Monegasque civil companies ("SCIs" or "SCPs") are the types of company most commonly used to own residential property.
It allows for a simple ownership structure that can provide tax and estate planning benefits (particularly in relation to French inheritance tax) while avoiding unwanted tax issues, formalities and costs associated with the use of certain offshore companies.
Its tax filing requirements can be significantly reduced if its sole activity (as is often the case) is to provide its shareholders with the free use of French residential property.
French tax filing requirements
As the Monegasque SCI/SCP owns French property, it must comply with certain tax declaration requirements in France.
For the year of incorporation, the formalities are as follows:
1/ A declaration of existence ("déclaration d'existence") must be sent to the French tax authorities, together with two copies of the company's articles of association. This declaration must specify the name and form of the company, its objects, the address of its registered office and the identity and address of the director(s) of the company;
2/ In order to avoid the application of the 3% tax (basically a tax potentially payable by foreign companies owning French residential property unless they disclose the identity of their shareholders), the Monegasque SCI/SCP must either send an annual 3% tax form (Form 2746) to the French tax authorities, disclosing certain information, or undertake to provide this information at the request of the French tax authorities.These formalities are necessary to benefit from the 3% tax exemption. The easiest way to complete these formalities is to send an undertaking to the tax authorities within two months of the acquisition of the French property (to avoid the need to submit a 3% tax form each year);
3/ An annual income tax return (2072 Form) must be sent to the French tax authorities in respect of the tax year of the constitution of the MC company (e.g. before 5 May 2024 at the latest for a company set up during the 2023 tax year). This tax return will disclose the details of the shareholders and assets owned by the company and will, importantly, inform the French tax authorities that the property is put at the disposal of the shareholders free of charge.
The ongoing filing obligations of the Monegasque SCI/SCP company would be minimal. It does not have to file an annual income tax return (2072 Form) as long as, during a tax year:
there has been no change in respect of the shareholding, the property, or the use of the property held by the company;
the company has not received any income; and
no compensation or money has been paid to the shareholders (for example, interest on a loan made to the company).
Book-keeping
Under Article 8 of Law No. 797 of 18 February 1966 (amended by Law 1.550 of 25 September 2023), Monegasque civil companies are required to keep accounts and financial statements.
The accounting records and all relevant supporting documents must be kept at the head office of the SCP/SCI for a period of ten years.
Previously, SCPs/SCIs were only required to keep a record of all their transactions in the form of a statement of income and expenditure and to keep supporting documents, including bank statements, for at least five years.
It should be added that it is highly advisable for an SCP/SCI to keep regular annual accounts. In particular, if there is a question as to the value of the shares in the company, the annual accounts will be very helpful in proving the existence of the company's debts (e.g. a bank loan or a shareholder loan) and in determining the value of the shares. This is particularly true if the company owns French real estate.
It is also important that the accounts are prepared by a fully qualified professional, particularly if the SCI/SCP owns French property. This will certainly give more weight to the accounts if they have to be presented to the French tax authorities for a tax reassessment or in court. The audited accounts are also required in the event of a sale of shares (and not a sale of the property by the SCI/SCP).
Directorship of the company
The director (“Gérant”) of the Monegasque SCI/SCP can be one of the shareholders or a third party but it does not have to be a professional registered in Monaco.
This information is for reference only. It is not intended to provide tax or legal advice and should not be relied upon as such.