Increase in State tax revenue: Law no. 1.548 of 6 July 2023

Law no. 1.548 of 6 July 2023 containing various tax provisions, published in JDM no. 8651 of 14 July 2023, is the result of Bill no. 1048 (2021-19, 15 October 2021), received by the Parliament (Conseil National) on 22 October 2021, and passed on 29 June 2023.

The provisions of Law no. 1.548 will come into force in respect of deeds submitted for registration as from 1 October 2023, and as from 1 January 2024 in respect of the tourism contribution created.

Objectives

— First of all, Law no. 1.548 adjusts the State's tax revenues to take account of the major events that have taken place over the last three years: the Covid-19 crisis, with a year 2020 marked by a deficit of 103.2 million €, the war in Ukraine, the increase in energy prices and the resulting global inflation, and major challenges such as climate change (Report on draft law no. 1048, Committee on Finance and the National Economy).

The aim of adapting the Principality's tax revenues is "to ensure that, apart from exceptional and unforeseeable events such as Covid-19, the budgets remain balanced insofar as the Monegasque model is inextricably linked to a balanced budget". (Explanatory Memorandum to Bill 1048)

The legislator took into account the other imperative of not slowing down the development of activities and the attractiveness of the Principality, i.e. that "this non-negligible provisional increase" should have only a "limited impact" on those concerned. (ibid.)

— In addition, Law no. 1.548 is in line with the recommendations of the MONEYVAL Report on the fight against money laundering, the financing of terrorism and the proliferation of weapons of mass destruction, and corruption, by strengthening the taxation of opaque companies on the one hand, and the attractiveness of the tax regime applicable to transparent companies on the other.

These changes were made "with the constant aim of providing fair, equitable and balanced measures". (Report on Bill 1048)

Article 70 of the Constitution empowers the legislator to establish any contribution.

* * *

SUMMARY

For deeds submitted for registration from 1 October 2023:

— Increase in the amount of fixed registration duty to €50 (the same for all deeds concerned). For deeds concerning increases in the share capital of commercial companies, this fixed fee replaces the 1% registration fee and the 0.50% stamp duty.

— Increase in the amount of proportional duties (particularly on transfers of property and real estate rights), taking into account the transparency (4.75%) or opacity (10%) of the entity. The Administration will have 10 days from the date of filing of a public deed resulting from a transaction covered by article 13 bis of Law no. 580 of 29 July 1953, as amended, to register it.

— Real estate transactions subject to VAT will only benefit from a "partial exemption from registration duties, set at half the applicable registration duties" (Explanatory memorandum to Bill no. 1048, p. 8).

From 1 January 2024:

— Creation of a tourist contribution ('contribution touristique").

Texts amended:

• Loi n° 1.381 du 29 juin 2011 relative aux droits d'enregistrement exigibles sur les mutations de biens et droits immobiliers, modifiée
• Loi n° 842 du 1er mars 1968 tendant à modifier le régime des droits d'enregistrement applicable aux opérations immobilières soumises à la taxe sur la valeur
  ajoutée, modifiée
• Loi n° 580 du 29 juillet 1953 portant aménagement des droits d'enregistrement et d'hypothèques, modifiée
• Loi n° 223 du 27 juillet 1936 portant codification et modification des droits d'enregistrement, de timbre et d'hypothèques, modifiée
• Ordonnance Souveraine du 29 avril 1828 sur l'enregistrement, le timbre, les droits de greffe et les hypothèques, modifiée

* * *

IN DETAIL

♦ Fixed registration duty (from 1 October 2023)

Fixed registration duty is applicable to all deeds that are not subject to the proportional duties referred to in Law no. 580 of 29 July 1953, or in another text (Article 2 Law no. 580).

It also constitutes the minimum fee when the proceeds of a proportional fee are lower.

The amount of €10 (unchanged since the changeover to the euro) has been increased to €50 for all deeds.The Finance and National Economy Committee had envisaged modulating the amount of fixed registration duty according to the deeds concerned. However, this solution was not adopted, as the tax department preferred a single fixed registration fee for all deeds, for the sake of consistency and simplicity.

→ Deed constituting a pledge of money or securities (article 2 bis Law no. 580).

→ Transfer of property located abroad, and registration of foreign deeds and judgments (Article 18, 3rd paragraph of Article 19, Article 20 of Law no. 223).

→ Acts performed by foreign companies (2nd paragraphs of Articles 30 and 31 of Law no. 223).

→ Filing of a declaration that there has been no change in the beneficial owners (Article 14 of Law no. 1.381 of 29 June 2011 on registration duties payable on transfers of property and property rights, as amended).

→ Deeds relating to increases in the share capital of commercial companies will be also subject to a fixed duty of €50 (article 20, new 2nd paragraph of Law no. 223). The Finance and National Economy Committee felt that the change from proportional duties to a fixed registration duty, "along the lines of what exists in the neighbouring country, could be an attractive factor in attracting investors, particularly start-ups".

* * *

♦ Proportional duties (from 1 October 2023)

This applies in particular to registration duties payable on transfer of property and real estate rights.

The legislator has made a higher increase for transfers made by non-transparent entities in order "to provide a greater incentive for purchasers not to use opaque structures in line with Law no. 1.381 of 29 June 2011, as amended", which had introduced a mechanism to prevent real estate located in Monaco escaping payment of the transfer duties payable through the use of legal arrangements. Transfer duty was reduced to 4.50% for transparent vehicles.

In addition, higher taxation on transfers made by so-called non-transparent companies helps to reinforce the many commitments made by the Principality to combat money laundering and the financing of terrorism in order to comply with international standards and guarantee greater transparency in financial transactions.

As a reminder, the State of Monaco levies the following taxes on real estate: transfer taxes, mortgage transcription taxes, VAT on the sale of new buildings. Monaco has no property tax, capital gains tax, rental income tax, property tax or council tax, or any other specific local tax (refuse collection tax, etc.).

1/ TRANSPARENCY The current rate of 4.50% is raised to 4.75% for :

→ Transfers of immovable property and other transactions (listed in figures 1° to 8° of Article 13 bis of Law n° 580), carried out for the benefit of a natural person or a civil company registered in Monaco, other than those in the form of a public limited company or limited partnership, whose partners are exclusively natural persons acting on their own behalf when their identity is known to the Directorate of Tax Services ("Direction des Services Fiscaux"). (article 12 1° of Law no. 580).

→ Deeds reducing the share capital of all legal entities, referred to in article 2 of Law no. 1.381 [1], which hold rights in rem over real property located in the Principality, regardless of where their registered office is located or the legislation applicable to them, resulting in the allocation of these same rights to one or more natural persons identified as the beneficial owner. (article 12 2° of Law no. 580).

→ Change of the beneficial owner or one of the beneficial owners of any legal entity holding rights in rem over one or more immovable properties located in the Principality (article 13 of Law no. 1.381).

[1] "Legal entity": any company, legal person or legal arrangement such as, in particular, foundations, trusts, investment funds with the exception of funds widely held by the public and approved by the Directorate of Tax Services and, where applicable, by the Commission de Contrôle des Activités Financières, as well as any entity linked to an insurance company or acting on its behalf or on its mandate in the context of any insurance contract whose capital includes, in particular, rights in rem in immovable property, including a life insurance policy.

2/ OPACITY The rate of 7.50% is raised to 10% for:

→ Transactions listed in the aforementioned Article 13 bis which are carried out for the benefit of a legal entity whose beneficial owners are not: - natural persons acting on their own behalf; or - legal persons whose official documents making it possible to ascertain the identity of the beneficial owners on the day the transaction is carried out are brought to the attention of the Directorate of Tax Services by an authorised agent referred to in Article 5 of Law No. 1,381 of 29 June 2011 (new Article 16 2° of Law No. 580). Amendment by the Finance and National Economy Committee,

→ Any transaction carried out by a structure other than a civil company registered in Monaco, whose partners are not exclusively natural persons acting on their own behalf and where their identity is not known to the Directorate of Tax Services (Article 13 bis of Law no. 1.381). The government had originally increased this rate to 9.5%. For the sake of consistency, given the Commission's previous amendment, it has been raised to 10% for all opaque vehicles.

To enable the Tax Department to implement these new provisions, the Finance and National Economy Committee has adapted the time limit for registering public deeds resulting from a transaction covered by article 13 bis of Law no. 580 of 29 July 1953 as amended, setting it at 10 days from the date of filing of the said deed.

NOTE: the Finance and National Economy Committee has retained the current rate of 7.50% which applies to public limited companies, limited partnerships and commercial companies, to the following transactions (referred to in article 13 bis of Law no. 580), removing the increase to 9.5% originally planned by the Government:

* * *

♦ Registration duties applicable to real estate transactions subject to VAT (from 1 October 2023)

Law no. 842 of 1 March 1968 designed to modify the system of registration duties applicable to real estate transactions subject to value added tax, had not previously undergone any changes.

Until this reform, Article 1 of Law no. 842 provided that the registration of deeds giving rise to the payment of VAT did not give rise to the payment of any registration duty in respect of real estate transactions subject to this tax (subject to the conditions set out in the following articles).

The Government is replacing it with a "partial exemption from registration duties, set at half the applicable registration duties" (Explanatory memorandum to Bill no. 1048, p. 8). The partial exemption applies to :

→ Deeds recording either the sale or contribution to a company of building land or property treated as such by Article 2 of Sovereign Order no. 3.982 of 29 Februar1968, or the payment of compensation of any kind to persons who exercise a right of ownership or enjoyment over such buildings or who occupy them de jure or de facto, subject to certain conditions:

• the deed of purchase must contain an undertaking by the purchaser to carry out, within a period of four years from the date of the deed, the work required, depending on the case, to erect a building or group of buildings, to restore buildings to their original state, to complete buildings under construction, to build new premises on top of existing buildings or to convert buildings to a new use ;
• the purchaser must provide proof, no later than three months after expiry of the four-year period, that the planned work has been carried out by producing a certificate issued by the Department of Public Works and Social Affairs ("Département des travaux publics et des affaires sociales").

For property transactions involving land intended for the construction of detached houses, the partial exemption only applies up to a certain surface area (2,500 m2 per house or the minimum surface area required by the road regulations, whichever is greater).

The partial exemption applies without limitation to the surface area of plots of land intended for the construction of apartment blocks, provided that the buildings to be erected, together with their courtyards and gardens, cover the whole of the land acquired.

* * *

♦ Tourist contribution for people over 18, not resident in the Principality and staying in a hotel or hotel residence in the Principality (from 1st January 2024).

The list of establishments concerned and the amount of the contribution determined annually, according to the category of accommodation, per person and per night's stay, up to a maximum of €15, will be set by Ministerial Decree.

Exemptions

• Stays of more than 90 consecutive days are exempt from the contribution.
• At the initiative of the Tourism and Conventions Department ("Direction du tourisme et des congrès"), stays organised as part of professional group events may be partially or totally exempt from the contribution.

Conditions

• Information: The amount of the applicable contribution is displayed in the establishments and the Tourism and Convention Authority makes it available to anyone wishing to find out about it.
• Collection: The contribution is collected in full before the end of the stay of those liable, even if, with the consent of the establishment, payment of the accommodation rate is exempted or deferred.
• Responsibility of the establishment:
  • The contribution is payable by the establishment, even if it has not collected it.
  • In the event of the sudden and unforeseeable departure of a taxable person, the establishment's liability can only be discharged if it has notified the Tourism and Conventions Department within a maximum of 8 days of the departure of the taxable person and lodged an application for exemption with it, which, moreover (on pain of inadmissibility) must be preceded by the lodging of a complaint with the Public Prosecutor or a judicial police officer. In the absence of such a report, the contribution is payable by the establishment.
  • For the purposes of paying the contribution, establishments are required to draw up, in accordance with the conditions laid down by Sovereign Order, a declaration in accordance with the model prescribed by the Administration, accompanied by the payment of the contribution on behalf of the Treasury. Failure to produce the declaration within the prescribed time limit will result in the application of a tax fine of €1,500. If the declaration is not filed within 30 days of formal notice, the fine is increased to €3,000 and a notice of compulsory taxation is sent to the establishment concerned, which may be heard for its explanations, at its request or at that of the Tax Services Department if it considers a hearing to be useful.
  • Omissions or inaccuracies found in the return give rise to a fine of €150 per omission or inaccuracy, up to a maximum of €15,000 per return.
  • Failure to pay, insufficient payment or late payment of the contribution will give rise to the application of late payment interest calculated at the applicable legal interest rate, per month of delay.

* * *