Tax rules for French workers in Monaco
We take a look at the situation for employees and the self-employed.
While the inhabitants of the Alpes-Maritimes have until 22 May (paper) or 25 May (online) to complete and file their tax returns, a growing number are working in Monaco each year. In 2022, according to Monaco Statistics’ Employment Observatory, they represent over 44,000 employees in the private sector and more than 2,000 new civil servants.
Since the Franco-Monegasque tax treaty was established in 1963, French taxpayers, whether they are domiciled in France or in the Principality, are subject to French rules and therefore cannot benefit from the special tax regime with exemption from income tax, which is only applicable to residents of Monegasque or foreign nationality (other than French).
David Haikel, a lawyer based in Nice and former tax inspector, confirms this. “For French nationals, only those who can prove they had been resident in Monaco for at least five years on 31/10/1962 can benefit from the Monegasque preferential tax regime,” he reminds us.
French employees in Monaco: an important detail
So do French employees in Monaco have to follow exactly the same procedures as their counterparts working in France? Not quite. Mr Haikel points out that there are some slight differences that employees in the Principality should pay attention to.
“French employees who work in Monaco and are domiciled in France, and who are covered by a social security scheme in France, must pay social security contributions (CSG-CRDS) at the total rate of 9.7%, applicable to 98.25% of their gross salary, if this does not exceed 175,968 euros, or 100% above that. The rate for retirement pensions is 10% because of the CASA [additional autonomy solidarity contribution, Ed.] which should be added. It is therefore important that these employees declare this amount in the appropriate boxes on forms 2042 and 2047, and make the necessary down payments themselves. However, if the employees are only covered by the Monegasque social security system, they are not subject to these social security levies,” he explains.
And what about the self-employed?
As far as French auto-entrepreneurs are concerned, as a general rule, they are also subject to income tax in France, given the special status of this type of business, which does not exist in Monaco (except if they have only one permanent establishment, located in the Principality).
They are therefore, in theory, subject to the common law rules governing self-employment in France (micro fiscal, micro BIC or micro BNC regime). “On the other hand, for companies with a real permanent establishment in Monaco (and not in France, as is the case for example for Monegasque construction companies, with worksites in France lasting for more than 12 months and that have human and material resources in France), the Monegasque tax on profits (33%) only applies if these companies make more than 25% of their turnover outside the Principality, or if their business in Monaco consists of receiving income from patents or literary or artistic property rights,” explains Mr Haikel.
In both cases – employee or self-employed – the French rules on tax reductions (for example, in the case of children attached to the tax household) also apply in Monaco. Similarly, in the event of non-payment or fraud, again, French legislation applies.
As a reminder, tax evasion is punishable by a fine of 500,000 euros and five years in prison. Late payments will incur a penalty of 10% of the tax due.
I own property in Monaco, what should I declare?
The last point to be aware of is that although there are no residential taxes or real estate wealth tax (IFI) in Monaco, French citizens who are domiciled for tax purposes in Monaco are liable to pay the IFI under the same conditions as those who are domiciled in France, i.e. on all their real estate assets, whether they are located in France and/or Monaco.
It should be noted that French citizens domiciled in Monaco will have to pay council tax on their secondary residence located in France and, from the 2023 return, are required, in the same way as any French tax resident, to file an occupancy and rent declaration for their property in France.
Succession, donations: what are the rules?
As regards inheritance tax, the 1950 Convention divides the right to tax inheritance between Monaco and France taking into account the geographical location of the property that is being passed on, irrespective of the tax domicile of the donee or heir (except for shares, bonds and debts which are taxable in the State where the deceased was domiciled at the time of death, irrespective of the heirs’ domicile).
For donations, and in the absence of a tax treaty with Monaco, the Code Général des Impôts (French fiscal regulations) sets the criteria for determining whether a donation is taxable in France.
If the donor is domiciled in France, all transferred assets, whether owned directly or indirectly, located in France and Monaco, are taxable in France. On the other hand, if the donor is domiciled in Monaco, the free transfer tax system depends on the tax domicile of the beneficiary:
– if the beneficiary is not resident for tax purposes in France on the date of transfer or has not been resident for tax purposes in France for at least six years during the ten years preceding the transfer, free transfer tax only applies to assets located in France
– if the beneficiary is domiciled for tax purposes in France on the date of transfer, the assets located in France and Monaco are subject to free transfer tax. However, this provision only applies if the beneficiary has been domiciled for tax purposes in France for at least six years during the ten years preceding the year he/she receives the assets.
“The tax rate depends on the degree of kinship between the deceased (or donor) and the heir (or beneficiary of the gift). Where there is direct filiation (between parents and children or between spouses), there is no tax. Between brothers and sisters, the tax rate is 8%, between uncles/aunts and nephews/nieces 10%, and between other parties 13%. The rate that applies between non-relatives is 16%,” says Mr. Haikel.
Of course, these are all general rules and do not take individual situations into account. If you are in doubt, the best thing to do, according to Mr. Haikel, is to consult a tax lawyer: “for example, there are exemptions for French nationals who are married to a Monegasque or foreign national. In this case, taxation in France only applies to the income of the French national in the couple. A declaration for this income alone should therefore be filed by the household with the Monaco residents’ department of the Menton public finance centre.”