Monaco applies a profits tax imposed in application of the tax treaty with France. The tax is limited in scope in that it applies only to (a) companies conducting commercial or industrial activities to the extent their turnover is derived for more than 25% from outside Monaco, as well as to (b) companies whose activity consists of the receipt of intellectual property income. In order to fall within the scope of the tax under (a), the activity has to be commercial or industrial in nature. Commercial is defined rather strictly as trading and excludes various activities relating to the provision of services.
The concept of PE itself is not defined under domestic law, which uses a limited territoriality principle. A non-resident company would be deemed to have a taxable presence in Monaco if it has therein a business establishment, meaning either:
- a complete commercial cycle (such as the purchase and resale of goods); or
- the conduct of business through a dependent agent, if such agent either has and habitually exercises the authority to conclude contracts on behalf of the foreign principal, or maintains in Monaco a stock of goods for delivery on behalf of the non-resident.
In either case, the non-resident would be taxable only if it falls within the limited scope of tax as explained hereinafter.
Note that the establishment of a branch requires prior approval from the Monegasque authorities. Ordinarily, the activities of a branch would be considered commercial in nature.