salaries. The exact rate depends on
salary level and the benefits provided by the employer.

The sale of real estate located in Monaco is subject to a 7.5% transfer tax on the sale
proceeds.

Estate duty is imposed, but only on Monaco-based assets and not on inheritances
to children or spouses. Monaco’s principal tax revenue comes from VAT applied in
accordance with French rules and is currently 19.6%.
The Blevins Franks Guide to Taxes in MONACO | February 2010

The Principality operates a tax on the profits of any business conducted from Monaco.
This tax applies regardless of how the business is structured. It applies therefore to
private individuals, unlimited liability companies, branches and limited liability companies
alike, in the same way.

The tax applies at a rate of 33.33% on net profits, but there are notable exceptions to the
standard rule.

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Are your investments tax efficient for you?

For UK residents, income derived from ISAs, PEPs and Premium Bond winnings are all
completely free of tax. However, did you know that although anyone may hold Premium
Bonds, regardless of where they are resident, only UK residents may contribute to an
ISA? If you are non-UK resident, you may continue to hold an ISA, but you can no longer
put further funds into such investments once you have left the UK.

Although you will not be liable to pay tax in Monaco on your investment income, if you
continue to hold UK investments you may still be liable to UK tax on the income, even
as a non-UK resident. It all depends on the level and exact nature of your UK source
income.

In order to avoid UK taxes, you may wish to consider restructuring your investments and
moving them out of the UK. Specialist advice should be sought.

What about your pension income?

The Blevins Franks Guide to Taxes in MONACO | February 2010

As there is no Tax Treaty between the UK and Monaco, your UK pension income will
remain subject to UK tax even though you are resident in Monaco.

If you intend to remain non-UK resident on a long-term basis, and depending on the type
of pension you have, it may be possible to transfer your pension out of the UK, without
any UK tax charge. The income will then no longer be subject to UK income tax, and, in
addition, the pension fund will be outside of UK inheritance tax on your death.

There are many other benefits of transferring your pension outside the UK, including
the avoidance of the requirement to buy an annuity, and, once you have been non-UK
resident for five years, avoidance of the potential UK death tax charge of up to 82%
which can apply to UK pension funds in certain circumstances.

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What about your UK rental income?

Many people retain UK property to ‘let’ out when they leave the UK. For some, this is
their ‘pension’ fund and they may have one or more buy-to-let properties. Others are
unable to sell their UK main home when they leave the UK, and so decide to let it out to
provide an income.

This income remains taxable in the UK, and must be reported on your UK tax return each
year.

You could also be liable to UK capital gains tax when you sell a UK property unless you
remain non-UK resident for 5 complete and consecutive UK tax years.

There will be no tax charge in Monaco on the income or capital gain.

There are alternative methods of investment available that are much more tax-efficient,
and even where a property is not selling or being sold, it is worth taking advice to see if
there is anything that can be done to mitigate taxes.
The Blevins Franks Guide to Taxes in MONACO | February 2010

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What if you own a property in France?

France applies a notional income tax on individuals resident in a tax haven who own
property in France. The tax is assumed to be three times the annual rental value of the
property (usually 5% of the capital value).
However, the good news is that under EU principles of non-discrimination, EU nationals
resident in Monaco cannot be assessed to the notional income tax on French property
they own.
If you own French property, as a resident of Monaco, there are ways of structuring the
ownership of the property so that you minimise French wealth tax and succession tax,
and avoid French succession laws where a certain portion of the property must pass to
your children on your death. Further advice should be sought from an adviser who knows
the laws of both jurisdictions.

Who is going to inherit your assets?

The Blevins Franks Guide to Taxes in MONACO | February 2010

Monaco is a civil law country and residence in Monaco may mean that Monegasque
internal succession law will determine how your estate devolves on death. These rules
favour members of the immediate family in blood line, and may run contrary to your
wishes.

Monegasque succession laws can be avoided by UK nationals by setting up a Trust

(either during your lifetime or in your Will) once resident in Monaco, or by ‘transferring’
an existing Trust to Monaco. Such a Trust is subject to strict formalities and specialist
advice should be sought.

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Inheritance tax
Whilst estate duty does exist in Monaco, it is payable only on Monaco-based assets.
Assets passing to direct heirs and spouses are taxed at 0%. Otherwise, rates of up to
16% apply.

However, if you remain domiciled in the UK, you may still be liable to UK inheritance tax.

UK inheritance tax is based on your domicile status, not your residence status. You
can remain UK domiciled for many years after you have left the UK. It is quite difficult to
change your UK domicile status, particularly if you have ongoing ties with the UK, such
as properties available for your use, business or financial interests, family, investments,
etc. In some cases, you may never lose your UK domicile status.

If you remain UK domiciled, UK inheritance tax will be charged on your worldwide assets,
regardless of where they are situated.
The Blevins Franks Guide to Taxes in MONACO | February 2010

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Summary
There are many issues facing UK nationals looking to move to Monaco, and a lot
of these can be dealt with very easily, in many cases, provided you take advice.
However, to make the most out of such a move, you should take advice from a
specialist tax adviser who is cognizant of the rules in both jurisdictions and familiar
with international issues.

There is no one solution for everyone, because each situation is different, and it is
important to do your research, but there is no substitute for advice tailored to your
specific circumstances.

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trusts and companies. Blevins Franks Tax Advisory
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This guide has been prepared based on the laws of the UK and Monaco
as at 18th January 2010. It is a general guide only and, in explaining
complex matters in a simple way, cannot be relied upon as a substitute
for professional advice. Blevins Franks cannot accept any responsibility
for loss occasioned by any person’s action (or refraining from action) as
a result of reading this guide. You must take detailed professional advice
relevant to your particular circumstances before any action is taken.
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