Reminder of the taxation applicable to Law 214 Trusts and foreign Trusts

The trust, legal instrument of English origin, is often used as a sustainable estate planning and assets protection tool.

Although the trust system is common in Commonwealth countries, Monaco recognized this instrument for almost 90 years. Indeed, Monaco adopted the Law 214 on February 27, 1936, allowing Monegasque residents who are nationals of a jurisdiction that has adopted a trust regime to use trust arrangement to dispose of their assets during their lifetime or upon death.

In this respect, it may be interesting to point out the applicable tax regime in Monaco for trust governed by Law 214 and foreign trusts.

1. Law 214 Trusts

Deeds relating to the creation or transfer of trusts in the Principality are subject to a proportional registration duty between 1.3% and 1.7%, depending on the number of beneficiaries, regardless of the family relationship. This duty can be converted into an annual tax of 0.20%, provided that it is expressly requested in the trust deed.

In addition, a reduced rate is applied for Monegasque securities.

This registration duty is due on the value of the trust assets, whatever their situation, on the day of registration. In the case of testamentary trusts, on the death of the settlor. In the case of a lifetime trusts, effective immediately on the constitution of trust.

This duty is levied to the exclusion of any gift or inheritance tax.

In addition to this duty, there are the fees of the various professionals involved in the creation or transfer of the trust, i.e. the lawyer in charge of setting up the trust, the jurisconsult authorized to issue the certificate of conformity as to the applicable law, the notary who will receive the deed of constitution or transfer, and those of the corporate trustee.

2. Foreign trusts which have not been set up or transferred to the Principality of Monaco

As a reminder, Monaco gift or inheritance tax applies only to assets located in the Principality or with situs in Monaco, regardless the domicile, the residence or nationality of the deceased/donor and the heirs or beneficiaries and is levied according to the degree of kinship between the deceased/donor and the beneficiary.

Law 1.529 of July 29, 2022, containing various economic and legal provisions amended the tax regime applicable to transfers by way of gift or upon death made via a foreign trust.

As a result, the transfers of assets located in Monaco and endowed within a foreign trust (which have not been set up or transferred to the Principality of Monaco) are subject to gift or inheritance tax, depending on the relationship between the settlor and the beneficiary.

The application of this regime is subject to evidence of the identity of the beneficiary and their relationship with the settlor which must be established by official documents under the law governing the trust.

The tax is assessed on the net fair market value of the assets on the date of transfer.

3. Income distribution

As a reminder, one of the main characteristics of the Monegasque tax regime is the absence of direct taxation for individuals (except for the French nationals).

Monegasque nationals and foreigners residing in Monaco (excluding French nationals) are exempt from income tax, whatever the nature of their income.

Therefore, as the Monegasque law currently stands, the trust income distributed to Monegasque residents is not subject to a taxation in Monaco.

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To conclude, the Monegasque tax regime may be particularly attractive for Monegasque residents wishing to set up a Trust “Law 214” or a foreign law trust. 

However, it is important to keep in mind the reporting and accounting obligations relating to trusts, as updated by law no. 1.559 of February 29, 2024, notably the registration in the Register of Trusts and the obligation to file an annual declaration regarding the change or absence of change of beneficial owners and the payment of the corresponding duties (law no. 1.381 of June 29, 2011, updated on July 6, 2023) for trusts owning a real estate in Monaco.