Monaco: Country and Foreign Investment Regime

Monaco Geography

The principality of Monaco is an "independent" nation state situated on the French Riviera near Italy and lying some 985 kilometers south east of Paris. It is approximately 2 square kilometers in size and after the Holy See is the smallest country in the world.

Monaco is hilly, rugged and rocky with its highest point standing at 140 meters above sea level. The capital is at Monaco-Ville. Despite its size the Principality can be subdivided into 5 zones of which the most famous is Monte Carlo.

The climate is mild with the Principality enjoying more than 300 days of sunshine a year; the average temperature is 8.2�C in winter and 25.5�C in summer.

Monaco (like France) is on Greenwich Mean Time plus one hour in the winter and Greenwich Mean Time plus two hours in the summer. Nice airport is 22 kilometres away and can be reached by car in 30 minutes or by a special helicopter link in 6 minutes. From Nice there are regular direct flights to major European, North American and Asian cities. The Monaco-Monte Carlo (SNFC) railway station is a stop for many trains covering international routes. Access roads connect to the A8 motorway which links up with the entire European transport system.

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Monaco Population, Language and Culture

The Emperor Henry VI gave Monaco to the Genoese in 1191, and occupied it until the Grimaldi family seized it in 1297. France recognised its independence in 1489 and after a period of Spanish dominance the Treaty of Peronne gave Monaco autonomy under French protection in 1641. With revolutionary, Napoleonic and Sardinian interludes this has remained the situation ever since.

The population of Monaco is approximately 30,539 people (July 2011). About 16% of the population are Monegasques with the remainder being a cosmopolitan mixture of expatriate French, Italians, British and other European nationalities as well as Americans, Canadians, Australians, South Africans and a spattering of individuals from Middle Eastern countries. All in all 142 different nationalities reside in the Principality. The indigenous Monegasques are largely Roman Catholic and culturally speaking consider themselves part of the French hinterland.

The language of Monaco is French, although Italian and English are also spoken, among many other languages.

Monaco Government

In 1911 Monaco adopted its first constitution, which was amended in 1962. In 1963 Prince Rainier (Grimaldi) signed a major treaty with France which incorporated the provisions and terms of a number of previous treaties and which guaranteed Monaco "independence" subject to French control and subject to assimilation with France in a number of legal & economic areas, including a monetary and customs union. In 1993 Monaco became a fully fledged member of the United Nations. Defense and security matters are handled by France.

The Principality has a constitutional, hereditary monarchy in which the sovereign wields overall executive power. Prince Albert II, who succeeded his father Prince Rainier in 2005, represents Monaco in its relations with foreign powers and he alone can sign and ratify treaties.

The 24-seat National Council, whose sole function is to accept or reject legislation proposed by the sovereign and to vote on budget proposals, is elected by universal suffrage, with a 5-year residence qualification. Elections are held every 5 years. 16 members are elected by a list majority system, and 8 by proportional representation. The National Council meets twice a year. The sovereign makes all judicial and diplomatic appointments as well as selecting an executive Council of Government which consists of a Minister of State and a Minister of the Interior (chosen from a list proposed by the French Government) and 3 Monegasque councillors responsible for finance, social services and building. There are no political parties in Monaco.

Monaco is not a member of the European Union but because of the large number of French laws which apply there and because of its full customs and monetary union with France a number of European directives which apply in France indirectly apply in Monaco.

Monaco is a civil law jurisdiction with its legal system based on the French Napoleonic code. A number of French laws in areas as diverse as insurance, postal services, telecommunications, banking confidentiality, tax payable by French nationals, and permanent establishment requirements apply in the Principality.

The legal system consists of 4 tiers of courts irrespective of whether the matter involves criminal or civil issues. A single judge deals with relatively minor offences. Above the single judge is the Court of First Instance which consists of a panel of several judges presided over by a president and which both hears appeals from the single judge and deal with cases involving more serious legal issues. Appeals from judgments of the Court of First Instance are lodged with the Court of Appeal. The final Court of Appeal is the Cour de Revision which is made up of French judges.

Additionally there is a constitutional court where an aggrieved party claiming an infringement of his constitutional rights can bring an action.

The judiciary is appointed by the sovereign but consists entirely of French judges seconded to the courts of Monaco. Procedure is modeled on and virtually identical to French civil and criminal procedure. Proceedings are inquisitorial and although the judges are not bound by precedent its persuasive value is very strong. Notaries are appointed by the sovereign.

In December, 2006, Prince Albert II and then French President Jacques Chirac signed new agreements regulating the Franco-Monegasque relationship, including:

The revision normalises Monaco�s relationship with its larger neighbour, putting the two States on equal footing, updating the 1930 convention, and giving the Principality the autonomy promised in the build up to its entry into the Council of Europe. The agreement removes the restriction whereby French civil servants are appointed to many important positions in Monaco.

In May 2008, Franco-Monegasque agreements and conventions concerning administrative cooperation, judicial assistance and investor security were ratified.

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Monaco Economy and Currency

The Euro is the official currency of the Principality, which operates a monetary union with France. The French franc ceased to be legal tender on February 17 2002.

In 2006 the government launched a large scale statistical survey with the aim of determining the Principality�s Gross Domestic Product as well as the Gross National Income. In April 2007, the government announced a GDP figure for Monaco of EUR3.4 billion, with average per capita income at EUR50,000. Unemployment is very low.

Government Counsellor for Economy and Finance, Franck Biancheri, explained that the statisitical initiative was being undertaken to follow through on a commitment by Prince Albert II to contribute 0.7% of the Principality's GDP to the United Nations' Millennium for Development project.

Biancheri explained that the survey will also enable Monaco to calculate its compulsory contributions to international organizations, while giving the Principality economic evaluation and indication tools comparable to those of other countries.

The lack of a structure for the collection of income declarations or national accounts statistics, in addition to economic boundaries that are hard to define has meant the Principality had hitherto not been able to calculate its own GDP.

"Often asked about this, all the more striking given Monaco�s image as being prosperous, the Principality has decided to make up for this lack of information," the government said in a statement at the time.

The survey was sent out to nearly 6,500 companies and professionals.

Biancheri stressed that the information would not be used for fiscal purposes, and he assured that all information would remain confidential.

The economic base of the Principality includes casinos, financial services, capital-intensive, environmentally friendly light industries and tourism. Value added tax levied on services offered by hotels, banks and the commercial sector accounts for 55% of the Government revenue with a further 25% coming from tourism and another 16% coming from state monopolies such as the tobacco industry, telecommunications and the post office.

Since 1950 Government policy has been to encourage green industries with a high capital yield with the consequence that a number of companies involved in reprocessing, packaging, printing and the manufacture of cosmetics, pharmaceuticals and clothing have located to the Principality. Monaco is also famous for its laboratories. Given the shortage of land many industrial enterprises are housed in buildings which rise to 13 floors.

In recent years financial services have shown the most spectacular growth, and even in 1993 were considered to account for about 50% of gross domestic product. Nonetheless the Government actively discourages the perception of Monaco as a tax haven with the result that Monaco could be said to have only limited offshore center characteristics.

In 2004, Monaco was forced to join the EU's Savings Tax Directive regime, and agreed to impose a withholding tax on the interest income of EU residents at the same rate as Austria, Belgium and Luxembourg (initially 15%, rising to 20% from July 1, 2008, and to 35% from 1 July 2011) and to hand over 75% of such revenues to the Member State of the EU resident concerned. Monaco also agreed to exchange information on request in criminal or civil cases of tax fraud or similar misbehaviour.

Monaco has about 3,000 hotel bedrooms, mostly 4- or 5-star.

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Monaco Entry and Residence

Monaco and France share rights of entry, domicile laws and procedures. The residents of both territories can circulate freely in each country. A person who has a right of entry into France has a right of entry into Monaco (including, obviously, all EU citizens).

Any non-French national wishing to take up employment in Monaco must obtain a work permit from the authorities. To obtain a work permit the foreign national must submit a visa application, a contract of employment and evidence of a fixed address in Monaco. There are no quotas on the hiring of foreign nationals and work permits are not hard to obtain but Government policy is for priority to be given to residents and nationals of Monaco.

Any person wishing to reside in Monaco for more than 3 months must apply for a residence permit. The rules for the grant of a residence permit were agreed with France in 1998 and distinguish between European Union nationals and others.

The procedure is for the applicant to present himself at the local police station for interview with documents in hand proving identity and with a letter from a bank verifying sufficient assets or income to support himself and any dependants during the duration of his stay. A residence permit will not be granted where it is shown that the applicant has a conviction for a serious criminal offence.

A residence permit is usually issued within 45 days from the application and initially is valid for 1 year and must be renewed annually for the next 2 years. Thereafter the resident permit is granted for 3 year periods and after having had a residence permit for 9 years an applicant is entitled to one which is valid for a period of 10 years. A 10 year residence permit entitles the applicant to apply for citizenship. Alternatively any person whose father is a national of Monaco can acquire Monegasque nationality as of right.

There are no restrictions on foreigners or locals purchasing real estate in Monaco.

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Monaco Business Environment

Although attractive to individuals as a low-tax residence, a number of factors suggest that the Principality is not an offshore financial center in the traditional sense:

All businesses in Monaco, including branches of foreign corporations, require preliminary authorization from the Government irrespective of the nature of the activity. The procedure is for the applicant to deliver a complete dossier to the local Department of Trade setting out the activity envisaged, details of investors, expected levels of staffing, evidence of the availability of suitable premises for the type of economic activity proposed and guarantees for the payment of any taxes arising.

The Government must be satisfied that the planned activity fits in with its economic policies and is very selective. It may require an audited, successful 3-year track record, and the deposit of sufficient sums to show that the entity is properly financed. The granting of permission may take several months. Licenses when granted are granted for a period of 3 years.

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Monaco Import of Foreign Capital

Since Monaco has a monetary union with France, and by extension with the euro-zone, there are no exchange controls. Monaco's currency became the euro on February 17, 2002.

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Monaco Investment Incentive Schemes

In 1991 Monaco introduced an incentive regime to encourage the creation of new businesses: companies created after 1991 whose share capital is held less than 50%, directly or indirectly, by other companies, are exempt from the Business Income Tax (which is 33.33%) for the first two years, and are taxed at a reduced level for the following three years.

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