Country report Monaco

Economic overview

In 2021, Monaco’s GDP reached 7.27 billion euros. 6.60 billion euros in 2019 and 5.90 billion euros in 2020. After a sharp decline of 13% in 2020, it grew by 21.6% in 2021 and above all by 5.8% compared to 2019 (in volume , adjusted for inflation).

In other words, the Principality’s economy has resumed its growth trend, with an annual average of +4.4% recorded over the decade.

However, the economic performance of the sectors shows, as every year, strong disparities depending on the sector of activity. While the vast majority of Principal Activity Sectors (GSA) have seen GDP rising, but four sectors have not recovered the pre-pandemic level, in particular the hotel and restaurant sector, the sector most affected by the health crisis, which nevertheless registers the strongest relative growth compared to 2020 (+146%).

Principal economic sectors (scientific and technical activities, administrative and support services1 , financial and insurance activities and wholesale trade) together account for almost half (47.3%) of the wealth produced.

We also note that per capita GDP has reached a record level of 81,710 euros and is increasing by 17.5% in volume compared to 2020 and by 3.9% compared to 2019.

Finally, GDP per employee, a measure of economic productivity, is also at an all-time high of 125,121, an increase of 17.0% in volume terms compared to 2020 and 5.4% compared to 2019.

The GDP calculation shows some strong trends:

  • Gross operating surplus (GOE), i.e. the productive income of businesses, is becoming the main contributor to Monaco’s GDP (44.1% excluding grants).
  • For the first time since 2007 it exceeded the wage bill.
  • Employee remuneration, which corresponds to the redistribution in the form of wages and contributions of the wealth created annually, increased by 10.1% compared to 2020 and by 4.0% compared to 2019, i.e. in greater proportions than the number of active employees .
  • The amount of taxes paid on products increases by 13.8% in 2021, mainly due to the increase in VAT and will contribute 13.8% to the wealth created net of contributions.
  • Contributions made by the princely government to support the economy during the health crisis have been doubled in 2020. These will be halved in 2021 (-44.6%), but remain higher than in 2019.

Main sectors of industry

From the point of view of the economic sectors, it should be noted that industry hosts about a quarter of the workforce (over 50% of the employed are frontier workers from Italy and France): the ”light” sectors prevail, among which it recalls the chemical and pharmaceutical industries, plastic processing, microelectronic components, electrical material, as well as some enterprises in the ”mature” sectors such as textiles, clothing, paper production, etc. The dislocation of the plants involves the port area and that of Fontvieille.

However, the preeminent activity of the Monegasque economy is represented by the tertiary sector, within which a leading role belongs to the banks and the varied financial sector. For some time the Principality of Monaco, thanks to the development assumed by its banking system, has been included in the circuits of international finance which causes considerable flows of capital to flow into it. 

A prudent system of incentives and tax breaks has then multiplied the number of multinational companies that have chosen the Principality as the registered office for their activities. Conspicuous currency revenues are ensured by tourism, which can count on an accommodation facility of over 2300 hotel rooms. In 1991, more than 200,000 visitors crossed the borders of the country. Monaco’s foreign trade is included in the French one, on whose supplies, moreover, the Principality is largely dependent (for example, there is no agricultural land in Monaco and the country must import all the commodities, mostly from France food).

Taxation for businesses in Monaco

The corporate income tax (ISB : impôt sur les bénéfices)

The creation of any commercial activity in the Principality of Monaco is subject to prior authorization from the Government which is issued within a period of 3 months; this procedure requires a series of checks such as investigations into the financial solvency of the interested parties, the commercial viability of the project and a study of the profits that the Principality of Monaco could derive from such an activity.

The corporate income tax is applied, at the rate of 33.33%, in the following cases:

companies engaged in the Principality in industrial or commercial activities and with a turnover deriving from operations carried out outside the Monegasque territory for at least 25 percent;

companies established in Monaco whose income derives from the sale or licensing of patents, trademarks, industrial processes/formulas and rights to literary and artistic works, regardless of the source of origin thereof.

With regard to the first hypothesis, it should be noted that if more than 75% of the turnover produced comes from Monaco, the company, despite being a resident, is not subject to the tax on profits.

Conversely, if there are the conditions for taxation, the income produced by the person residing in Monaco is not taxed anywhere but only that realized in the Monegasque territory. For example, the profit of a permanent establishment abroad does not discount taxation in Monaco. Moreover, verifying that the 25% threshold is exceeded is not always easy. Consider the case of operators working in the telecommunications services sector.

Each new company incorporated in the Principality and whose capital is owned, directly or indirectly, for less than 50% by other companies subject to the tax benefits from a subsidized regime in the first 5 years of activity. Specifically, in the first two tax periods the rate is equal to zero while in the third, fourth and fifth year the tax is applied on a tax base which is equal to 25% of the profits made (third year), on 50% ( fourth year) and 75% (fifth year).

The tax period coincides with the calendar year. Advances must be paid by 20 February, 20 May, 20 August and 20 November. The tax return must be sent by 30 March and any tax balance must be paid at the same time as the form is sent.

Investing in Monaco

The good performance of the Monegasque economy is closely connected to its ability to attract foreign capital. The particularly favorable tax regime makes the Principality a particularly popular destination for international operators.

Monaco is known for its tax policies, but more importantly, it is a global business hub. The country does not have an income tax, nevertheless, it generates tax income. Furthermore, the economy benefits from bilateral agreements with all European countries. The banking sector is dynamic and perfectly meets the expectations of foreign residents in the management of their assets.

With a total of 79 banks, finance companies and asset and fund management companies, the banking sector constitutes a major part of the Principality’s economic activity.

Although Monaco actively fights against money laundering, it maintains banking secrecy, but numbered accounts are prohibited.

Monegasque institutions are capable of ensuring the management of an international heritage and of offering all the services useful to local businesses (including obtaining financial resources thanks to the implementation of a special fund with the Government).

The living environment, the security of the country, the political stability and the characteristics of the tax authorities make Monaco a destination very appreciated by investors demanding on the quality of the service.

The Principality’s real estate business is thriving for two reasons:

  • The number and importance of privileges associated with a purchase (quality of life, security, banking environment, fiscal characteristics)
  • The scarcity of the territory which, despite true technological prowess, makes real estate rare.

More than half of the investments are made by non-residents who plan to settle in the Principality only in the medium term. The French, who wish to benefit from inheritance cost advantages, represent a significant part of the buyers.

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