The use of offshore structures as a means of holding real estate in Monaco is common. The objective is usually part of general estate and succession planning or asset protection, as well as for tax planning reasons.
On a transfer of ownership the purchaser acquires the shares in the offshore entity, thus indirectly acquiring the principal or sole asset, the real estate in Monaco. By this means, the registration taxes escaped the Monaco authorities.
A law (Law 1381 dated 29 June 2011) is now in force which substantially reduces the tax payable by individuals purchasing a property in their own name or through a Monaco SCI, while slightly increasing the tax on a purchase through an offshore entity.
Registration tax reduced by 40%
The standout point of the new law is a significant reduction in the registration tax payable on the purchase of Monaco property to 4.5%. Those to benefit from this reduction will be individuals purchasing in their own name or through a Monaco registered SCI or similar “civil” companies where shareholders are individuals and their identity has been disclosed to the Monaco Tax Office.
The transfer of beneficial ownership, however small, in an offshore entity that owns real estate in Monaco will now also be subject to registration tax at 4.5% calculated on the full market value of the property. Previously, such a transaction taking place offshore escaped tax but, in a move to try to bring greater fairness, such transfers will now be subject to tax.
Other measures, outlined below, provide for certain disclosure requirements by these offshore entities in Monaco.
Which entities would fall within the disclosure obligation of the law?
All legal entities that own real estate in Monaco will be subject to the law. The only exceptions are ‘civil companies’ registered in Monaco where the shareholders are individuals whose identity has been disclosed to the Monaco Tax Office. This will include Monaco registered SCI’s and certain other companies described in the legislation. All other entities would be subject to the requirements of the law including offshore companies, trusts and foundations.
What obligations are imposed on these entities?
Those entities falling within the law must appoint an authorised representative in Monaco. In the near future, a list of representatives approved by the Monaco Tax Office will be available. A representative of Rosemont Monaco SAM has been authorised by the Monaco tax authorities to act as a ‘mandataire’ under Law 1381.
The mandataire is obliged to obtain official documentation to confirm the identity of the beneficial owner, or owners, and ensure that the information held is current and records the detail of any change to the identity of the beneficial owners.
An annual declaration must be filed with the tax office between 1st July and 30th September confirming whether or not there has been any change in the identity of the beneficial owners. If the beneficial owner has not changed in the preceding year a nominal filing fee will be payable. Any tax must be paid by 30th November each year.
The first declarations must be filed in 2012.
Penalties will be imposed for late filing with more severe sanctions for inaccurate declarations and in the case of a failure to file.
Penalties will also be imposed on a failure to appoint an authorised representative.
What is the rate of tax?
Currently, the registration tax due on the acquisition of real estate in Monaco, whether by an individual or legal entity, is levied at the rate of 6.5% on the market value of the property plus a further 1% tax on the registration of a mortgage, if any, a total tax of 7.5%.
Under the new law the tax will be either 4.5% or 7.5% of the value of the property, depending on the circumstances of the transaction.
• An individual acquiring in their name or through a Monaco registered SCI or other civil entity referred to above (providing the shareholders are individuals acquiring in their own name), will be subject to a reduced registration tax of 4.5%.
• On the acquisition by an offshore or other entity that is considered to be “opaque”, the registration tax will be 7.5%.
• In the case of a change of one or more of the beneficial owners of an “opaque” owning entity, the rate of tax will be 4.5%. The tax will be calculated on the entire value of the property in Monaco. This will not be calculated pro rata to the shareholding that is sold. It will however only be payable annual, irrespective of the number of changes throughout the year.
It should be noted that any unpaid tax will be a first charge on the property and will rank in priority to any charge or mortgage registered on the title to the property to secure the lending.
Are there transitional provisions?
For the period of one year after the passing of the Law, any real estate that is transferred out of an offshore entity to the requisite Monaco entity, such as an SCI, or to an individual, will be subject to registration tax of 1% on the value of the property. This concession is subject to certain conditions being met to ensure that it is not used to disguise a sale.
What will be the effect of the change?
We consider that the substantial reduction to the registration tax, one of the few taxes levied in the Monaco, will provide a further boost to the attractiveness of Monaco to individuals and, moreover, will encourage property investment.
We expect that the use of an offshore company to hold property may remain an attractive means of purchasing for reasons of succession planning (so avoiding the local rules on forced heirship), and for asset protection. However, it remains to be seen whether purchasers are prepared to accept the additional initial cost on purchase and higher running costs of buying through an offshore entity, in preference to a Monaco SCI or personally.
Should you require more information or wish to discuss the points raised in this news item please contact us.
A representative of Rosemont Monaco SAM is duly authorised to act as a ‘mandataire’ under Law 1381 of 29 June 2011.
Monaco Property Ownership Update - November 2011