Why the wealthy flock to the principality of Monaco

by Terry Higgs Freelance Writer

Beside the many wonders that Monaco is celebrated for, the Principality is notorious for being a tax haven. It is no secret. Despite efforts (both online and offline) made by the City-State and it’s Ambassador to the UK to discredit the notion.

Presently, Monaco is receiving signalled attention from tax migrants and individuals with special interest in financial secrecy. Bloomberg News’ Neil Callanan quotes Jean Claude Caputo (managing director of broker Savills's French Riviera unit) stating how that 'A stream of new residents are relocating to Monaco from Switzerland, where financial-secrecy laws are unravelling.

The world's wealthy have been drawn to Monaco for decades, and now that Switzerland’s long tradition of banking secrecy practices are going up in smoke, the threatened parties are retreating to countries whose treasuries are as yet unaffected, like Monaco, and displacing their assets in an effort to outlive the crackdown. A simultaneous increase in demand for housing has caused an upswing in Monaco real estate prices to an incredible peak. This upswing was widely reported with the boss of well-known payday loan company Simple Payday recently stating that he planned on relocating there in the very near future as house prices see no sign of slowing.

Monaco, especially, is a destination that provides a confidential financial environment as well as a quality of luxury life for those who can afford the prices.

Recent examinations confirm Monaco’s status as a Tax Haven remains unchanged in the face of declarations to the contrary. The fact remains that there is much ado in order for the City-State to make noteworthy progress towards achieving an “okay” level of financial transparency. Regardless of having undergone several tax information exchange agreements (in line with the OECD), The Principality has done little in effect to successfully impede and discourage illicit financial flows, including aggressive tax avoidance practices, flows originating from tax evasion, etc.

For the moment though, Monaco conveniently maintains it’s reputation as a cooperative administration - and no imminent threat looms to intervene in the Country’s tax regime.

What is a tax haven

A country that is politically and economically stable and allows foreign persons and businesses to enjoy little at no tax liability is considered a Tax Haven. Tax havens also normally guarantee a level of financial privacy – which means that information will not be disclosed to tax authorities outside of the country.

Why do people chose tax havens

People transfer their capital or assets to Tax Havens for multiple reasons. For instance:

To gain assurance of confidentiality of financial activities.
To reduce tax liability.
To gain protection of their assets against litigation.

As people accumulate wealth and strive to better secure their fortunes from unsolicited creditors, excessive taxation, or unanticipated litigation, Offshore facilities become an important course of action.

Assets can further be protected by means of offshore foundations and trusts.