Spain Tax Residency in Monaco, Rules to Know

Monaco is known for its particularly advantageous tax regime. Indeed, the Principality does not levy any personal income tax (except in the special case of French citizens who settled after 1962 and who remain subject to French tax). We have already talked about Monegasque taxation in several articles on our site that we invite you to read. It also means no wealth tax, no property tax or housing tax, which are common taxes in Spain from which Monegasque residents are entirely exempt. This article deals more specifically with Spanish expatriates who would like to settle in Monaco and obtain Monegasque residency.

Constraints and obstacles to becoming a tax resident in Monaco

Before moving to Monaco and obtaining Monegasque residency, a Spanish taxpayer must fully understand the legal and practical implications of such a move. In the absence of a tax treaty between the two countries, tax expatriation to the Principality requires absolute rigour to avoid any dispute with the Spanish administration. Here are the main points to watch out for.

Double Taxation Risks Spain Monaco

Spain applies a series of strict criteria to determine whether a person is still considered a tax resident. The most well-known threshold is that of 183 days spent on Spanish territory per year. But it is not the only one: even if they stay for a shorter period of time, a person can still be considered a tax resident if their economic interests remain in Spain (professional activity, business, investments, etc.) or if their immediate family still lives there.

Thus, an entrepreneur who moves to Monaco but leaves his family in Spain will have a hard time convincing the Spanish tax authorities that he has really changed his tax residence. To effectively break tax ties, it is usually necessary to leave with the whole family and relocate your business outside of Spain.

The absence of a tax treaty between the two countries

Monaco and Spain do not have any bilateral agreements to avoid double taxation or to resolve tax residency disputes. Therefore, if the Spanish tax authorities consider that a person remains a tax resident despite moving to Monaco, they can demand taxation on all of their worldwide income. And since Monaco does not tax income, no tax credit will compensate for Spanish tax, which can lead to full double taxation. In the absence of a treaty framework, each case has to be negotiated individually with the Spanish administration, which represents an uncertain and potentially lengthy process.

Taxation of Spanish-source income

Even after leaving Spain, income from assets located in Spain remains taxable as a non-resident. This income is subject to a specific tax regime (IRNR), with no particular advantage for Monegasque residents. For example, a property in Spain generates a rent taxed at a gross rate of 24%, with no possibility of deduction of charges, unlike the residents' regime.

Similarly, dividends paid by Spanish companies are subject to a traditional withholding tax, without a refund mechanism. This can lead to higher taxation than that applicable to a resident. In practice, many expats choose to sell or transfer some of their assets in order to reduce their tax exposure in Spain.

Enhanced surveillance by the Spanish tax authorities

Spain closely monitors tax departures to countries that are considered tax-advantageous. Tax authorities now use cutting-edge technologies (Big Data, consumer analytics, geolocation, activity on social networks, domestic bills, etc.) to detect inconsistencies in expatriation declarations.

A taxpayer who officially settles in Monaco but frequently returns to Spain or maintains a visible lifestyle (residence, expenses, family or professional connections) risks a tax adjustment. The Spanish administration considers that if one continues to live "de facto" in Spain, this prevails over administrative appearances.

The Spanish Exit Tax

Like other countries, Spain applies an exit tax to prevent wealthy taxpayers from leaving the country without being taxed on the unrealised capital gains on their assets. This scheme concerns any person who:

• has been a tax resident in Spain for at least 10 of the last 15 years,
• and who owns shares exceeding one of the following thresholds: Total portfolio value> €4 million, or > 25% stake in a company worth €> 1 million.

The Spanish government considers that you have made a capital gain even if you have not sold your shares: it taxes the theoretical gains (unrealised capital gains) between the acquisition value and the market value at the time of your departure.

Examples:

You own 30% of a company worth €5 million → you exceed the applicable →Exit Tax threshold.

You hold a portfolio of listed shares worth €4.5 million → applicable Exit Tax.

In the event of a transfer of residence to a country that is not a member of the European Union, these capital gains can be taxed immediately. Monaco, although outside the EU, benefits from an information exchange agreement with Spain, which allows you to obtain an exemption or a reprieve provided that certain reporting obligations are met, appoint a tax representative in Spain, and sometimes provide financial security. These steps must be carefully prepared with the help of a professional to avoid any unpleasant surprises.

Moving to Monaco from Spain for tax purposes is possible, but requires a clear, coherent and well-prepared break with Spain. The success of this approach is based on the ability to demonstrate a real change in life, both personally and professionally.

Tax expatriation is possible

In order for a Spanish citizen to stop being taxed in Spain, they must meet all these criteria:

• Leave Spain physically (less than 183 days/year in the country).
   
• No longer have a centre of economic interests (employment, business, residence, active investments, etc.).
   
• Bringing his family with him to Monaco.
   
• Do not maintain a main residence or personal use in Spain.
   
• Register as a non-resident for tax purposes with the Spanish administration (model 030 or 149, as applicable).
   
• And above all: do not give contradictory clues (bank cards, electricity consumption, social networks, etc.).
   

If all these elements are aligned, Spain cannot legally impose on you.

What should you do?

Before leaving Spain:

• You must declare this transfer of residence to the tax authorities (specific model).
• You must value your securities on the day of departure.
• You may be required to pay tax on these capital gains immediately even if you don't actually sell.

Good news: postponement or exemption possible

If you are going to a tax-cooperative country, such as Monaco since 2018, you can:

• ask for a deferral of payment (the tax authorities are waiting for you to sell your securities), or sometimes an automatic exemption, if certain conditions are met. But this requires formal procedures (appointment of tax representative, guarantees, etc.). The Exit Tax aims to prevent abusive tax expatriations. It only concerns people with significant corporate assets. To avoid paying it, you must anticipate your departure and be accompanied by a tax expert.

Monaco has not been considered a tax haven by Spain since 2018, which makes it easier to request a deferral or exemption.

Monaco's tax specificities for Spanish citizens

For Spanish taxpayers with high incomes or substantial assets, the tax system applicable in Monaco has distinct characteristics that can, depending on the case, offer significant optimisation in relation to the Spanish tax framework.

No personal income tax

In Monaco, residents are not subject to personal income tax. This applies to all private income, including salaries, professional fees, dividends, interest and capital gains.
In comparison, in Spain, income tax (IRPF) is progressive and can reach marginal rates of between 47 and 49% depending on the autonomous communities. A taxpayer earning €500,000 in annual income in Spain may therefore be subject to effective taxation of more than 45%. In Monaco, in the absence of direct taxation on this income, this charge disappears.

Taxation of capital income and absence of local double taxation

Dividends, interest and capital gains received by a Monegasque resident are not subject to additional taxation in Monaco. The Principality does not apply capital tax or withholding tax on outgoing income.
A Spanish investor who has become a Monegasque resident and receives, for example, dividends from a US company will only be taxed according to US tax rules. In Spain, this same capital income is taxed at rates between 19% and 28%, in addition to other tax obligations.

No annual taxation on net worth

Monaco does not levy any annual tax on the holding of assets (financial assets, real estate, etc.). Conversely, Spain applies a wealth tax (Impuesto sobre el Patrimonio), based on the net worth of global assets held by tax residents.
This levy is progressive, up to 3.5% for the highest assets. Since 2023, an additional solidarity tax has also been in force at the national level, above €3 million in net assets.
Thus, an estimated asset of €10 million can generate an annual tax burden in Spain exceeding €100,000, whereas it would not be subject to any recurring taxation in Monaco.

Wealth transfer: reduced inheritance tax

Transfers between parents and children, or between spouses, do not give rise to any inheritance tax in Monaco. For other heirs, the rates applied vary from 4% to 16% depending on the family relationship.
In Spain, inheritance tax varies greatly depending on the region, but rates can be as high as 34% in the absence of specific allowances. Some autonomous communities such as Madrid or Andalusia offer direct line discounts, but this is not the case everywhere in the territory.
Please note: Monegasque inheritance tax only applies to property located in Monaco. Assets kept in Spain would remain subject to Spanish inheritance tax.

Other particularities of the Monegasque tax system

• No withholding tax on outgoing financial flows: dividends, distributions or financial products received in Monaco can be transferred abroad without local withholding tax.
   
• No social security contributions on passive income: unlike some countries that apply social security contributions on capital income, Monaco does not apply any social security contributions of this nature.
   
• VAT aligned with France: The standard VAT rate in Monaco is 20%, slightly lower than the Spanish rate (21%).
   

In summary, the Principality of Monaco offers a tax framework which, for a Spanish taxpayer who has transferred his tax residence in accordance with the rules, can have significant advantages. However, the implementation of this change of residence involves strict conditions, including the severance of economic and family ties with Spain, an effective presence in Monaco, and strict compliance with reporting obligations.

Important : This article is for information purposes only. It does not constitute an incentive to tax expatriation, nor legal or tax advice. Any decision to do so is a personal choice and engages the sole responsibility of the taxpayer concerned. Given the complexity of the tax rules, particularly between Monaco and Spain, it is strongly recommended to consult a qualified professional before taking any steps.