Only French nationals pay income tax in Monaco. The amount payable is assessed according to the principles of French tax law and is paid directly to the French Government. By way of exception, French nationals do not pay income tax if any one of the following 3 situations apply:
• they had been habitually resident in Monaco for 5 years on 13th of October 1962 and they hold dual French and Monegasque nationality;
• they are attached to the Prince's household; or
• they are the French spouses of foreigners residing in Monaco and the marriage took place before the 1st January 1986.
According to a revision of the tax treaty between Monaco and France agreed in 2001, French nationals who took up residence in Monaco after 1989 began to pay French wealth tax from 2002.
For non-French nationals, residence is not an issue affecting taxation in Monaco, since income tax and capital gains taxes do not apply. However, if an individual is in business as a sole trader or on his own account, he will be taxed according to the principles of the the Business Profits Tax.
All employees in Monaco are liable to pay social insurance contributions. Social insurance contributions payable by employers and employees are high. The employer's contribution is between 28%-40% (averaging 35%) of gross salary including benefits and the employee pays a further 10%-14% (averaging 13%).
An employee who is paid part of his wage by way of stock options which can be cashed in and sold at a future point in time may be required to pay social insurance on the value of the option at the time it is realized as if the option had been a salary.
Social insurance contributions, amounting to nearly 50% of salary, are a major disincentive to the hiring of staff and in many ways detract substantially from the advantageous income tax regime which exists in Monaco.
The Principality has concluded social security agreements with France and Italy for retirement and medical expense coverage.
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