Paris treaty of 1 April 1950 · inheritance

France-Monaco estates: each asset is taxed in one State only

Between France and Monaco, a 1950 treaty allocates each asset of an estate to a single State: real estate to the State where it lies, securities and receivables to the State of the deceased's domicile. As a rule, the deceased must still be French or Monegasque and, if French, must have lived in Monaco for five years.

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How is an estate taxed between France and Monaco?

The treaty of 1 April 1950 applies to the estates of French and Monegasque nationals; it does not cover gifts. It allocates assets without any tax credit: real estate is taxable only in the State where it is located (Article 2); tangible movables where they are at the date of death (Article 3); shares, company interests, bonds and receivables only in the State where the deceased was domiciled (Article 6).

A French national is treated as domiciled in Monaco at death only after at least five years of habitual residence there (Article 1). Before that, the deceased's securities and receivables remain taxable in France, even if the deceased lived in Monaco.

France-Monaco treaty of 1 April 1950 for the avoidance of double taxation in inheritance matters, Articles 1 to 6, text published on impots.gouv.fr; BOI-INT-CVB-MCO-30 of 2 June 2021.

— In brief
Text
Treaty of 1 April 1950, published by decree No. 53-555 of 1 June 1953
Taxes covered
French and Monegasque inheritance taxes; not gifts
Method
Exclusive allocation of each asset to one State, no tax credit
Watch point
Five years of habitual residence in Monaco for a French national to be domiciled there
— Asset by asset: who may tax

The allocation rule for each category of assets

  • Real estate and real property rights (Article 2). They are subject to inheritance tax only in the State where they are located. Whether an asset is immovable is decided under the law of that State. An exchange of letters of 16 July 1979 treats as real estate the shares of companies formed to build or acquire buildings for division into units allotted to shareholders in ownership or use.
  • Shares in property companies (Article 6). Outside that case, shares in a company owning French real estate are movables. The Cour de cassation held that shares in a Monegasque property company owning buildings in France, passed by a deceased domiciled in Monaco to heirs domiciled in France, are movables under Article 6, taxable in Monaco and not in France, the treaty prevailing over domestic law (Cass. ass. plén., 2 October 2015, No. 14-14.256). The deceased was a Moroccan national: the tax authorities themselves had considered that the estate should be treated like that of a French national resident in Monaco, under the non-discrimination clause of the France-Morocco treaty; the dispute concerned the characterisation of the shares. The authorities likewise accept that shares in a property company held by a deceased domiciled in Monaco are taxable there, wherever the assets are located.
  • Tangible movables (Article 3). Furniture, collections, jewellery, banknotes and cash are taxable in the State where they actually are on the day of death. A collection kept in a Paris flat is therefore taxable in France, even if its owner was domiciled in Monaco.
  • Ships and aircraft (Article 4). They are taxed in the State where they received their certificate of nationality or were registered, unless they are used in a business.
  • Business assets (Article 5). Assets invested in an industrial, commercial or professional business are taxed in the State of its permanent establishment, or in each State for the assets of the establishment located there. Investments in joint-stock companies are excluded from this rule and fall under Article 6.
  • Securities, receivables and other assets (Article 6). Shares, company interests, government bonds, bonds, unsecured or mortgage receivables are taxable only in the State of the deceased's domicile. If the deceased was domiciled in neither State, they are taxed in the State of nationality; if the deceased held both nationalities, the two administrations settle the case by special agreement.
  • Debts (Article 7). Business debts are set against the business assets; debts secured on real estate, a ship or an aircraft against that asset, and, where the security covers assets in both States, in proportion to their taxable value in each; other debts against the assets falling under Article 6. Any uncovered balance is deducted from other assets taxable in the same State, then, failing that, in the other.
— Before the courts

Shares in property companies: a 2012 cassation set aside in 2015

The recurring question in estates between France and Monaco is how to classify shares in a company holding a property. The Court of Cassation first ruled one way in 2012, then the opposite way in 2015, in the same case.

  • The Monegasque civil property company owning real estate in France. Its shares are movables falling under Article 6 of the treaty, not real estate under Article 2. Where the deceased was domiciled in Monaco, they are therefore taxable only in Monaco, the treaty applying in preference to domestic law. The deceased was neither French nor Monegasque: the tax authorities themselves had treated them as a French national in Monaco under the non-discrimination clause of the France-Morocco treaty (Cass. ass. plén., 2 October 2015, No. 14-14.256).
  • The first cassation. Three years earlier, in the same case, the commercial chamber had applied Article 2 on the strength of the exchange of letters of 16 July 1979, which treats as real estate the shares of companies allocating buildings in units (Cass. com., 9 October 2012, No. 11-22.023). The plenary assembly set that reading aside for the civil property company and disregarded the grounds relating to the exchange of letters. The 1979 equivalence remains in the administrative guidelines for allocation companies (BOI-INT-CVB-MCO-30, para. 40).
— Domicile, gifts and assistance

The rules around the allocation

The deceased's domicile (Article 1). Domicile is the place of principal establishment; in Monaco, it is recorded by the Minister of State after consulting the French Consul General. A French national is deemed domiciled in Monaco at death only after at least five years of actual habitual residence there. Persons belonging to or attached to the Sovereign Household and officers of the Principality's public services are domiciled there as soon as they have established their habitual residence, with no minimum period.

Gifts are not covered. Article 1 excludes gift taxes. A gift therefore falls under domestic law alone: under Article 750 ter of the French tax code, it is taxable in France on all assets if the donor is domiciled there and, otherwise, on all assets received by a donee domiciled in France on the date of the gift and for at least six of the previous ten years; failing that, only assets located in France are caught. Any gift tax paid outside France is then credited against French tax, the credit being limited to the tax paid abroad on the assets located there (Article 784 A of the French tax code). A gift by a French national in Monaco to a child domiciled in France may thus be taxed in France, whereas the same transfer on death would partly escape it.

No exemption with progression. The treaty does not provide that a State taxing some assets takes into account, for its rate, the assets taxed in the other State. Each State computes its tax on its own share.

Assistance and control. Each quarter, the administrations automatically exchange information on safe-deposit box openings, joint or collective accounts, sums due by life insurers on the death of an insured domiciled in the other State, wills covering assets located in the other State and deeds transferring ownership or usufruct of real estate or businesses located in the other State (Article 9). They assist each other in collecting tax without exequatur (Article 12). Heirs of an estate opened in France and governed by French law must complete the formalities of an order of possession before taking movable assets located in Monaco (Article 10).

Gifts and bequests to public-interest bodies. An agreement signed on 25 February 2019, published by decree No. 2021-1117 of 25 August 2021, allows public establishments, public-interest establishments and non-profit bodies set up in one State and active in the cultural, religious, educational, charitable, scientific, medical, environmental or artistic fields to benefit in the other State from the exemptions granted to comparable bodies of that State. It covers gifts made since its entry into force, on 1 August 2021, and bequests of persons who died on or after 1 January 2012.

— What to understand

The 1950 treaty covers only the estates of French and Monegasque nationals

The 1950 treaty does not share the tax: for each asset, it designates the one State that may tax it. There is no tax credit to calculate, but a characterisation to get right. A villa in Cap-d'Ail held directly is taxed in France; if it is held through a property company and the deceased was domiciled in Monaco, it is the company shares that pass, and the French Cour de cassation, sitting in full court, held them taxable in Monaco only. An amendment of the treaty on this point was proposed as early as 2000 and never adopted.

Two conditions frame these rules. The treaty governs only the estates of French or Monegasque nationals: a British or Italian national living in Monaco falls in principle under French domestic law, unless a treaty between France and the country of origin allows that person, through a non-discrimination clause, to be treated like a French national. And a French national becomes domiciled in Monaco, for treaty purposes, only after five years of habitual residence: a recent move does not yet protect movable wealth.

— Who is concerned

Five situations where the treaty changes the outcome

French nationals living in Monaco

Their securities and receivables escape French tax after five years of habitual residence, not before.

Monegasque owners of French property

Real estate located in France remains taxable in France; their portfolio falls to Monaco if they are domiciled there.

Heirs domiciled in France

For securities and company shares, the treaty overrides the French rule taxing assets received by an heir domiciled in France.

Holding through a company

Shares in a company owning French real estate are movables for treaty purposes.

Families of other nationalities

The treaty does not apply in principle: French domestic law takes over, unless another treaty's non-discrimination clause applies.

— Frequently asked questions

What clients ask us about France-Monaco estates

I am French and have lived in Monaco for three years: will my portfolio be taxed in France?

Probably yes. Without five years of habitual residence in Monaco on the day of death, you cannot be treated as domiciled in Monaco for treaty purposes; your securities and receivables then remain taxable in France, if need be as your State of nationality (Article 6(b)). After that period, they are taxable in Monaco only.

My children live in Paris: are they taxed in France on the estate of a parent domiciled in Monaco?

Not on securities, receivables and company shares, if the deceased was French or Monegasque: Article 6 reserves these assets to the State of domicile, which overrides the French rule taxing all assets received by an heir domiciled in France for at least six of the last ten years. Real estate located in France and movables located there at death remain taxable in France, as do shares in unit-allotment companies treated as real estate by the 1979 exchange of letters.

My house in Roquebrune is held through a property company: where will it be taxed?

If you are French or Monegasque and domiciled in Monaco for treaty purposes, the company shares are movables under Article 6 and taxable only in Monaco, according to the Cour de cassation and the tax authorities' guidelines. The outcome differs for a company allotting units to its shareholders, treated as real estate by the 1979 exchange of letters, and the IFI wealth tax is a separate question.

I am British and live in Monaco: does the treaty protect me?

In principle, no. The treaty governs only the estates of French and Monegasque nationals. Your estate then falls under French domestic law for assets located in France, including shares in companies mainly holding French real estate, and for all assets received by an heir domiciled in France for at least six of the previous ten years. It is worth checking whether a treaty between France and your country of origin, through a non-discrimination clause, allows you to claim the treatment of French nationals in Monaco, as was accepted for a Moroccan national.

Can I make lifetime gifts to my children free of French tax while domiciled in Monaco?

The treaty does not cover gifts. If your children are domiciled in France and have been for at least six of the previous ten years, the assets they receive are taxable there under Article 750 ter of the French tax code, wherever located, with a credit for tax paid outside France within the limits of Article 784 A. If neither you nor they are domiciled in France, only French assets are caught. Whether to give now or pass on at death is therefore decided with a map of everyone's domicile.

Does the 1950 treaty also cover income tax?

No: income tax and the IFI fall under the treaty of 18 May 1963, whose Article 7 makes a large share of French nationals living in Monaco liable to French tax, subject to date and residence conditions. See our page on the France-Monaco tax treaty.

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© BENSAID Avocats. The information on this site does not constitute legal advice. Source: treaty between France and the Principality of Monaco of 1 April 1950 on inheritance, published on impots.gouv.fr; BOI-INT-CVB-MCO-30 of 2 June 2021; decree No. 2021-1117 of 25 August 2021.