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(CNN) The gleaming yachts moored in Monaco’s harbor are the most obvious evidence of the wealth and luxury for which this tiny European principality is renowned. A playground for the rich and famous, with its casinos and the most prestigious race in the Formula One calendar, Monaco also boats the glamour of a royal family whose lineage stretches back centuries.

Monaco is the second smallest independent state in the world – less than two square kilometers. But it is more than just a home to the super-rich. Tourism is its biggest industry, with its Place du Casino in Monte-Carlo a honey-pot for gamblers. More than 4,000 Monaco-registered businesses (many of them in the banking and finance industry) help generate an annual GDP in excess of $5 billion.

Each day its population more than doubles, as over 50,000 workers commute across the border from France. Unemployment is unknown.

Head of State is 54-year old Prince Albert II, the latest of the Grimaldi family to rule Monaco. Its lineage stretches back to 1419. Albert’s parents were Prince Rainier and the American actress Grace Kelly. While the lives of members of the royal family have regularly kept Monaco in the spotlight, the issues of tax evasion and money laundering have attracted less welcome publicity.

In 2003 the Organization for Economic Cooperation and Development (OECD) placed Monaco on its “black list” of Uncooperative Tax Havens. But over the past few years, Monaco has taken steps to be more transparent and signed up to more international tax standards. In 2009 Monaco was taken off the OECD’s black list, and the Organization reported that it had “substantially implemented” internationally agreed tax standards.

Residents do not pay income tax, but value added tax is 20% and registered companies face a 33% levy on their profits if they cannot prove that 75% of their profits are generated in Monaco. According to the state’s finance minister, Marco Piccinini, the 2013 budget will be $1.1 billion, with over 70% coming from taxation.

While constrained by its tiny size, Monaco is trying to encourage new industries outside of the mainstays of tourism and banking, with an emphasis on high-tech and research and development.

From next week CNN visits this unique Mediterranean principality to report on its efforts to diversify – and how its glamorous image can be both a help and a hindrance to its international reputation.

Monaco fast facts:

Population 32,796
GDP per capita (2009): $63,400
GDP (2010): $5.47bn
GDP growth (2010): 2.5%
Unemployment rate (2005): 0%
Largest sector in economy: Services (including finance, real estate, tourism) 95%
Taxes raised by government (2010): 18% of GDP
Sources: CIA World Factbook, Government of the Principality of Monaco

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