Israel – Monaco Tax Treaty

Business Activity in Monaco

Monaco is located between France and Italy on the Mediterranean coast, offering residents a high quality of life. Its safe environment, appealing tax policies, and easy access—just 22 km from Nice Airport—make it a popular choice for investors and people looking for a secure place to live. Despite its small size and dense population, Monaco is diverse and cosmopolitan.

Monaco’s economy has grown steadily since COVID-19, with a GDP of €8.34 billion in 2022. Key sectors include finance, real estate, construction, and tourism. To address space limits, Monaco is building a new eco-friendly district on reclaimed land. Although not an EU member, Monaco shares customs policies with France, which helps ease trade. The banking sector manages over €150 billion, drawing high-net-worth clients from around the world. Monaco’s stability, low taxes, and prime location make it an attractive business hub.

Applicability of the MLI

Both Monaco and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Monaco on the other hand, affixed its signature to the MLI on the 7th of June 2017, and its provisions became effective as of the 1^st of May, 2019.

Residency for Tax Purposes in Monaco

Residence of an Individual

In Monaco, you prove your tax residency by getting a tax residence certificate from the local authorities. Since Monaco doesn’t have a personal income tax law, it doesn’t define “taxpayers” like other countries. Instead, it defines who qualifies as a tax resident, and only those people can apply for the tax certificate.

Conditions for the Certificate

To qualify, individuals must show that:

1. They live in Monaco for more than six months per year, OR
2. Monaco is the center of their main activities (even if they don’t stay full-time)

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

Based on the practice in Monaco, legal entities are entities that are either incorporated, or have their place of effective management, or their main establishment in Monaco.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Monaco

Monaco Tax Authority is called the Department of Tax Services.

Income taxation: There is no personal income tax in Monaco

Taxation of Companies and Branches: 26.5%

VAT: 20%

Capital Gains Tax: 24%

Withholding Tax

Inheritance Tax and Estate Tax in Monaco

In Monaco, inheritance tax only takes hold of the assets located in Monaco, irrespective of the place where one lived or died or his nationality.

Inheritance tax rates in Monaco vary based on the heir’s relationship to the deceased:

• Spouse or direct descendant: 0% (no tax)
• Civil union partner: 4%
• Sibling: 8%
• Uncle, aunt, nephew, or niece: 10%
• Other relatives: 13%
• Unrelated beneficiaries: 16%

Relocation to Monaco

Monaco’s appeal as a top global destination comes from its luxurious lifestyle, exceptional safety, and advantageous location along the French Riviera. Over 30% of residents enjoy very favorable financial circumstances, supported by a strong financial sector and low taxes. The Principality offers superb real estate, world-class healthcare, and renowned events like the Monaco Grand Prix. Its prime location provides easy access to the Mediterranean and European hubs, ideal for families and investors alike. With glamorous events, Michelin-star dining, and top schools, Monaco ensures a lavish lifestyle while maintaining political and economic stability.

Monaco, though small with a population of about 38,600, has one of the highest proportions of Jewish residents globally—over 5% of its population, or around 2,000 people. This vibrant Jewish community has grown, partly due to the opening of a new, elegant synagogue in 2017, strengthening its cultural presence in the city-state.

Real Estate Taxation in Monaco

Monaco does not impose a property tax but instead charges a transfer tax on real properties.

Real Estate Transactions:

Individuals or Qualifying Monegasque Civil Companies (private Monegasque companies with individual shareholders who reveal their ownership to tax authorities) pay a 4.5% registration duty.

If the buyer is an opaque entity (a foreign company, a Monegasque corporation, or a non-qualifying Monegasque civil company), a higher registration duty of 7.5% applies.

Notary Fees:

Buyers also pay notary fees, set at 1.5% of the purchase price.

Sale of Shares in Companies Holding Real Estate:

When shares in a Qualifying Monegasque Civil Company that owns real estate are sold, a registration duty of 4.5% applies if the buyer is an individual or a Qualifying Monegasque Civil Company. For opaque entities, the duty is 7.5%.

Transfer of Funds from Israel to Monaco

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Monaco

The main forms of legal entities that operate in Monaco include:

There are several forms of corporate entities:

Monegasque Public Stock Corporation (Société Anonyme Monégasque, or S.A.M.): An S.A.M. is ideal for large businesses, requiring a minimum capital of €150,000 and at least two shareholders. Managed by a board of directors or executive officers, it offers limited liability to shareholders and is suitable for public and international companies operating in Monaco.

Limited Liability Company (Société à Responsabilité Limitée, or S.A.R.L.): Commonly used for small to medium-sized businesses, an S.A.R.L. requires a minimum capital of €15,000 and one or more shareholders. Shareholders have limited liability, and the company’s management can be flexible, often led by one or more managers. It is not allowed to offer shares to the public.

Limited Partnership (Société en Commandite Simple, or S.C.S.): This partnership has two types of partners: general partners with unlimited liability and limited partners liable only up to their capital contribution. S.C.S. is useful for investors who want limited liability while allowing general partners to manage the business actively.

General Partnership (Société en Nom Collectif, or S.N.C.): An S.N.C. is a partnership where all partners have unlimited liability for debts and are actively involved in management. It’s suitable for closely-held businesses where partners are fully committed, but it carries higher risk due to the shared liability among partners.

Incentive Laws in Monaco

Monaco provides a tax relief program to support new businesses by gradually reducing their corporate income tax obligations over the first five years.

Eligibility for Tax Relief: Newly incorporated legal entities that start a genuinely new business can qualify for this tax scheme, often called the “business start-up scheme.”

Full Tax Exemption in the First Two Years: For the first two years after the company is established, it is completely exempt from paying corporate income tax.

Partial Tax Relief for the Next Three Years:

• Year 3: Only 25% of the company’s taxable income is subject to corporate income tax, meaning they pay tax on just a quarter of their profits.
• Year 4: 50% of the taxable income is subject to corporate income tax, so they pay tax on half of their profits.
• Year 5: 75% of the taxable income is subject to corporate income tax, with only a quarter of their profits exempt.

The “headquarters” incentive program makes Monaco an attractive location for foreign companies to set up administrative offices that manage, coordinate, or control their group’s operations. Under this program, “headquarters” in Monaco pay a low corporate income tax rate of 2.12% (reduced to 2% in 2022). This tax is calculated by applying the regular corporate tax rate to just 8% of their operating costs.

Monaco Double Tax Treaties