The Monegasque tax regime for inheritance and donation is known to be advantageous since it does not provide for any inheritance or donation tax in direct line (between ascendants and descendants or between spouses) when it comes to a property situated in the Principality.
However, the definition of direct lineage was for a long time strictly apprehended by the Monegasque legislator and, in order to be exempt from inheritance or donation tax, it was necessary for the transmission to be materially direct between ascendants and descendants or between spouses.
Consequently, the use of a foreign law trust as a means of transmission prevented the application of this advantageous tax regime.
However, on 27 July 2022, the National Council adopted the draft law n°1049 modifying the Monegasque interpretation of the notion of "direct line".
According to this law, the application of the Monegasque tax regime allowing an exemption from inheritance or donation tax depends on the identity of the final beneficiary of the transmission.
In practice, this means that if a trust is used as a transmission tool and the beneficiary is a direct line heir of the settlor, the Monegasque tax regime will apply.
This applies to trusts under foreign law, which have not been set up or transferred to the Principality of Monaco.
In summary, transfer duties will apply to inter vivos or mortis causa donations made to a foreign trust under two conditions:
- These transfers must concern property, rights or proceeds capitalised in Monaco;
- There must be a direct family relationship between the settlor and the beneficiary (i.e. between ascendants and descendants or between spouses).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.