Suspension of the application of the Franco Russian double tax treaty
Impact on inheritance tax for Russian citizens residing in Monaco
By presidential decree dated August 8th, 2023, the Russian Federation has suspended the application of the main provisions of 38 international tax treaties signed with states which have imposed sanctions on it, including those signed with the European Union Member States, the United States, the United Kingdom, and Japan.
For Russian nationals living in these countries, the loss of treaty protection makes a residency in the Principality of Monaco comparatively more attractive.
However, Russian nationals considering moving to Monaco and acquiring a property in France will need to take into account the inheritance tax impact of the suspension of the Franco-Russian income and wealth tax treaty when structuring the holding of French real estate assets.
Articles 5 to 22 and 24 of the Franco-Russian double tax treaty, as well as points 2 to 9 of its protocol, are affected by the suspension, as noted in a notice published in the French Journal Officiel on June 23rd, 2024.
On October 23rd, 2024, the French tax authorities have specified in their comments that, in accordance with the principle of reciprocity (Art. 55 of the French Constitution), France’s application of the tax treaty had also been suspended since then (BOI-INT-CVB-RUS, §20, October 23rd, 2024).
The treaty provisions concerned are mainly those relating to the taxation of different categories of income (real estate income, dividends, interest, gains, salary income, pensions).
However, application of the non-discrimination clause contained in article 24 is also suspended.
Its suspension affects the inheritance tax situation of Russian nationals residing in Monaco who hold French real estate through companies (such as SCI or SCP).
Indeed, in accordance with the ruling handed down by the Plenary Assembly of the Court of Cassation on October 2nd, 2015 (no. 14-14.256), article 6 of the Franco-Monegasque Convention of April 1st, 1950 on inheritance tax gives to Monaco an exclusive right to levy inheritance tax on the shares in companies holding French real estate, even though these companies would qualify as French real estate-rich companies under French domestic law.
This article enables shares in companies holding French real estate to be exempt from French inheritance tax when its benefit can be claimed. However, the aforementioned decision had also extended the benefit of this article to deceased who are nationals of third-countries:
Who can rely on an equal treatment clause contained in a tax treaty signed between France and their country of nationality, applicable to nationals of both States parties, whether or not they reside in those States, and to all taxes, and
Who have been ordinarily resident in Monaco for at least 5 years at their death.
Article 24 of the Franco-Russian Convention was such a clause, as it applies in principle to all Russian nationals, whether or not they are resident in one of the States Parties and covers taxes of any kind or denomination.
Thanks to article 24 of the Franco-Russian income and wealth tax treaty, Russian nationals residing in Monaco who own French real estate through companies (such as SCIs or SCPs) were previously able to benefit from the application of article 6 of the Franco-Monegasque inheritance tax treaty.
The suspension of the application of article 24 of the Franco-Russian tax treaty deprives Russian nationals residing in Monaco of the possibility of invoking this article.
Shares in companies owned by them and whose assets consist mainly of real estate or real estate rights located in France will be subject to inheritance tax in France in proportion to the value of these assets in relation to the company’s total assets, on the basis of article 750 ter of the French Tax Code.
As French inheritance tax can be a significant burden compared to Monegasque inheritance tax, Russian nationals affected by this change should consult an advisor to review their situation.
