Monaco Proposes a Qualified Domestic Minimum Top-up Tax for Fiscal Years Beginning on or After 31 December 2026

Monaco has published draft legislation introducing a Qualified Domestic Minimum Top-up Tax (QDMTT) for multinational enterprise groups. The measure is contained in Bill No. 1129 on the minimum taxation of multinational enterprise groups, dated 14 July 2026 and received by Monaco’s Conseil National on 28 July 2026.

The draft would apply to fiscal years beginning on or after 31 December 2026. For calendar-year groups, the first affected period would therefore ordinarily be the year beginning 1 January 2027. The explanatory memorandum anticipates the first returns and payments arising in 2029, although the actual payment deadline remains to be established by Sovereign Ordinance.

The legislation is deliberately limited to a domestic minimum tax. Monaco is not proposing an Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR) at this stage. Its policy objective is to give Monaco the primary taxing right over low-taxed GloBE profits arising in the Principality before another jurisdiction can collect the corresponding top-up tax.

The draft broadly reproduces the OECD GloBE architecture, including jurisdictional blending, deferred-tax adjustments, the substance-based income exclusion, separate calculations for joint ventures and minority-owned entities, the GloBE Information Return and the principal transitional and permanent safe harbours. However, numerous operational provisions (including the payment deadline, return formats, detailed safe-harbour tests and substance-based income exclusion percentages) will require implementing Sovereign Ordinances.

Legislative status

The Government’s stated objective is primarily the protection of Monaco’s taxing rights. Without a domestic minimum tax, top-up tax relating to low-taxed Monaco profits may be collected in another implementing jurisdiction through an IIR or UTPR. Monaco’s QDMTT would instead give the Principality priority over those revenues. 

This is particularly relevant given the scope of Monaco’s existing business profits tax. Businesses carrying on an industrial or commercial activity and generating more than 25% of their turnover outside Monaco are generally within that tax, whose rate is 25% for fiscal years beginning from 1 January 2022. Other Monaco entities may fall outside the ordinary tax but remain constituent entities of an in-scope multinational group. 

A QDMTT-only implementation

Article 3 would create an annual tax called the Impôt national complémentaire qualifié. It would not be deductible in calculating Monaco business profits tax or any other tax.

The explanatory memorandum expressly confirms that Monaco has chosen a targeted implementation consisting solely of a QDMTT. Neither an IIR nor a UTPR is included, although the Government leaves open the possibility of introducing either rule in the future.

The practical rule order would therefore be:

1. Monaco calculates and collects its QDMTT on the low-taxed excess profits of Monaco constituent entities.

2. A foreign IIR jurisdiction takes the qualified Monaco QDMTT into account when determining any remaining GloBE top-up tax.

3. A UTPR should apply only to any residual amount not collected under a QDMTT or IIR.

That intended priority depends on the Monaco tax ultimately being recognised as qualified under the OECD process.

Scope of the proposed tax

Article 5 applies the legislation to constituent entities situated in Monaco that are members of an MNE group whose consolidated annual revenue is at least €750 million in at least two of the four fiscal years preceding the tested year.

Revenue attributable to excluded entities is included when testing the €750 million threshold. The draft also contains specific rules for:

-fiscal years longer or shorter than 12 months;

-mergers occurring during the four-year testing period;

-entities joining together to form a group; and

-groups created through a demerger or separation.

The regime applies only to multinational groups. The definition requires at least one entity or permanent establishment to be situated outside the jurisdiction of the ultimate parent entity. Unlike the EU Pillar Two Directive, the Monaco proposal does not extend the regime to wholly domestic groups of equivalent size.

Excluded entities

Articles 7-9 follow the principal GloBE exclusions. The excluded categories include:

-government entities;

-international organisations;

-non-profit organisations;

-pension funds;

-investment funds that are ultimate parent entities;

-real-estate investment vehicles that are ultimate parent entities; and

-certain entities owned by excluded entities.

An entity at least 95% owned by qualifying excluded entities may also be excluded where it principally holds assets, makes investments for the excluded entity or performs associated ancillary activities. A separate 85% ownership exclusion applies where substantially all of the entity’s income consists of excluded dividends or excluded equity gains.

The filing constituent entity may elect not to treat certain 95%- or 85%-owned entities as excluded. That election generally lasts five fiscal years and is automatically renewed unless revoked.

Determining GloBE income and covered taxes

Under Article 15, the starting point is the constituent entity’s financial accounting net income or loss under the accounting standard used to prepare the ultimate parent entity’s consolidated financial statements. An alternative acceptable or authorised accounting standard may be used where using the UPE standard is not reasonably practicable, subject to reliability requirements and an adjustment for permanent differences exceeding €1 million.

The principal GloBE adjustments are aligned with the OECD Model Rules and include:

-removal of the net tax expense;

-exclusion of qualifying dividends and equity gains or losses;

-adjustments for fair-value and revaluation gains or losses;

-asymmetric foreign-exchange gains and losses;

-unlawful payments and fines or penalties of at least €50,000;

-prior-period errors and accounting-policy changes;

-pension expense adjustments;

-treatment of qualifying and non-qualifying refundable tax credits;

-arm’s-length adjustments for cross-border related-party transactions;

-special treatment of intragroup financing arrangements that create deductions in a low-tax jurisdiction without proportionate taxable income for the counterparty; and

-exclusions for qualifying international shipping income and associated income.

Separate allocation provisions apply to permanent establishments, tax-transparent entities, hybrid entities and reverse hybrids.

Adjusted covered taxes are based on current tax expense, subject to the required GloBE additions and reductions and the deferred-tax mechanism. Deferred-tax expense is generally taken into account at the lower of the applicable accounting tax rate and 15%. Deferred-tax liabilities not paid or reversed within five fiscal years are subject to recapture unless they fall within a recognised non-recapture category.

The bill also contains the GloBE loss election, post-filing tax adjustments and rules for negative covered taxes. Article 45 may produce additional current top-up tax where a jurisdiction has a GloBE loss and adjusted covered taxes are more negative than the expected tax amount. Alternatively, an irrevocable election can defer that negative-tax amount for use against covered taxes in later profitable years.

The detailed payroll and tangible-asset percentages for the substance-based income exclusion are not in the bill. Article 74 leaves both the implementing rules and transitional percentages to a Sovereign Ordinance. Article 78 similarly authorises a de minimis exclusion but leaves the applicable revenue and income thresholds to secondary legislation.

Covered taxes are restricted for QDMTT purposes

For the domestic calculation, covered taxes are restricted to Monaco’s business profits tax imposed under Sovereign Ordinance No. 3.152 of 19 March 1964.

Foreign taxes, including cross-border withholding taxes, are not included. The Monaco QDMTT itself is also excluded. This should prevent foreign CFC taxes, shareholder taxes or other cross-border taxes from reducing the amount Monaco can collect under its domestic minimum tax.

The restriction overrides the broader covered-tax allocation rules used for general GloBE calculations and reflects the policy that the source jurisdiction’s QDMTT should be calculated before taxes imposed by foreign parent jurisdictions are pushed down to the local entities, as is required in the OECD Administrative Guidance

Joint ventures and minority-owned constituent entities

Article 73 applies a separate calculation to a joint venture and its subsidiaries. A joint venture is generally an entity accounted for under the equity method where the MNE group directly or indirectly holds at least 50% of the ownership interests. The JV and its subsidiaries are treated as a distinct group, with the JV treated as its UPE.

Articles 79 and 80 apply separate blending to minority-owned constituent entities. A minority-owned constituent entity is one in which the UPE holds, directly or indirectly, 30% or less. Members of a minority-owned subgroup are treated as a separate MNE group. A minority-owned constituent entity that does not belong to such a subgroup receives its own separate ETR and top-up tax calculation.

These rules prevent the taxes and income of a JV or minority-owned operation from being blended with the ordinary Monaco constituent entities of the wider group.

Investment entities

Article 83 excludes both investment entities and insurance investment entities from the Monaco QDMTT. The explanatory memorandum describes this as an optional simplification permitted under the OECD framework, avoiding the special GloBE calculations that would otherwise apply to such entities.

Safe harbours

Articles 96-98 provide the statutory basis for temporary and permanent safe harbours, but most of the operational detail will be contained in Sovereign Ordinances.

Transitional CbCR Safe Harbour

Article 97 expressly provides for a domestic Transitional CbCR Safe Harbour under which the Monaco QDMTT can be treated as zero based on a qualified country-by-country report and qualified financial statements.

The provision refers to the de minimis, simplified ETR and routine-profits tests, but does not state the actual thresholds or full test mechanics. These will be prescribed by Sovereign Ordinance.

The defined transition period covers fiscal years beginning no later than 31 December 2027, excluding any fiscal year ending after 30 June 2029. The safe harbour could therefore be relevant for Monaco’s earliest in-scope periods, including calendar year 2027.

Permanent safe harbours

Article 98 anticipates three permanent forms of relief:

-a simplified-calculation safe harbour, including an ETR calculation based on consolidated financial statements;

-the Substance-Based Tax Incentive Safe Harbour; and

-simplified calculations for non-material constituent entities.

These provisions reflect the OECD’s January 2026 Side-by-Side package, including the new Simplified ETR and Substance-Based Tax Incentive Safe Harbours. The exact conditions and elections again require implementing ordinances. 

The draft does not introduce a domestic Side-by-Side Safe Harbour or UPE Safe Harbour. That is consistent with the function of those safe harbours which do not apply for QDMTT purposes. 

OECD Administrative Guidance

Several provisions of the OECD Administrative Guidance are reflected in the Draft Law: