Monaco might not charge residents income tax, but it's no tax haven

The Principality of Monaco, the tiny state situated at the heart of the Riviera, is no stranger to criticism. Neither is its ruling family, the Grimaldis, who have remained the monarchs of this micro-size sovereign state for over 700 years. It is, however, important to us Monegasque to convey to the world that our country has progressed into a 21st century democracy.

The Principality has its own democratic and freely legislative assembly. The Prince's government runs our small country in consensus with the assembly and in accordance with internationally recognised principles of good governance. Our country is a member of the international community and, although not part of the European Union, we comply with international as well as many European laws and regulations. We are represented in the United Nations and in the Council of Europe.

But in the wider public's mind, the names Monaco and Monte-Carlo remain synonymous with casinos, Formula One, luxury yachts, Grace Kelly and offshore tax havens. And it's the thorny matter of tax that is central to the criticism levelled at the Monegasque state and its ruler, HSH Prince Albert II.

To the disapproval, if not condemnation, of international "good society", Monaco has managed to maintain its policy of not charging its residents income tax – a historic concession which has existed since the Principality was founded – and has often been accused of taking extreme measures to protect the privacy of its wealthy and, in some cases, controversial residents.

This absence of income tax has fostered the common belief that Monaco is an offshore tax haven, which is a great misconception. Such misconception must be due, to a large extent, to a lack of clear communication on our part. So, as an Ambassador for my country, I feel it my duty to attempt to demystify the workings of the Monegasque economy.

Firstly, the Principality is not a "tax-free" territory. All residents pay tax in the form of 19.6pc VAT on all goods and services. Indeed, as the Monegasque VAT system is shared with France, it could even be said that Monaco's residents pay some French tax. Furthermore, corporations face a 33pc tax on profits – unless they can demonstrate that three-quarters of company turnover is generated within the confines of the principality.

In addition, unlike those jurisdictions justly labelled offshore tax havens, Monaco does not offer so called "offshore financial services", nor does Monegasque law permit or facilitate the registration of offshore corporations looking to operate in such a way as to avoid paying tax in other jurisdictions.

Lastly, and perhaps most importantly, Monaco recently proved to the world that it was ready to increase its co-operation in the fight against tax fraud in accordance with international criteria. This led to our country being removed from OECD's "grey list" of unco-operative jurisdictions. Not content with that, Monaco went on to strive for a place on the "white list", alongside countries like the UK and US, before the end of 2009. This feat was managed ahead of time in October, following the signing of information exchange treaties with 12 fully compliant jurisdictions.

Despite such achievements, attitudes towards Monaco will not change overnight – particularly in the current economic climate. However, the Principality of Monaco is vital to the economy of the entire surrounding region of Les Alpes Maritimes. With limited local production, nearly all consumer goods sold in Monaco have to be imported, much of it from the adjacent areas.

In addition, the Principality is a substantial employer. Every day some 41,000 people come from outside to go to work and all these non-Monegasque nationals, most of whom are French, depend on our economic success. The tourism and service industries are by far the biggest employers, as well as the mainstays of the Monegasque economy, but commerce and the manufacturing also employ significant numbers; over 3,000 workers are, for instance, taken up by the latter. All manufacturing industry in the Principality has, moreover, been carefully chosen for its minimum negative impact on the environment.

Monaco manages to balance its books without placing heavy tax burdens on its inhabitants. Our government website will inform anyone interested of the minutiae of this but, in essence, just about half of the public revenue stems from VAT on commercial transactions. Income derived from the famous casinos, on the other hand, constitutes less than 3pc of Monaco's annual income.

The absence of income tax does not entail an absence of social conscience. With our state revenue, we are able to fund an excellent health service, an efficient education system, a good public transport network and comprehensive social services. We are continuously investing in updating and improving of Monaco's infrastructure. We believe in, invest in and are in the forefront of research into humanitarian and environmental issues.

In my role as Monegasque Ambassador to Britain I hope to achieve a strong relationship between our two countries, based on mutual understanding and respect.

Evelyne Genta is the Principatity of Monaco's Ambassador to the UK