19.09.2022 A new city district in the sea is to make room for expensive real estate in Monaco. But critics doubt that this construction project in the mini-principality is really environmentally friendly.

Everywhere in Monaco, cranes tower into the sky; construction noise is part of everyday life in the small principality. But it's no longer just the streets of the concrete stronghold that are being dug up; the sea has also become a construction site. Where walkers used to be able to look out over the waters of the Côte d'Azur from the Grimaldi Forum, they now see building rubble and excavators.

Space for a thousand super-rich

By 2025, the new Anse du Portier district is to be built off the coast at a cost of around two billion euros. Six hectares of land will be reclaimed from the Mediterranean. 60,000 square meters of residential and commercial space are to be built here. There will be room for a thousand super-rich people in five apartment buildings and 14 villas. The penthouse designed by celebrity architect Renzo Piano is to cost 100,000 euros per square meter. Also planned are a park, a marina for 30 boats, below-sea-level parking garages and a main square. The Grimaldi Forum is also to be expanded. French landscape architect Michel Desvigne is creating gardens between the buildings.

Lack of luxury real estate

The government is overseeing the construction project, and private investors are financing it. According to real estate agents, prospective buyers are lining up for the 120 luxury apartments. In Monaco, demand for real estate has exceeded supply for years. That is also the reason for the billion-dollar project in the sea.

Because the second smallest state in the world is only two square kilometers in size, it is running out of space for new high-priced residential projects. Where it is still reasonably justifiable, the last gaps in the already densely populated city are being closed. More and more rich people are moving to Monaco. One reason is that they do not have to pay income and wealth tax here. The number of millionaires grew by twelve percent between 2013 and 2018, according to the Knight Frank Wealth Report. One in three of the 38,000 residents has at least one million euros in their bank accounts, including tennis pro Novak Djokovic and racing driver Lewis Hamilton. They pay between 53,000 euros and 100,000 euros per square meter, more than anywhere else in the world.

Sand from Sicily

The foundation for the artificial peninsula is formed by 18 huge concrete blocks on the seabed, each weighing 10,000 tons. The newly created area will be filled with 600,000 cubic meters of sand from Sicily. The mini-state on the Mediterranean has already expanded by around 20 percent in the past 100 years. Dubai and Singapore have also used enormous amounts of sand to create artificial islands, new harbors, housing developments and parklands. Dubai's artificial islands in particular have become a symbol of the Gulf states' megalomania and an environmental sin. The fillings interfere with the natural ocean currents and thus disturb the underwater world.

France has been paying Monaco around 100 million euros a year in VAT refunds since 1963. The small country is a well-known tax haven, the second richest country in the world by GDP per capita, and where one in three inhabitants is a millionaire.

An agreement concluded in 1963 between General de Gaulle and Prince Rainier III provides for Monaco to receive a share of French VAT revenues.

This is to compensate for the loss of revenue caused by the decision that the French can no longer shop VAT-free in the Principality.

According to the Principality's budget documents, France will pay Monaco about 105 million euros in 2022, down from 100 million euros in 2021.

This is less than in the 1990s: in 1997, for example, France paid 839 million francs to Monaco, equivalent to about 174 million euros in 2021.

The annual sum is calculated according to "a formula set out in an exchange of letters between the two countries and is decided each year on the basis of annual data," the French Economy and Finance Ministry told EURACTIV. The amount varies depending on the annual net revenue in each country.

However, Monaco also directly collects its own VAT, which amounts to well over €100 million - bringing the state's total revenue due to VAT to €898 million in 2022, including French VAT.

Asked by EURACTIV whether it was legitimate to continue such a scheme, the ministry replied that "this payment is perfectly logical, since France collects VAT on transactions carried out on Monegasque territory."

Monaco residents who are not French nationals are not subject to income, capital gains or wealth taxes. Inheritance tax is zero for direct relatives and very low for others. French residents who settled after 1962 pay their taxes directly to France.

Monaco's advantages

"Initially, Monaco was a tax haven for the French, but in the 1960s, General de Gaulle forced Monaco - by means of a border blockade - to sign a tax treaty that obliged French people living there to pay taxes to France," a Monegasque living in France, who is well-informed about the situation and wishes to remain anonymous, told EURACTIV.

"In exchange for the end of the tax-free system, Monaco received a percentage refund of part of the French VAT," he added.

In 2000, Socialist MPs Arnaud Montebourg and Vincent Peillon presented a report showing that Monaco continued to benefit from the scheme - a pattern that continues today, EURACTIV learned from informed sources.

The report called a 60 percent increase in "Monaco turnover" in the calculation between 1963 and 1986 "arbitrary" and incomprehensible. The two states themselves saw the need to adjust the formula and changed it several times, including in 1987, 1989 and 2001.