Regulation of the activity of property dealers: Law no. 1.560 of 2 July 2024 published

Law no. 1.560 of 2 July 2024 on the regulation of the activity of property traders (JDM no. 8705 of 26 July 2024) is the result Government Bill no. 1064 tabled in Public Session on 18 October 2022 and adopted by the Parliament on 27 June 2024, which followed on from Parliamentary Draft Law no. 252 adopted by the Parliament on 10 May 2021.

PURPOSE

Law no. 1560 subjects the activity of property dealers to specific conditions and constraints, with new legal obligations, and overhauls the tax benefits available to property dealers, subject to certain conditions. The aim is to maintain the principle of a preferential regime, while generating tax revenue for the State budget. The tax provisions will come into force on 1 September 2024.

Under previous Monegasque legislation:

• the profession of property trader is subject to the common law regime of authorisation and administrative declaration of practice provided for by Law no 1.144 of 26 July 1991, as amended, concerning the exercise of certain economic and legal activities, or by the Ordinance of 5 March 1895 on limited companies and partnerships limited by shares, as amended.
• Furthermore, the activity of property dealers benefits from an advantageous tax system with the exemption from registration duties in respect of transfer duties for valuable consideration, subject to the resale of the property acquired within a period of 4 years (without the obligation to carry out works), by virtue of Law n° 1044 of 8 July 1982 concerning the exemption from registration duties relating to operations carried out by property dealers, public sales of certain tangible movable property and contracts for works, supplies or supplies.

More generally, the Law is intended to respond to concerns such as "certain past abuses - which may be detrimental both to this activity and to the real estate sector and, more generally, to the Principality's reputation" (Explanatory Memorandum, p. 2).

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SUMMARY

The Law regulates the profession of property trader autonomously in terms of:

— operating conditions (Chapter II): filing of a declaration or administrative authorisation to operate, as appropriate; financial guarantee allocated to the payment of registration duty in the event of default, civil liability insurance;

— tax (Chapter III): exemption for half of the registration fees applicable to transfers for valuable consideration, subject to compliance with four cumulative conditions, including a commitment to resell within a period of 3 years, which may be extended by 1 year on request, and compliance of the property with current standards set by Sovereign Order, particularly in terms of electricity and energy.

Administrative and criminal penalties (Chapter IV) for property dealers, lending one's name ("prête-nom") and insurance companies in the event of failure to comply.

Finally, transitional provisions govern the conditions of application of the law as from its entry into force (Chapter V).

A Sovereign Order will determine the terms and conditions of application of the Law.

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IN DETAIL

♦ Definition of the property trader's activity (Chapter I) :

It "consists of natural or legal persons carrying out, on a regular basis and for their own account, transactions to purchase immovable property, goodwill, shares or corporate units in non-trading companies referred to in article 13 bis, number 7, of law no. 580 of 29 July 1953 on the adjustment of registration and mortgage duties, as amended, with a view to reselling them". (art. 1)

In accordance with articles 1 and 2 of the Commercial Code, property dealers are subject to merchant status and to the general rules governing all commercial activities.

This definition is based on the previous article 1 of Law no. 1044 of 8 July 1982, which lists the transactions in which property dealers engage (article 1 of Law no. 1044 will be repealed, as the tax regime for these transactions will henceforth be established by the present law - see below).

Article 13 bis of Law no. 580 refers, in number 7, to shares or units in non-trading companies "registered in Monaco, other than those in the form of a public limited company or a limited partnership, and whose corporate assets, held directly or through a holding in one or more other non-trading companies, comprise immovable property or rights in rem relating to immovable property located in the Principality".

As before, "developers ('lotisseurs'), i.e. persons who acquire immovable property with a view to developing it and dividing it into lots or bringing it together with a view to reselling it, are treated in the same way as property dealers".

♦ Conditions to be met in order to carry on the business of property trader (Chapter II):

— Declaration or administrative authorisation (art. 2):

• Individuals of Monegasque nationality, when the activity is not carried out through a limited company or a partnership limited by shares ("société anonyme" or "société en commandite par actions"): filing of a declaration of practice with the Minister of State under the conditions provided for in article 2 of Law no. 1.144 of 26 July 1991.
• Persons of foreign nationality wishing to carry on business as an individual or through a company other than a limited company or a partnership limited by shares : administrative authorisation to carry on business from the Minister of State on the basis of articles 5 and 7 of Law no. 1.144 of 26 July 1991.
• Persons of Monegasque or foreign nationality wishing to carry on business through a a limited company or a partnership limited by shares: administrative authorisation from the Minister of State on the basis of the provisions of the Ordinance of 5 March 1895. It should be noted that draft law no. 1094 envisages replacing the said Ordinance, which would be repealed.

— Obligation to prove actual residence ("résidence effective") in the Principality (art. 3):

The issue of an administrative authorisation is subject:

• for individuals practising in their own name and managers ("gérants") of limited liability companies ("société à responsabilité limitée") proof of actual residence in Monaco.
• for legal entities, direct or indirect ownership of at least 75% of their share capital by individuals of Monegasque nationality, or who can prove, if they are of foreign nationality, that they are actually resident in Monaco..

The criterion adopted for the partners and shareholders of all legal entities, including limited companies and partnerships limited by shares, aims to "contain the number of property dealers, while ensuring the existence of close links between the holders of the share capital and the Principality". (Report on Bill no. 1064, p. 6).

The "direct or indirect" nature of the holding is intended to "make the measure more efficient, particularly in the case of a holding through one or more companies, or where the shares are jointly owned". (ibidem)

Foreign nationals must prove that the main centre of their personal and economic interests is in the Principality. Mere close links or serious ties with the Principality would prove insufficient, and proof of residence would not be deduced from the mere possession of a resident's card.

Persons of Monegasque nationality are presumed to fulfil the condition of effective residence.

— It should be noted that the Finance and National Economy Committee removed a legal condition for the issue of an administrative authorisation relating to the absence of over-representation of property dealers in the Principality, applicable to foreign nationals.

While the Committee was in favour of regulating the number of property dealers, it felt that the inclusion of this provision in the law "was not appropriate", on the grounds that it "corresponds to the prerogatives, already existing in practice, of the Minister of State". (Report on Bill no. 1064, p. 7).

— Obligation to obtain a financial guarantee (art. 4 to 7):

• Any natural person or legal entity making a declaration or applying for an administrative authorisation is required to "provide evidence of having obtained a financial guarantee allocated to the payment of all or part of the registration duty" in respect of transfers for valuable consideration (see below), "in the event of default", "from a bank or financial institution authorised to give guarantees and having its registered office or branch in the Principality".
• It "must be given in the form of a first-demand guarantee ("garantie à première demande") to the Treasury", and no exception may be made to its execution (regardless of changes in the financial or legal situation, including in the event of a judgement ordering the liquidation of assets against the property trader or the cessation of business).
• In the event of the guarantee being withdrawn, the bank or financial institution and the property trader are required to inform the Minister of State without delay.

The terms and conditions and minimum amount will be set by Sovereign Order.

— Obligation to take out professional indemnity insurance ("contrat d’assurance de la responsabilité civile professionnelle") (art. 9 to 10):

• Any natural or legal person making a declaration or applying for administrative authorisation is required to take out the insurance policy "with a general insurance agent or insurance broker approved to practice in the Principality".
• In the event of suspension of cover, denunciation of tacit renewal or termination of the contract, the insurance company or its representative in the Principality, as well as the property trader, must notify the Minister of State without delay.

The terms and conditions of the insurance contract will be laid down by Sovereign Order.

♦ Registration duties on transfers for valuable consideration ("Droits d’enregistrement en matière de mutation à titre onéreux")(Chapter III):

— Abolition of the current registration duty exemption scheme provided for in Article 1 of Law no. 1044 of 8 July 1982, subject to the threefold condition of : 1° complying with the specific obligations set out in article 8 of law no. 474 of 4 March 1948 reforming registration and stamp duties; 2° filing a tax declaration with the tax department within one month of the start of their operations; 3° stating in the deed of purchase the intention to resell within four years.

— Introduction of an exemption of half of the registration duties applicable to transfers for valuable consideration, subject to compliance with four cumulative conditions (art. 11):

1. Retention of the requirement to comply with the specific obligations set out in article 8 of Law no. 474 of 4 March 1948 imposed on persons acting as intermediaries for the purchase or sale of real estate or business assets or customers (keeping registers showing all mandates, promises of sale, deeds transferring ownership and, in general, all acts relating to their profession as intermediaries);
2. Retention of the requirement to submit a declaration to the Tax Department ("Direction des Services fiscaux") (in accordance with the model provided by the Administration), while bringing it into line with article 66, I, 1° of the Code of turnover taxes: the 1-month period for submitting the declaration is reduced to 15 days and begins to run from the date of registration in the Trade and Industry Register (RCI), which corresponds to the "commencement of operations" criterion provided for in the aforementioned article 66, I, 1°.
3. The obligation to disclose the intention to resell the property in the deed of acquisition is maintained, but in principle within a period of 3 years (instead of 4 years). The aim of reducing the resale period to 3 years is "to speed up transactions (...) and thus stimulate activity" (Explanatory memorandum, p. 14). However, this period can be extended by 1 year on request.
4. The new condition is that the purchaser undertakes, in the deed of purchase, to provide evidence, at the time of resale and under conditions specified by Sovereign Order, that the property complies with current standards, particularly electrical and energy standards.

It should be noted that the National Finance and Economy Committee has removed:

• the initial requirement for half of the registration fees to be waived, for work to be carried out (by companies domiciled in the Principality), including ancillary costs, for which the total amount paid inclusive of tax is at least equal to 5% of the purchase price of the property.
• lthe initial requirement that, in order to obtain a 1-year extension, the total amount paid inclusive of tax for the works carried out, including ancillary costs, must be greater than 10% of the purchase price of the property.

The Commission considered that the requirement to carry out works "was not adapted to the reality of the property market, insofar as the properties acquired do not always require major works", and considered that it would be "more appropriate to introduce an obligation on property traders to bring their properties up to standard, particularly in terms of electrical and energy standards (...) which is in line with the Principality's approach to environmental protection and ensures the safety of private individuals". (Report on Bill no. 1064, p. 4).

→ The 50% reduction in registration duty is payable on the basis of the rates set out in Law no. 580 of 29 July on the adjustment of registration and mortgage duties, which are currently 4.5% for individuals (art. 12) or 7.5% for transparent companies (art. 13 bis) or 10% for non-transparent companies (art. 16).

It should be noted that, in practice, property dealers should not be subject to the 10% rate, given the system of declaration and authorisation to operate as well as the obligations that apply to them.

→ If the property is not resold within 3 years, or 4 years in the event of an extension, or if it does not comply with the standards set by Sovereign Order, property dealers are required to pay the difference between the registration duty and the duty for which they are liable, by virtue of articles 12, 13 bis and 16 of Law no. 580 of 29 July 1953 on the adjustment of registration and mortgage duties, as amended, in addition to the relevant late payment interest calculated at the legal interest rate, as well as an additional duty of 5%. The duties and late payment interest must be paid within one month of the expiry of the 3 or 4 year period.

♦ Penalties (Chapter IV):

— Administrative penalties (art. 12) :

• In the cases restrictively listed by Law no. 1.144 of 26 July 1991 concerning the exercise of certain economic and legal activities or by Law no. 767 of 8 July 1964 relating to the revocation of authorisations for the incorporation of public limited companies and limited partnerships with shares / ceasing to fulfil one of the conditions of exercise provided for in Chapter II of the law / not carrying out any operations for more than 3 years, without a legitimate reason: the declaration to exercise may be suspended or rendered ineffective, or the administrative authorisation may be suspended or revoked.

— Criminal penalties (art. 13 to 16):

The fine provided for in section 4° of article 26 of the Criminal Code (from €18,000 to €90,000), the maximum amount of which may be increased to double any profit made, for:

• engaging in transactions without having made a declaration to do so or without having obtained administrative authorisation;
• lending one's name ("prête-nom") in order to make the declaration to practise or to obtain the administrative authorisation, as well as for those for whose benefit the prête-nom transaction was carried out;
• continuing to carry on business after the declaration to practise has been suspended or rendered ineffective or the administrative authorisation to practise has been suspended or revoked;

The fine provided for in point 4° of article 26 of the Criminal Code (from 18,000 to 90,000 euros) for:

• the insurance company or its representative in the Principality, as well as the property trader who fail to comply with their obligations to inform the Minister of State without delay of any suspension of cover, termination of tacit renewal or cancellation of the professional liability insurance contract;
• those who obstruct or attempt to obstruct inspections carried out by authorised agents of the Economic Development Department ("Direction du Développement Economique") pursuant to articles 18 to 20 of law no. 1.144 of 26 July 1991 concerning the exercise of certain economic and legal activities, as amended.

♦ Transitional provisions (Chapitre V):

• Application of the law to all procedures for declaring to practice and for administrative authorisation that are being examined after its entry into force (art. 17).
• Practising property dealers must comply with the provisions relating to financial guarantees and professional indemnity insurance (art. 4 to 10) within 3 months of the Act coming into force (art. 18).
• Application of the provisions relating to registration duties (art. 11) to all acquisitions made by property dealers from 1 September 2024 (art. 19).

With effect from the entry into force of the provisions relating to registration duties set out in Article 11, Article 1 of Law no. 1.044 of 8 July 1982 concerning exemption from registration duties relating to transactions carried out by property dealers, public sales of certain tangible movables and works, supply or supply contracts, as amended, and all provisions contrary to this Law, are repealed.

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