What are the rules for leases subject to VAT in Monaco?

In the Principality of Monaco, the taxation of commercial leases, in particular the subjection or exemption from VAT (Value Added Tax), may seem complex to the uninitiated. This article aims to clarify these rules for commercial, industrial and administrative leases, and to explain why VAT applies to some leases and not to others. Although our site deals with Taxation in Monaco and its Taxes , we would like to explain in detail why certain leases are subject to VAT in Monaco.

Understanding the intricacies of Taxation and Legislation in Monaco is crucial to navigating the tax landscape effectively. This page provides an overview of the tax obligations that affect the rental of commercial premises, and will give you a better understanding of the reasons why certain leases are subject to VAT. You will discover how to optimize your tax decisions as a commercial property owner or tenant.

It is also relevant to consult our page dedicated to Monaco Tax to have a complete overview of other aspects of taxation, including corporate tax and other taxes.

Understanding VAT liability

Which premises are subject to VAT?

In Monaco, leases relating to premises or property that are not for residential use are generally subject to VAT. This includes:

1. Garages and parking spaces for vehicles not attached to a residential lease : These spaces are considered bare premises and are subject to VAT.
2. Bare premises for commercial, industrial or administrative use : The rental of these premises is subject to VAT.
3. Buildings or fitted out premises : These include premises equipped with furniture, equipment or facilities necessary for the exercise of a professional activity. These rentals are also subject to VAT due to their commercial or professional nature.

Why are some leases subject to VAT?

VAT applies to business rentals for several reasons:

• Business Activity : VAT is a tax on commercial and professional activities. If the premises are used for commercial purposes, VAT applies.
• Fittings : When the premises are fitted out with professional equipment, they are considered to be ready for use for a commercial activity, thus justifying the application of VAT.

Practical examples

• Offices for professional use : If you rent offices in a building such as the "Tour Odéon" for a consulting company, the rent will be subject to VAT because the offices are used for a professional activity and are fitted out for this.
• Industrial premises : Renting a warehouse for a logistics company with storage equipment is also subject to VAT.
• Parking spaces : Renting a car park for a transport company, independently of a residential lease, will be subject to VAT.

Administrative procedures

To rent car parks or commercial premises, several steps are necessary:

1. Registration of the activity : You must register your activity with the Directorate of Economic Expansion.
2. Obtaining a VAT number : You must obtain a VAT number to be able to charge VAT on rents.
3. Lease Registration : The lease must be registered with the relevant authorities in accordance with local requirements.

VAT exemption

Due to the low amount of certain rentals, taxable persons can benefit from the exemption from the VAT base. This exemption applies if the annual amount of the rental is less than €34,400 in the previous calendar year, or €36,500 if the turnover in the penultimate year did not exceed €34,400, in accordance with Article 87, 2° of the Turnover Tax Code.

Registration fees

If a car park lease, not attached to a residential lease, is not subject to VAT, it will be subject to registration fees pursuant to Law No. 580 of 29 July 1953 on the adjustment of registration and mortgage fees, Amended.

VAT exemptions in Monaco

When is a lease exempt from VAT?

Some leases may be exempt from VAT, including:

• Rentals of bare premises for non-commercial civil use : If the premises are rented without specific facilities and are not used for a commercial activity, they may be exempt from VAT.
• VAT exemption : If the annual amount of the rents is below a certain threshold (€34,400 or €36,500 under certain conditions), the landlord can benefit from a VAT exemption.

Practical examples

• Small commercial rentals : A small shop whose annual rent is below the set threshold will be exempt from VAT under the VAT exemption regime.
• Option for VAT : An owner of an office building can choose to apply VAT on rents to reclaim VAT on fit-up and renovation costs.

Benefits for landlords and tenants

Benefits for owners

When acquiring a property in Monaco, it is possible to choose not to pay VAT immediately. By opting for this choice, you will be subject to VAT at a later date, i.e. you will pay VAT on the rent received or when the property is resold. This can provide tax benefits, such as reclaiming VAT on renovation or fit-out costs.

Benefits for tenants

For a company that rents out commercial premises, this tax structure is advantageous, as it allows the VAT paid on the rent to be deducted from the VAT collected on its own sales. Thus, it improves the company's cash flow and reduces the net tax burden. In other words, even if the tenant company has to pay VAT on its rent, it will be able to recover it by deducting it from the VAT it collects from its customers.

Why does the tenant pay VAT?

In practice, when you choose to defer the payment of VAT on purchase, it means that the tenant will have to pay VAT on the rents. This payment allows the tenant to deduct this VAT from the VAT he collects on his own sales, making this charge neutral for him. This explains why the tenant pays VAT, as it makes it easier to recover VAT on business expenses and improvement work.

Do you need help with your research?

Managing commercial leases in Monaco requires a clear understanding of tax rules, especially when it comes to VAT. Depending on the nature of the premises and the tax regime chosen, landlords may be subject to VAT or benefit from an exemption. For optimal management, the real estate experts at Petrini Exclusive Real Estate Monaco will assist you. Contact us for clarification and to buy or rent premises with leases subject to VAT in Monaco.