Economy and Trade
Monaco is the second-smallest independent state in the world, and one of the richest. Both tourists and the wealthy are drawn to the country—a constitutional monarchy—by its climate, the beauty of its setting, its world-renowned casino, and its advantageous tax regime (residents do not pay income tax). The country is surrounded on three sides by France, and occupies just under two square kilometers, next to the Mediterranean sea. Customs, postal services, telecommunications, and banking in Monaco are governed by an economic and customs union with France. The official currency is the euro.
Tourism accounts for around 25% of the government’s annual revenue. The country is a major banking center and closely guards the privacy of its clients. However, Monaco’s banking and taxation system have come under criticism from France and Germany. Monaco has been accused of tolerating money laundering—claims it strongly denies. In May 2009, Monaco was removed from the Organisation for Economic Co-operation and Development’s (OECD) blacklist of uncooperative tax havens (along with Andorra and Liechtenstein) following commitments to implement the OECD standards of transparency.
Monaco has an established reputation for marine sciences with its Oceanographic Museum, formerly directed by Jacques-Yves Cousteau being one of the leading institutions in the field.
Economic Policy over 12 Months
Monaco’s prosperity has been built on tourism and the country’s status as a tax haven. Monaco has also developed a banking sector, and has encouraged the formation of small, high-value-added, non-polluting industries. The government appears intent on maintaining the policies that have created its economic success, namely levying no income tax and only low business taxes. The government also retains monopolies in a number of sectors, including tobacco, the telephone network, and the postal service, which it shows no sign of relinquishing.
In March 2009, Monaco succumbed to pressure from France, Germany, the United States, and the OECD to amend its banking secrecy laws, and became the latest country to adopt international standards for banking openness and information, under Article 26 of the organization’s Model Tax Convention, which requires the tax authorities to exchange information on request if there is probable cause to suspect tax evasion.
France had been vocal in its criticism of Monaco as a haven for money laundering, even though French citizens residing there are still subject to French tax laws. The OECD, along with officials within the European Union, had been urging the principality to make commitments to transparency, and the effective exchange of information.
In December 2008, the government discarded a multi-billion-dollar plan to extend the densely populated principality into the sea, citing the global economic crisis and environmental concerns. The plan to build a huge artificial peninsula, which would have been the size of 20 football pitches, packed with housing, shops, and tourist facilities, had drawn comparisons with the artificial islands off Dubai. The development would have increased Monaco’s territory by 5%, and was expected to cost US$5–10 billion.
Monaco’s ruler, Prince Albert, said that the decision to halt the landmark project did not indicate that Monaco’s economy was in trouble. He added that other projects in the principality would continue, including a new hospital, two housing projects, and a yacht club.
Another major source of revenue for the principality is value-added tax (VAT), which is charged at 20%, plus stamp duties. Companies face a 33% tax on profits unless they can show that three-quarters of their revenues are derived from within the principality.
Economic Performance over 12 Months
Very little information on Monaco’s economy is available. Official economic statistics are not published. However, according to a US State Department report released in March 2010, which cited estimates for 2006, gross domestic product amounted to US$6.086 billion.
Following a meeting with Prince Albert II of Monaco in June 2011, the Latvian President Valdis Zatlers provided some insight into the thinking guiding the administration of the principality. The economy, environmental protection, and culture are the main priorities in relations between Latvia and Monaco, he said. Prince Albert is a committed champion of environmental issues. In a speech to the Governing Council of UNEP in February 2008, he announced that one of his key ambitions for Monaco “is for it to become a preferred destination for entrepreneurs and investment professionals involved in the research, development and marketing of new technologies with regards to the environment.” The principality is committed to reducing its greenhouse gas emissions by 8% by 2012 in comparison to 1990.
Revenue from gambling in the principality’s casinos, commonly thought to be a principle source of revenue for the administration, in fact amounts to some 5% of revenues and is dwarfed by the contribution made by VAT, which amounts to 50%. Some 5000 companies based in the principality use the “Made in Monaco” legend. In 2009 Monoco’s banking sector comprised some 80 banks and financial institutions, and managed assets worth €75.5 billion in the principality and a further €12 billion abroad. The maritime and shipping sector counts over 200 international companies, including world leaders such as Single Buoy Moorings, which provides services to offshore oil and gas platforms.
Support for Inward Investment and Imports
For information on investing and importing goods in Monaco, please contact the Department of Finance and Economy: Ministère d’Etat, Place de la Visitation, MC 98000 Monaco; tel: 00 377 98 98 82 56.
To set up an office or a business in Monaco, it is necessary to send applications to: Economic Development Direction, 9, Rue du Gabian, MC 98000 Monaco; e-mail: firstname.lastname@example.org.
Corporate tax is the only direct tax levied in Monaco. Companies of an industrial or commercial nature that make more than 25% of their turnover outside Monaco are liable for this tax. Profits from patents and royalties are subject to tax if they go to a company, but are not liable for taxation if received by a person. The taxable profit is established after the deduction of all costs, in particular, remuneration of the holder or owner, and remuneration of directors or managers carrying out a real function within the company. The scale of these deductions is established annually and allows the tax base to be reduced. A tax rate of 33.33% is then applied to the reduced profits.
Two categories of tax incentives have been established in the principality. Companies that are liable for tax on profits, but which develop a completely new business, are exempt from tax on profits for a period of two years, and benefit from preferential treatment for the following three years. A startup company pays no tax on its profits during the first and second years of operation; it pays tax on 25% of profits during the third year; on 50% of profits during the fourth year; on 75% of profits during the fifth year; rising to 100% of profits in the sixth year.
There is also a research and development tax credit, under which administrative offices are not liable for tax on profits but are liable for a tax of just 2.66% levied on the running costs of the office.
GDP growth: 0.9% (2000 est.)
GDP per capita: €60,595 (official, 2008)
CPI: 1.9% (2000)
Key interest rate: 1% (April 2010)
Exchange rate versus US dollar: €0.755 (2010)
Unemployment: 0% (2005)
Current account deficit/surplus: n/a
Population: 35,650 (official, July 2011 est.)
Source: CIA World Factbook except where stated