Firms carrying out commercial or industrial activities and generating more than 25 % of their turnover outside Monaco are subject to corporate income tax.
The legal form of the company is irrelevant with regard to the application of the tax. The nature of the activities and location of transactions determines liability for tax.
In addition, income received from patents and copyright gives rise to liability for corporate income tax if the income in question is received by the company, but remains outside the scope of the tax if it is received by natural persons.
Taxable profit is established after deducting all expenditure, in particular the remuneration of the entrepreneur, directors or executives performing actual activities within the firm. A scale setting out levels of deduction for remuneration has been established for firms whose turnover does not exceed EUR 3.5 million for services and EUR 7 million for other firms.
For other companies, the level of remuneration is determined with reference to recognized international practices, in particular those used in the European Union.
Rates of taxation
The rate of taxation is:
- 33.33% for financial years commencing before 1 January 2019
- 31% for financial years commencing on or after 1 January 2019
- 28% for financial years commencing on or after 1 January 2020
- 26,5% for financial years commencing on or after 1 January 2021
- 25% for financial years commencing on or after 1 January 2022
On the understanding that capital gains from asset sales as part of business activities may, under certain conditions, be exempt if they are re-invested in the firm.
Two categories of tax relief have been introduced in the Principality:
- Business start-up scheme
Firms created in the Principality and falling within the scope of corporate income tax that carry on a genuinely new business are exempt from said tax for a period of two years and subsequently benefit from a favourable regime for the three following years, namely:
- 1st & 2nd year: no corporate income tax
- 3rd year: the tax is calculated on 25 % of profit
- 4th year: the tax is calculated on 50 % of profit
- 5th year: the tax is calculated on 75 % of profit
- 6th year: the tax is calculated on 100 % of profit.
- Research tax credit
Furthermore, it is important to note that administrative offices are subject to corporate income tax, and, generally, taxed at a reduced rate on a fixed basis corresponding to the amount required for their operation.