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MONACO: An Introduction

With a surface area of about 2 sq. km, Monaco is the second smallest country in the world after the Vatican and remains, with 38,300 inhabitants (among which 9,326 are Monegasque nationals as of 31 December 2017) and a density of around 19,300 inhabitants per sq. km, the most densely populated country in the world.

Its population includes many high-net-worth individuals, as it remains very attractive from a tax point of view for its residents due to (i) the absence of income tax for individuals (except for certain French citizens and for US citizens), (ii) the absence of wealth tax and (iii) the 0% rate of inheritance tax on assets located in the Principality transferred between spouses and to children.

These features contribute to maintaining one of the highest real estate prices in the world and also to the Principality’s territorial expansion into the Mediterranean sea. The Mediterranean basin has indeed always been a vector of territorial development for the Principality, which has already reclaimed space over the sea in the past, especially for the creation of Fontvieille, the Monaco business district, between 1966 and 1973.

The Principality has been working since 2017 on developing another territorial expansion project into the sea. It was launched this year and is due to be delivered by 2025. The gigantic project costs 2 billion euros and involves building a 6-hectare eco-neighbourhood.


Monaco has a dynamic economy which has gone through a great evolution during the second half of the 20th century, from an economy dependent on the activities of the State owned Société des Bains de Mer (which runs the casinos and the major hotels in Monaco) to an economy that has developed across many other sectors, among which the most important are construction and real estate (mainly through well-structured Monaco-based family businesses), financial and insurance activities, scientific and technical activities, as well as wholesale and retail business, which amounted overall to almost 70 % of Monaco’s GDP in 2018.

The traditional sector of tourism, which made a large contribution to the international fame of the Principality, remains very important, due to Monaco’s pleasant climate, its history, casinos and world famous events, such as the Monaco Grand Prix, the Monte-Carlo Rolex Masters or the Monaco Yacht Show.

These activities enabled Monaco’s 2018 GDP to rise for the first time above 6 billion euros, at 6.09 billion euros. This marked a rise of 6.1 % in comparison with a drop of 3.5 % in 2017 that occurred after a growth slowdown in the Principality that had started in 2013.

In addition, the dominance of historical trade relations with the rest of the European continent, which represents almost 75 % of Monaco’s exports, ensured that the Principality’s foreign trade was not unduly impacted by the recent international context marked by trade tensions between the United States and China.

Due to its very small territory, the Principality of Monaco wished to refocus on activities with high added value and that need little space. Innovation and digital technologies are therefore sectors of the future for Monaco, which wishes to become a world reference in this field and thus made a recent move towards the promotion and support of new technologies, through the creation of Monaco Tech, a start-up incubator, by the State of Monaco and by Monaco Telecom (the Principality’s telecommunications services provider).

This incubator currently hosts 15 start-ups and aims to encourage the creation and development of innovative businesses in Monaco, through the selection and accompaniment of project promoters, especially in terms of management and business strategy (business plan, banking negotiations, search for sponsors and financial support, legal and financial diligences), as well as easy access to the various administrations involved for setting up businesses in the Principality.


As a major feature of the Monegasque economy is that it is government-driven, the Principality is (subject to certain conditions) open to trade and foreign investments.

Indeed, Monaco business law is characterized by the maintenance of the ancient regime of Government pre-authorization (order of 5 March 1895 and law n° 1,144 of 26 July 1991) for foreign individuals or companies who wish to carry on a business in Monaco (be it as a shareholder, director or sole trader). On the other hand, Monegasque company law leaves business operators a certain contractual freedom.

Such authorization regime, although not common in developed countries, is justified in Monaco by the desire of public authorities to exercise control over the economy, in order to preserve the general interest of business in such a small country.

Besides the Monegasque Government, which controls all foreign investments in Monaco, other important regulators supervise specific business areas. These include the Commission for the Control of Financial Activities (“CCAF”), which supervises the activities of banks and asset management companies and the investments made in these sectors (regardless of the nationality of the investor); the Prudential Supervisory Authority (“ACPR”), which is a French authority supervising banking activities in Monaco by virtue of Franco-Monegasque treaties; and the CCIN (independent data protection authority in Monaco).

In terms of business taxes, Monaco constitutes quite an interesting place for investors, as companies which generate at least 75 % of their turnover in Monaco and companies which carry out in Monaco an activity other than of a commercial or industrial nature (regardless of where they generate their turnover) do not pay corporate taxes. It should also be noted that there is no withholding tax in Monaco on dividends, interest and royalties.

In terms of labour law, Monegasque law also presents some advantages for investors as it is rather flexible, since employers can use fixed-term employment contracts without the requirement to justify their choice nor to pay precariousness premium or severance indemnity upon the termination of such contract, and can also terminate permanent employment contracts without having to give a motive for such termination.

Usually, direct investments in Monaco tend towards the creation of a subsidiary or a branch by foreign or Monaco-based companies (mainly in the banking and finance or luxury sectors), or the acquisition of existing companies by companies or individuals wishing to create and develop businesses in a stable and dynamic business environment. Cash is in practice most used as consideration since most sellers in Monaco do not have strategic objectives when selling their business and rather plan to retrieve some liquidity.

Besides these traditional ways of entering the market, foreign companies can also relocate their businesses’ administrative functions to Monaco through the creation of administrative offices, which are comparable to a branch and also benefit from an advantageous tax legislation in the Principality.

Although not a member of the EU, the Principality of Monaco belongs to the euro zone and has established permanent relations with the EU through the accreditation of an ambassador in Brussels in 1999. In addition, since 1968 France and Monaco are part of a Customs Union that enables unrestricted capital transfers between both countries and makes the Principality part of the EU customs zone.

Along with its advantageous tax and labour legislation, Monaco’s security and political stability, world-class infrastructure, quality of life and position as a hub for high-net-worth individuals at the cross-roads of Europe and the Mediterranean sea, make it an excellent location for investors.

Such attractiveness makes Monaco’s legal market rather dynamic, with a variety of dispute resolution activity focused on judicial litigation, as well as small and medium-sized deals. Many companies outsource their legal work to law firms (Avocats Défenseurs).


Over the past three years, the Principality’s law firms were engaged in the restructuring of the banking sector in Monaco. This was a consequence of the growing compliance costs imposed by regulators, as well as the international recognition of the competence of Monegasque financial institutions and asset management companies.

Additionally, the legal market was recently marked by:

- The implementation of new anti-money laundering measures enacted through law n° 1,462 of 6 July 2018, which led Monegasque companies to update their internal anti-money laundering systems.

- The enactment of law n° 1,482 of 17 December 2019 for a digital Principality and law n° 1,483 of 17 December 2019 on digital identity, which aim to strengthen the confidence of consumers, businesses and public authorities in online communication services, and promote digital exchanges and the use of digital technologies, particularly between the administration and the public.

- A lack of profitability caused companies in areas such as the manufacturing and cosmetics industries to review their workforce structure, with the assistance of labour lawyers.

- The probable conclusion of an association agreement between Monaco and the EU would have substantial legal consequences with regard to running a business in Monaco. It would facilitate the export of products and goods manufactured in Monaco and the establishment of businesses by Monegasque citizens in the EU market, while maintaining in Monaco a derogatory regime consisting of the requisite of prior Government approval for EU citizens and companies wishing to create a business or invest in an existing business in Monaco.

In March 2020, in the context of the COVID-19 crisis the Monegasque Government implemented a set of exceptional financial and fiscal measures to support the Principality’s businesses because most of them were forced to stop or drastically reduce their activity and were thus at risk of bankruptcy.

These measures intended to limit the negative consequences of the pandemic over the Principality’s businesses and consisted mainly of:

- A deferral of value added tax payments and staggering of social contributions payments for companies and self-employed individuals encountering a significant drop in activity resulting from the pandemic.

- 0% interest rate for businesses requesting an overdraft authorization or a cash credit from their bank (the Monegasque State will bear the interest that the banks would apply in order to reduce the interest rate to 0%).

- An exceptional endowment of 50 million euros to supplement the loan guarantee fund. This fund was established in the Principality to support the development of economic activities in Monaco by helping businesses that are unable to repay their loans.

- Granting an extraordinary minimum monthly income of €1,800 for self-employed individuals (sole traders) whose activity is impacted by the pandemic.

- Exemption of charges and rents for any businesses occupying Monegasque State premises and forced to close because of the pandemic.

At the time of writing, it is still impossible to predict how much this sanitary crisis will impact Monaco’s economy. However, as the Principality is the only state in the euro zone which is not indebted, it appears that its financial stability and solid basis will enable it to get through this crisis while limiting its adverse consequences on businesses and especially the tourism industry, which has already started to suffer from the pandemic with the cancellation of major events, such as the Monte-Carlo Grand Prix.


Monaco is a constitutional monarchy currently governed by the Constitution of 17 December 1962 (developed from the Charter of 1848 and the Constitutional Act of 1911) which introduced the separation of powers in the Principality, according to which the Prince heads the executive power and the National Council exercises the legislative.

The Principality of Monaco’s legal system is influenced by the French legal system and is thus based on principles and rules resulting from Roman Law and the Napoleonic Code. Some parts of Monegasque law such as contract and tort law are inspired by French law. Therefore, it is likely that if the 2016 French reform on contract law appears over time to be a success, the Monegasque Government will consider implementing a reform substantially based on the French reform.

Monegasque authorities use a “wait and see” approach regarding reforms implemented in France. For instance, they reformed the civil statute of limitation in 2013, after France did so in 2008.

In terms of judicial organization, Monaco comprises the Supreme Court (“Tribunal Suprême”), which examines the constitutionality of laws, as well as ruling on constitutional and administrative disputes.

The First Instance Court (“Tribunal de Première Instance”) rules on criminal, civil and commercial matters, subject to appeal before the Court of Appeal (“Cour d’appel”). The latter’s decisions can be challenged before the Court of Revision (“Cour de Révision”) on legal grounds only. Although not being a third degree of jurisdiction, due to the judicial organization in Monaco, the Court of Revision becomes a third-degree jurisdiction when, after having set aside a decision of a lower jurisdiction, the Court refers the relevant case to itself, composed differently, to retry it definitively both in fact and in law.

As Monaco is a member of the Council of Europe, the European Court of Human Rights has jurisdiction over matters falling under its mandate.