Very few people realise that the living cost in Monaco is not so high, compared to the top ten most expensive cities in the world. It is a common belief that the Principality of Monaco is an offshore country, which is also not true.

Monaco has numerous tax and VAT charges, even the EU mobile roaming does not apply in the territories of the Principality of Monaco. It is also important to know that Monaco is part of the European Monetary Zone, the European Union’s Schengen area but it is entirely independent of the European Union. Therefore, the laws that apply in the EU, will not necessarily apply in the Principality of Monaco.

The very first impression of the Principality of Monaco is that it is breathtaking without a doubt. It is an incredibly small country, the second smallest country worldwide (after the Vatican City) and its population is around 37,900 people. Nonetheless, the Principality has capitalised well on its potential. 

Monaco is an independent sovereign state, ruled by the Grimaldi family since 1297. As glamorous as it is from the outside, it can be just as difficult from the inside. Yet, one can find a real multi-cultural environment made up of many nations, which makes the whole place very interesting and lively.

Access to Monaco is very easy by air, road, or train. The airport in Nice is a 20-40 minute drive, depending on traffic, or an 8-minute helicopter flight. It is also very rarely closed because of lack of adverse weather conditions. Italy is within a 30-minute drive and there are ski resorts within a range of 1.5 to 2.5 hours of driving (or 20 minutes by helicopter).

Many people say that Monaco is about luxury and wealth, typically the Disneyland of the rich. However, one can discover  another side of Monaco as well, which is its  very friendly Mediterranean landscape  with lovely small streets (especially in Monaco-Ville), including the view of endless orange trees standing in a row beside the main roads or the small chapels.

Living in a zero debt, green and wealthy country is quite a privilege. The cultural and artistic influence of the Principality of Monaco is worthy of the greatest European capitals.

Not part of the European Union

However, one should never forget that the Principality of Monaco is not part of the European Union, only its Schengen zone and monetary zone. If you can enter the European Union, then you are also allowed to stay in Monaco for up to three months without having to apply for any kind of residence permit.

The question that excites many: is Monaco heading to join the European Union?

Theoretically, EU membership for the Principality of Monaco is unlikely as, aside from its size, unlike the constitutional monarchies within the EU, the Sovereign Prince, H.S.H. Prince Albert II of Monaco has considerable executive powers and is not merely a figurehead. The Principality of Monaco is an independent country concerning the European Union.

Since 18 March 2015, the Principality of Monaco has been officially engaged in negotiations with the European Union (EU), aimed at reaching a balanced agreement. This will allow Monaco to participate as fully as possible in the EU’s internal market, while ensuring respect for the Principality’s vital interests, taking into account its unique geographical, demographic, and economic features.

On 13 March 2019, the European Parliament adopted a report on the Association Agreement between the EU and Monaco. This document contains several  recommendations addressed to the Council and the Commission on the conduct of the negotiations, in particular concerning  taking into account the specific characteristics of the Principality.

It seems Monaco has strong perspectives on the integration of the Principality into the European Union. Yet, and to be realistic it will take a long way of negotiations if it ever happens.

EU roaming freedom does not apply

Monaco’s independence from the European Union is immediately noticeable for the thousands of tourists visiting the Principality of Monaco every day since the European Mobile Data Roaming freedom does not apply in the Principality of Monaco.

The majority of visiting people do not even notice that their smartphones have automatically selected a non-European network. This affects, not just the phone calls, but also data services are charged automatically instead of the monthly data allowance being used. In brief, as a tourist, visiting Monaco you have to expect to pay significant roaming fees; most  people are not prepared and well-informed about these extra roaming charges in Monaco.

The Principality of Monaco is an independent diamond on the Mediterranean offering invaluable benefits for its residents. For instance, the standard of living in the Principality is excellent, the life expectancy is 89.5 years, the lengthiest in the world. Monaco has first-class medical facilities in all aspects of medicine.

As an interesting fact, the Principality of Monaco is voted to be one of the happiest places to live on Earth. An air of positivity, peace, and luxury shines throughout the country and its culture each day. The whole environment is such that it to makes a positive day for you. 

Monaco offers almost 300 sunny days during the year with an annual average temperature of 16.6°C. The temperature rarely goes lower than 10°C in winter.

The country has a very good reputation when it comes to education. Furthermore, because of the general safety, most children take the bus to school unaccompanied.

The Principality of Monaco is one of the most secure places in Europe with the world’s highest police to population ratio. Even the celebrities who are frequent visitors in Monaco can  walk through without their bodyguards.

Zero tolerance for paparazzi and GDPR does not apply

The Principality takes good care of its residents and the ultra-wealthy residents enjoy a relaxed lifestyle than they would  in other countries. Monaco even has a zero-tolerance policy for paparazzi. However, personal data and privacy is not protected in the same way as it is in the European Union. 

General Data Protection Regulation, (known as GDPR) is now in force in the European Union. However, even if Monaco has entered into specific treaties with the EU – in particular on financial matters – the GDPR law is out of the scope of such treaties.

Although, if a Monaco-based business deals with clients from outside the territory of the Principality of Monaco, it has to comply with both Monaco data protection laws and GDPR as well. 

A new law in Monaco amending the current data protection legislation is soon expected. This change in legislation is also required to obtain the long-awaited “adequate level” of protection for the Principality of Monaco, which will facilitate data transfers from an EU controller.

Not an offshore tax paradise

Despite stubborn beliefs Monaco is not and never was an offshore tax paradise. Althought direct taxation is limited, it only applies to people who officially live in Monaco. This is one of the reasons why Monaco never had letterbox companies.

The fiscal climate is of course very favourable with its main attribute of the total absence of direct taxation for residents. This includes zero percent personal tax for its residents (including dividends) or capital gains tax. Also, zero percent inheritance tax applies for first-level inheritance. 

The Principality’s main source of income is the value-added tax (VAT) and is paid on goods and services in the usual way. The main direct tax levied in Monaco is corporation tax on industrial and commercial activities. The VAT is levied on the same basis and at the same rate as in France. The intra-community tax regime has been applicable since 1st of January, 1993.

Furthermore, all commercial entities in Monaco are subject to corporate tax, albeit with fairly substantial allowances for directors’/shareholders’ remuneration before tax. 

The legal form of the company is irrelevant concerning  the application of the tax. The nature of the activities and location of transactions determines tax liability.

Companies earning more than 25% of their turnover outside of Monaco, and firms whose activities consist of earning revenues from patents or artistic property rights must pay a tax on profits. This is a great model, which truly motivates  businesses to gain revenue. In case your company is not profitable, you have no obligation to pay tax.

The tax on profit was 33% until 2018; which was progressively reduced to 25% as of 1st of January, 2022. It is because of the 1962 tax treaty signed with France requires to apply the same corporate tax rate as France.

The reason why people have a  misconception about corporate taxes is might be due to the special, gradual tax relief offer in the Principality. Businesses in their 1st and 2nd years enjoy the absence of corporate income tax. From the 3rd year on the tax is calculated on 25% of profit, the 4th year 50%, the 5th year 75%, and from the 6th year the tax is calculated on 100% of the profit.

This way local businesses subsequently benefit from a favourable tax regime for five years.

No TAX benefits for French nationals and foreign investors

French Nationals who are unable to prove that they had resided in the Principality for five years before October 31, 1962, are not allowed to enjoy the tax benefits of the Principality of Monaco.

A highly important note: If you are investing in Monaco, but are not maintaining a residency in the Principality, you will be obliged to pay taxes based on your actual residency. 

The absence of personal income tax only applies if the person lives more than six months in the territory of the Principality of Monaco, and his/her activities do not infringe on any rules imposed by other countries.

EU customs benefits

On a positive note, the Principality enjoys EU customs benefits since it is part of the EU customs territory through an agreement with France, and is administered as part of France. It is actually a pretty big thing if you consider countries such as Liechtenstein, San Marino, and Andorra. For instance, Liechtenstein is a member of the EEA and it is within the EU internal market and applies certain EU laws. San Marino and Andorra are in a customs union with the bloc.

Not expensive in terms of living costs

Having said all this, Monaco is not perfect, yet surprisingly cheap in terms of living costs.

The recent Economist Intelligence report on “Worldwide Cost of Living 2021” reveals that the Principality of Monaco is nowhere to be seen in the latest ranking of the most expensive cities to live in. The report explores the rise and fall of living costs in 173 cities, measured against impactful global events.

On average, prices for goods and services have risen by 3.5% year-on-year, the highest inflation rate seen in the last five years. Having said that, Tel Aviv tops the rankings, making it the most expensive city in the world to live in. The Israeli city is followed by Paris, Singapore, Zurich, and Hong Kong.

However, as an interesting contrast, the Principality has the most expensive real estate market in the world, yet given the lack of space, apartments are generally much smaller than elsewhere.

We can say that Monaco is one of the most densely populated independent countries in the world. It also has a consequently competitive housing market with the average property only changing hands every 37 years.

Not everything is gold that shines

The landscape and the main streets of the Principality of Monaco are breathtaking. It is definitely a place where tourists come to capture their dreams for a moment. Yet, it has its challenges when it comes to topics such as “finding a home”, tourism and traffic or air quality.

The Principality can be quite noisy during the daytime with heavy traffic during the tourist season, roadworks and new building works. Due to this, during the height of the tourist season air quality can be poor by Monaco standards.  All these are happening for a good reason in the long term.

Many renovations by property developers are currently underway to provide better quality or upgraded properties in the market. New projects such as the sea extension, Testimonio 2, or MoNa Residence will be good advertisements for Monaco and will provide modern, high-grade residences. 

Monaco trademarks

To protect its quality, a Monaco-based limited company was created protecting the “Brands of the State of Monaco”; it is called Monaco Brands. It safeguards, promotes, and defends the entire portfolio of brands they own or license. 

In 2010, the World Intellectual Property  Organisation (WIPO) granted the government of the Principality of Monaco the word trademark “Monaco” and “Monte-Carlo”. However, this trademark was challenged and in 2013 the Office for Harmonisation in the Internal Market (OHIM) refused the protection of the trademark in the European Union in some cases. The “Monaco” and “Monte-Carlo” trademarks are still in place, but they were slightly updated.

Generally speaking, you can refer to Monaco as a location or as a country since the trademark Act at Section 3(1) (c) prohibits the registration of marks designating geographical origin. However, once you use Monaco as a company or commercial name, or as a product name, you breach international trademark rights. 

On January 15, 2015, the General Court in Case T-197/13 Monaco v OHIM stated that the OHIM was also correct in 2013 to find that the word “Monaco” could be used in trade, to designate origin, geographical destination, or the place of supply of services, so that the trademark has, in respect of the goods and services concerned, a descriptive character.  Therefore, the word “Monaco” can be used in goods and services applied for magnetic data carriers, paper, and cardboard goods not included in other classes, printed matter, photographs, transport, travel arrangement, entertainment, sporting activities, and temporary accommodation. 

It is obvious that Monaco and Monte-Carlo are names that have been a magnet for prestigious and luxury brands, therefore, for every other class, Monaco Brands offers partnership and licence agreements for the usage of these labels in the company, brand, or product names. 

Can a Monaco-made product be labelled as “Made in EU”?

The Principality of Monaco is a de facto member of the Schengen area since its borders and customs territory are treated as part of France, and it officially uses the Euro as its sole currency.

However, this relationship does not extend to external trade. Therefore, Monaco may not claim EU origin in this respect.

Not everyone is rich

Let’s talk about wealth. It is a known fact that 1 in 3 people are millionaires in Monaco (estimated 40% of the population), and 1 in 52 are considered as ultra-high-net-worth, which means their total asset exceeds the 30 million USD (… million GBP or … million Euro or … million CHF).

Even if the Principality has the highest density of millionaires per capita in the world, it is easy to forget that Monaco is not just a playground for the millionaires, it is much more than that. 

When we reverse these statistics, we can also observe that approximately 66% of the Principality is composed of  regular, working people. Most people enjoy a  high level of living quality, but not everyone is a millionaire in Monaco. Despite its luxurious environment, the average monthly net earnings hardly go over the estimated average of 4,200 Euro (3,680 GBP or 4,540 USD or 4,450 CHF).

Monaco license plate for non-residents

One of the interesting facts is that one can be a Monaco car licence plate holder without being actually a resident of the Principality of Monaco.

Typically, anyone who has a Monégasque ID card or a residence permit can register his/her vehicle in the Principality. However, in the case that you do not have residency in Monaco, but you own a Monaco-based property, and you can  prove that you have a parking space for your car for the period when you are not in the Principality of Monaco,  you are  also eligible to request the registration of your vehicle in the Principality of Monaco on an annual basis.

The annual car license plates have a very interesting function. On the rear plate only, there is the Monégasque coat of arms on the left side with the year number to attest that tax has been paid. By updating your license plate you also prove that you paid all  your duties, less than a 100 Euros a year.

Zero per-cent VAT on properties

0% VAT and 0% taxations are among the biggest misconceptions related to the Principality of Monaco. 

The property Value Added Tax (VAT) is applicable on operations contributing to the production and commissioning of real estate, the sales of buildings, land, and buildings occurring within five years of their completion by taxpayers for that purpose. The VAT rate is applicable on property transactions of 20%. The tax is always due by the vendor.

Completed properties are taxed on the total price and calculated based on the sales price or the actual market value of the property. If this real market value is higher than the sales price, the amount of the expenses or the value of the social dues is increased by the charges. However, VAT does not apply  to operations involving buildings or parts of buildings of over five years of age or, which, during the five years following completion have already been sold to a person other than an estate or property agent. Such operations are normally subject to transfer dues. In addition, VAT does not apply to sales of land upon which building is not permitted.  It is good to note that sales of such properties by taxpayers may be the subject of optional taxation. 

Transactions not subject to VAT are normally subject to inheritance/transfer tax.

Zero per-cent inheritance tax in Monaco

Media sources and foreign “expert” companies often state that the Principality of Monaco offers zero percent of inheritance tax, which is not quite true. 

The zero percent tax is only valid in direct line of descendants. The taxation level highly depends on the family relationship level; therefore, the tax rate varies from 0% to 16%.  

If you create a comparison purely based on inheritance taxation, the result could be surprising. Just to give you an example, Monaco’s neighbour country Italy also offers zero percent of the inheritance tax, and  it  applies on indirect lines as well. 

Monégasque law makes no provision for inheritance tax and claims, no tax on direct donations or donations between husband and wife. However, for every other parties tax due will apply at various rates: Direct line of descent (0%), brothers and sisters (8%), uncles, aunts, nieces, and nephews (10%), assets inherited by other than sisters, brothers, uncles, aunts, nieces, and nephews (13%), non-related persons (16%).

Transfer dues according to Monégasque law, only apply to assets legally owned by the deceased or donator and located in the Principality of Monaco or with situs in Monaco at the date of death or donation, whatever the place of residence and nationality of the deceased or donator.

In the Principality of Monaco, the inheritance percentage is not as important. Monaco’s legislation is much more attractive since it protects your children. In the Principality, the widow who survives does not have the classical protection of La Reserve (Last will). 

The widow has no right to the total assets. The complete system protects the children and their future, and this can be a a more positive and beneficial aspect than the pure percentage of taxation on the heritage itself.

The widow has  freedom of choice to decide, either to get the right to use the assets until her/his death or to accept a percentage of the total asset.

The formula for the percentage is calculated by the number of children and the widow. In case someone has three children,  the widow can be entitled to  25% of the assets.

By choosing the right to use the assets, the widow accepts that after her/his death, all the assets will belong to the children. During her/his lifetime, the widow may rent out the assets but she/he cannot sell them.

Divorce in Monaco

There are three times more marriage ceremonies than divorces in Monaco; however, the Principality has approximately 60-90 divorce cases each year. Due to the wealth of the residents, some of these divorces are truly high-profile cases with worldwide media attention. But it is still worth it for some  because divorcing in Monaco offers exceptional benefits for the super-rich. 

It is interesting to know that you can divorce under the legislation of the Principality of Monaco from  the very first day that you  receive your residence permit, however, it is good to consider that Monaco does not offer the European comfort of separation since there is no legal concept of shared marital property in Monaco. 

The process of divorce in the Principality is often difficult because of the country of origin of the foreign residents. For example, if a Swiss man marries a German woman and they both reside in the Principality of Monaco, they need to take into consideration three different legislations (Swiss, German, Monégasque). 

According to the Anglo-Saxon Laws, the judge can give a percentage of your wealth to your husband/wife. In the Monégasque system, the keyword is the level of life and the duration of the marriage. For very wealthy people, this difference is fundamental because it can have extreme financial implications for them. 

In Monaco, the base of compensation for the spouse is never based on the actual wealth. Based on the law, what you brought into the marriage stays yours after the divorce. Therefore, if you had a house before the marriage you can keep the house and your spouse has no right to it. The separation is based only on the commonly-built wealth. 

In case your spouse had no income during the marriage, the court is entitled to create a basic calculation of her monthly living cost, which is an indicator of maintaining the same level of lifestyle that the spouse had during the marriage. 

Based on the ruling, you could be directed to ensure this living cost to your spouse for a maximum period of five years. 

This is an exceptional benefit for the ultra-rich residents since by applying the Monégasque law they can save multimillions in a divorce.