Tax Residency in Monaco for German Citizens

Monaco is renowned for its favorable tax regime. Indeed, the Principality does not levy any personal income tax (except in the special case of French citizens who moved after 1962, who remain subject to French taxation). We have already discussed Monégasque taxation in several articles on our site, which we invite you to consult. Concretely, this means no income tax, but also no wealth tax, no property tax, nor local residence tax—common levies in Germany from which Monegasque residents are entirely exempt. This guide focuses specifically on German nationals considering relocating to Monaco and obtaining Monegasque residency, detailing potential tax benefits as well as the challenges and procedures to anticipate. Thanks to its expertise in supporting an international clientele, the Petrini Exclusive Real Estate Monaco agency is frequently called upon by German citizens looking for an apartment for sale in Monaco and wishing to transfer their tax residence there. We are available to discuss this by phone at (+377) 97 00 16 00, or contact us directly by email.

Constraints and Challenges for German Tax Residents

Before relocating to Monaco, a German taxpayer must fully understand the legal and practical implications of such a move. In the absence of a bilateral tax treaty between Germany and Monaco, tax expatriation to the Principality requires thorough preparation to avoid future disputes with the German tax authorities. Here are the main points to watch out for.

Tax Residency in Germany: Strict Criteria

Germany applies clear criteria to determine whether a person remains a tax resident on its territory. Two key concepts exist: domicile (Wohnsitz) and habitual abode (gewöhnlicher Aufenthalt). If you keep accommodation at your disposal in Germany, the authorities may consider that you maintain a fiscal domicile there. Likewise, if you spend more than 183 days a year in Germany, you have a habitual abode. Consequently, even if you stay for less than 183 days, you may still be a German tax resident if you retain significant ties in the country—for example, family home or close relatives remaining in Germany.

In practice, an entrepreneur moving to Monaco but leaving his family in Germany will have great difficulty convincing the German tax office that he has genuinely changed his tax residence. It is strongly recommended, to effectively break fiscal ties, to move with the entire family and to no longer have a personal dwelling in Germany (property may be retained only if rented to third parties, not kept for personal use). Your relocation to Monaco must be genuine. You will need to transfer your permanent home to the Principality and demonstrate an effective presence there, without prolonged returns to Germany. Otherwise, you risk repeating Boris Becker’s “false expatriation” 25 years ago: officially domiciled in Monaco but effectively spending most of his time in Germany.

Absence of a Tax Treaty Between Germany and Monaco

Monaco and Germany have not signed a bilateral double taxation agreement. This means each country applies its own rules without an automatic arbitration mechanism. In practice, if the German tax authorities consider that a person remains a German tax resident despite relocating to Monaco, they may continue to tax all worldwide income. Since Monaco does not tax income, no tax credit will offset any potential German taxation, which can lead to full double taxation. In the absence of a treaty, each residency conflict case must be negotiated individually with the German authorities, representing an uncertain, potentially lengthy, and costly process.

Taxation of German-Sourced Income

Even after leaving Germany, income from assets located in Germany remains taxable as a non-resident (beschränkte Steuerpflicht). Thus, leaving the country does not exempt you from German tax if you continue to receive German-sourced income. Such domestic income is subject to specific taxation:

• Rental income: a property in Germany generating rent remains taxable in Germany (income tax for non-residents), with rules that may limit certain allowances or deductions.

• Dividends from German companies: subject to the standard withholding tax (currently 25% plus the solidarity surcharge, about 26.4% total) with no full reimbursement mechanism, except under international agreements. Without a treaty with Monaco, the full rate applies.

• Capital gains on securities: selling shares in German companies or financial assets by a non-resident can be taxable in Germany in certain cases (notably if the shareholding exceeds 1% of the company’s capital).

In practice, many expatriates choose to sell or transfer part of their German assets before departure to reduce ongoing German tax exposure. The goal is to minimize residual German-sourced income after expatriation.

Increased Scrutiny by the German Tax Authorities

The German tax authorities closely monitor departures to low-tax jurisdictions. After your fiscal migration, they may verify that you have genuinely moved your center of life. To that end, they often send a detailed questionnaire (16 questions) about 3 to 12 months after deregistration in Germany. This form asks you to prove the circumstances of your departure and your relocation abroad (housing in Monaco, duration and frequency of stays, family situation, professional activities, etc.). Ignoring this questionnaire is strongly discouraged, as serious doubts may lead authorities to take drastic measures (e.g., revoking your German passport in case of proven tax fraud).

Moreover, Germany uses various control measures (automatic exchange of bank information, international cooperation, etc.) to detect inconsistencies. Frequent stays in Germany, localized expenditures (bank cards, utility bills, etc.), or public indicators (social media activity suggesting regular presence in Germany) can attract tax authority attention. In short, a “facade expatriation” will be quickly spotted. To avoid reassessment, your administrative appearances must match your actual daily life: if you claim to reside in Monaco, you must not effectively continue living in Germany.

The German Exit Tax (Wegzugsbesteuerung)

Like other countries, Germany imposes an Exit Tax to prevent wealthy taxpayers from leaving without being taxed on unrealized gains. This applies to anyone who:

• Has been a German tax resident for at least 7 of the 12 years preceding departure,
• Holds a significant share in a company—at least 1% of the capital of a corporation (Kapitalgesellschaft), directly or through intermediaries, including investment funds under recent reforms.

Upon fiscal departure, the German authorities deem you to have sold your shares on the day of departure (fiktive Veräußerung). They calculate the latent capital gain (difference between market value at departure and acquisition cost) and tax it immediately at 25% (flat rate on capital gains), plus applicable surcharges (5.5% solidarity, and if applicable, church tax). In practice, this amounts to about 26–27% of the unrealized gain, payable even without an actual asset sale. The taxpayer must fund this tax from other liquidity.

Examples:

• You own 2% of a German company valued at €10 million, with a €3 million unrealized gain → Germany may claim about €780,000 in tax (≈26% of €3 million) upon your departure.
• You hold an investment fund portfolio worth €600,000 with substantial unrealized gains → Exit Tax applies as well. (Since 2025, fund holdings exceeding €500,000 or more than 1% of a fund’s assets fall under the Exit Tax due to a law expansion.)

Note that anyone meeting the residence duration and asset threshold criteria is liable for the Exit Tax, regardless of nationality. Thus, even a foreigner intermittently living in Germany may be concerned if they depart with significant holdings. The law targets entrepreneurs and major shareholders but increasingly applies to private investors (e.g., those with sizeable stock portfolios). Smaller portfolios (< €500k, holdings under 1%) are not subject to this specific tax.

Extended Ten-Year Taxation for Moves to Low-Tax Jurisdictions

In addition to the one-time Exit Tax on unrealized gains, Germany has a mechanism to discourage expatriation to low-tax territories: the erweiterte beschränkte Steuerpflicht (extended limited tax liability) under Article 2 of the AStG (German International Tax Act). This applies to:

• German nationals who have been tax residents in Germany for at least 5 out of the 10 years preceding departure,
• Who transfer their tax domicile to a low-tax territory (“Niedrigsteuerland”), defined as a country whose income tax rate is more than one-third lower than Germany’s. Monaco, with zero income tax, clearly qualifies,
• And who retain significant economic interests in Germany after departure.

“Economic interests” include, for example:

• Still serving as a partner or director of a German business (e.g., sole proprietor, partner in a partnership),
• Owning at least 1% of a German corporation (same threshold as Exit Tax),
• Receiving substantial German-sourced income—at least 30% of your total income (or over €62,000 per year), such as rents, bank interest, pensions from Germany, etc.,
• Holding at least 30% of your total assets in Germany (or over €154,000 in value), such as real estate or financial investments in Germany.

If these conditions are met, then for ten years following your fiscal departure to Monaco (or another privileged-tax country), Germany will extend the scope of taxable German income. Concretely, during this ten-year period:

• The list of taxable German-sourced income is expanded: certain incomes normally not taxed become taxable. For example, all interest income becomes taxable (not just mortgage-backed interest), as well as certain annuities or German capital gains. Even inheritances or gifts involving German assets may be included.
• This “extended” German income is taxed at a higher rate, calculated on your worldwide income (effective rate principle). In other words, the tax office determines your hypothetical global tax rate and applies that rate to your German income to neutralize any low-tax advantage.
• Flat withholding taxes (e.g., 26.375% on German dividends for non-residents) no longer discharge your liability here: they become mere prepayments. If the calculated effective rate exceeds the withholding, you owe the difference in Germany.

In essence, this rule taxes you almost as if you remained a German resident for many of your German incomes, and at a potentially high rate. Moreover, you must declare all worldwide income to the German tax office during this period so it can compute the effective rate.

The good news is that you can avoid this extended liability by eliminating the trigger criteria before departure. Practically, to avoid falling under Article 2 AStG, you should ideally: renounce German nationality (a rarely considered radical option), or more simply reduce your economic interests in Germany pre-departure. For example, sell down corporate shareholdings below 1%, dispose of or outsource real estate, close local financial investments, etc. Not everyone can or wants to do this, but you must be aware that retaining strong ties to Germany post-departure can be very costly tax-wise. Careful wealth planning with an expert is therefore essential if you wish to settle in Monaco without incurring this “double penalty” in the years following expatriation.

Expatriation Is Achievable

For a German citizen to cease being taxed in Germany, they must meet all the following criteria:

• Physically leave Germany: spend fewer than 183 days per year there, and move your main household to Monaco.
• Have no significant German economic interests: cease any salaried activity, no longer manage a German business, transfer investments and affairs out of Germany where possible.
• Relocate with your family: if your spouse and children remain in Germany, convincing the authorities your fiscal household shifted to Monaco is difficult. Ideally, the entire family moves to establish your center of life in Monaco.
• Not retain habitational residence in Germany: you must no longer have personal housing there. Any property you own should be rented out or sold so you have no local address.
• Officially deregister as a German resident: complete the Abmeldung at the town hall or registration office (Einwohnermeldeamt), notifying your departure abroad. Respond transparently to any subsequent tax questionnaire to demonstrate good faith.
• Avoid contradictory signals: close active German bank accounts, cancel local service contracts (phone, utilities), and be mindful of public communications (e.g., social media locations) that might suggest regular presence in Germany. All indicators must align with a life centered in Monaco.

If all these elements align, Germany cannot legally tax you as a resident. You will be considered a non-resident, subject only to Monegasque local tax (none on personal income) and any source-based withholding by countries paying certain incomes.

Good news: deferral or partial relief is possible. If you move to a cooperative jurisdiction—Monaco has had an information-exchange agreement with Germany since 2010—certain Exit Tax deferrals can be negotiated. For example, you may secure payment deferral until actual asset sale (“wenn keine Veräußerung, dann Stundung möglich”), especially if you prove your expatriation is not a permanent tax-avoidance scheme (intent to return, etc.). Similarly, if you return to Germany within seven years, the tax may be canceled. These arrangements require formal procedures: appoint a German tax representative, possibly provide bank guarantees equal to the latent tax, and commit to annual declarations. If fulfilled, the Exit Tax payment may be deferred interest-free. Note: for moves to Monaco, outside the EU, German authorities remain cautious and often refuse automatic deferrals, making case-by-case negotiation and expert support essential.

Finally, keep in mind that Monaco is no longer considered a non-cooperative tax haven by German authorities. The Principality adheres to international transparency standards and exchanges information with Germany (2010 agreement). This eases administrative processes and can improve perception of your expatriation (not deemed fraud a priori). Nevertheless, Monaco’s zero-income-tax status means the anti-avoidance mechanisms (Exit Tax, extended liability) fully apply. Do not be misled: Monaco’s “officially cooperative” status does not exempt you from strictly observing all departure tax rules.

Monaco’s Tax Features for German Citizens

For German taxpayers with high incomes or substantial assets, the Monegasque tax regime offers distinctive features that can, in many cases, provide significant optimization compared to the German system.

No Personal Income Tax

In Monaco, residents are not subject to personal income tax. This covers all private income, including salaries, self-employment profits, dividends, interest, and capital gains. By comparison, in Germany, the Einkommensteuer is progressive, reaching a marginal rate of 45% (excluding surcharges) for the top income bracket. A single taxpayer declaring €500,000 in annual income in Germany would be taxed at 45% (approximately 47.5% including the solidarity contribution), not counting any Kirchensteuer (church tax) of 8–9% of the tax due. In Monaco, with no direct tax on such income, this burden simply disappears.

Capital Income Taxation and No Local Double Taxation

Dividends, interest, and capital gains received by a Monegasque resident incur no additional tax in Monaco. The Principality does not impose capital income tax nor withhold on outbound payments. Thus, a German investor residing in Monaco who receives dividends from a U.S. company or interest on a Swiss bank account is taxed solely under the source country’s rules (U.S., Switzerland…), with nothing withheld by Monaco.

In Germany, these same capital incomes are heavily taxed: since the 2009 reform, a flat-rate 25% Abgeltungsteuer applies to investment income (dividends, interest, capital gains), plus a 5.5% solidarity surcharge and possibly church tax. The effective rate is around 26.4% (or ~28% with church tax) from the first euro of capital income, with no annual exemption. Thus, 0% in Monaco versus ~26% in Germany: the tax savings for a rentier or financial investor can be substantial. Moreover, Monaco’s lack of local tax eliminates any internal double taxation: only the source country may tax, and Monaco does not impose further levies. (Note: German-sourced investment income remains taxable for non-residents, so the full benefit applies only to foreign-sourced capital income.)

No Annual Net Wealth Tax

Monaco does not levy any annual tax on net wealth (financial or real estate assets). There is neither a wealth tax nor an annual property tax in Monaco. In contrast, Germany applies property tax (Grundsteuer) on real estate located within its borders. Although modest compared to France, it is a recurring charge for any German property owner. For instance, a house or rental building in Germany generates an annual percentage-of-cadastral-value tax.

Germany’s wealth tax was suspended in 1997 following an unconstitutionality ruling, though political debates periodically discuss its reintroduction for very high net worth. Regardless, in Monaco the framework is clear: neither assets nor properties incur recurring taxes. A €10 million portfolio generates no annual tax in Monaco, whereas in Germany it might eventually face a revival of wealth tax, not to mention current property tax costs.

Reduced Inheritance Tax

Transfers between direct ascendants and descendants (parents-children) or between spouses incur no inheritance tax in Monaco. The rate is 0% for these close family transfers. For other beneficiaries (siblings, nephews, unrelated parties, etc.), Monaco applies moderate inheritance duties, ranging from 4% to 16% depending on kinship, applicable only to assets located in Monaco.

By comparison, Germany applies progressive inheritance tax: direct heirs (spouses, children) benefit from substantial allowances (€500,000 for spouses, €400,000 per child), but amounts above are taxed at rates from 7% up to 30%. More distant heirs (siblings, nephews, non-relatives) have very small allowances (€20,000) and rates up to 50% on higher brackets. Some German regions offer no special reductions, as inheritance tax is a federal uniform levy.

Thus, a large family fortune passed to the next generation is largely preserved in Monaco (0% for parents to children, versus potentially hundreds of thousands in German tax). This makes Monaco attractive for estate planning. Note: Monegasque inheritance duties apply only to assets situated in Monaco. Assets retained in Germany remain subject to German inheritance tax (Germany taxes estates if the deceased was a German tax resident or if heirs are German residents, or if the bequeathed property is in Germany). Therefore, to fully benefit from Monaco’s inheritance advantage, one should consider transferring assets out of Germany before succession or seek professional advice to structure cross-border inheritance optimally.

Other Peculiarities of the Monegasque Tax System

• No withholding on outbound financial flows: Dividends, interest, or other income distributed by Monegasque entities abroad incur no Monegasque withholding. For example, a Monaco-based company paying dividends to a non-resident does not withhold tax—unlike a German company, which would withhold 26.375% on dividends to non-residents before any treaty reduction. This absence of withholding facilitates free movement of capital from Monaco.

• No social charges on passive income: Unlike some countries that levy social contributions on capital income (e.g., France’s CSG/CRDS on interest, dividends, plus gains, or Italy’s social levies on financial income), Monaco applies none. Monegasque residents contribute to social funds only on professional income (salaries, via employer/employee contributions), but no contributions burden investment income. In Germany, this difference is minor—capital income there also does not bear social charges, only solidarity and church surcharges. Nevertheless, retirees should note that Monaco imposes no mandatory health insurance contributions on pensions, as may occur in Germany. In Monaco, each resident arranges health coverage through an employer or privately; the state does not levy social deductions on pensions or capital income.

• VAT aligned with France: Monaco’s standard VAT rate is 20%, identical to France’s (Monaco follows French VAT rules under the France–Monaco Customs Convention). This rate is slightly higher than Germany’s 19%. German consumers accustomed to 19% thus face a minor increase on everyday purchases. However, Monaco also applies reduced rates (5.5% or 10%) for eligible goods/services, similar to France, compared to Germany’s single reduced rate of 7% on certain items. Overall, VAT is not a decisive factor in tax expatriation, though it is useful to know Monaco aligns with the French model.

In summary, the Principality of Monaco offers a tax framework that, for a German taxpayer properly transferring their tax residence, can provide very significant overall tax relief. No income tax, fiscal neutrality on investments, no recurring wealth or property taxes, and minimal or zero inheritance duties: these factors help preserve and grow a fortune more efficiently than in Germany, where taxation on high incomes and assets is steep. However, implementing this residency change requires strict conditions—breaking economic and family ties with Germany, effective presence in Monaco, and rigorous compliance with departure declaration obligations. Any misstep can lead to undesirable outcomes (unintended German taxation, tax litigation, etc.).

Sources

– Nach Monaco auswandern 2025 & steuerfrei leben
https://www.wohnsitzausland.com/laender/monaco

– Neue Hürden für Expats und vermögende Auswanderer durch die deutsche Wegzugsbesteuerung
https://willipedia.plattes.net/news/detail/neue-huerden-fuer-expats-und-vermoegende-auswanderer-durch-die-wegzugsbesteuerung