-Dahir n°1-10-200 dated 23 moharrem 1432 (December 29, 2010) promulgating the Finance Act n° 43-10 for the budgetary year 2011. (Kingdom of Morocco’s Official Gazette n° 5904 bis, dated December 30th, 2010, p. 2157)
The Finance Act for the budgetary year 2011, adopted by the Parliament, during its second reading, was promulgated by the Dahir n°1-10-200 dated December 29, 2010 and published in the Kingdom of Morocco’s Official Gazette on December 30, 2010.
Despite the battle against the consequences of the global unfavorable market position, the Moroccan Government has been eager to maintain the legislative reforms aimed at modernizing and developing the Moroccan financial sector, as well as improving the public resources. As a matter of fact, the Finance Act for the budgetary year 2011 (hereinafter referred to as the “Finance Act”) provides the implementation of the Casablanca’s financial district, called “Casablanca Finance City”, and a tax scheme for the development of long-term savings.
As far as tax audits are concerned, the Finance Act, as a sign of the legislator’s intent to reinforce the grant of additional benefits to Moroccan taxpayers, subjects the auditor to the obligation of addressing a Charter of rights and obligations to all taxpayers.
In addition, two and half years after the enforcement of law n° 01-07 with respect to the Real Estate Residences for Touristic Promotion, the Finance Act extends the exemption of Corporate Income Tax, initially granted to hotel companies, to management companies of Real Estate Residences for Touristic Promotion, as an additional incentive to increase investments in Morocco.
Finally, in order to enhance the attractiveness of foreign investments in Morocco, the Finance Act implements a favorable measure for individuals whose income is earned from movable capitals issued from foreign countries’ sources.
The following presentation and commentaries will cover the major measures implemented by the abovementioned Finance Act for the budgetary year 2011 with regards to the Moroccan General Tax Code and the Customs Code.
- Corporate Income Tax (CIT)
- Personal Income Tax (PIT)
- Value Added Tax (VAT)
- Tax audit
1. Corporate Income Tax
1.1. Implementation of a favorable tax regime applicable for service companies that benefit from the “Casablanca Finance City” status
To improve its financial sector’s attractiveness, Morocco has implemented a favorable tax regime applicable to companies that export services and benefit from the “Casablanca Finance City” status.
In this regards, one of the primary objective of “Casablanca Finance City” is to establish a significant financial district in Casablanca for both financial or non-financial companies and institutions which may conduct their activities on a regional or international levels as credit institutions, insurance companies, insurance brokers, financial companies involved in the asset management field, “professional service providers” or “regional or international headquarters”.
As a consequence, the companies that are registered under the abovementioned status shall benefit from (i) a total exemption of the Corporate Income Tax for a period of five (5) consecutive years following the first year of grant of the status and (ii) a reduced tax rate of 8.75% beyond this period for all export sales and all movable net capital gains issued from foreign sources and earned in a given fiscal year (i.e. Article 7 of the Finance Act as an amendment to article 6 (I-B-4°) of the General Tax Code “GTC”).
Nevertheless, regional and international headquarters which benefit from the abovementioned status are subject to a 10% tax rate starting from the first year of grant of the “Casablanca Finance City” status. Note that this 10% tax rate shall apply to a taxable basis that will be computed subject to the headquarters’ financial performance (i.e. whether it has incurred a profit or a loss). In any case, the Finance Act provides for a tax threshold amounting to 5% of the headquarters’ operating expenditures.
1.2. Clarification of the definition of the Account registration for the application of the Withholding Tax
The so far unwritten Moroccan tax administration’s doctrine with respect to the investitive fact that renders the withholding tax assessable has been embodied in the Finance Act.
Therefore, as for withholding tax applicable to dividends, interests as well as other gross revenues registered in individuals’ or companies’ current accounts, the investitive fact would be considered as the entry/registration either in the shareholders’ current account, the beneficiaries’ banking account or current accounts agreed in writing by the parties.
These newly introduced provisions have impacted the definition of the investitive fact, as the withholding tax payment would not be qualified in case of mere registration in account payable (suppliers) (i.e. Article 7 of the Finance Act as an amendment to article 4 of the General Tax Code).
1.3. Temporary exemption of Corporate Income Tax for management companies of Real Estate Residences for Touristic Promotion
First of all, we recall that law n° 01-07 creates a thirteenth class of hotel companies, the Real Estate Residence for Touristic Promotion, which would require a license for operating its business, as it is already the case for hotels, motels, hotel residences, hotel clubs, inns, bed and breakfasts, hostels, camping-caravaning sites, hospitality food services sites, road-houses, holiday cottage, centers and convention centers.
The Real Estate Residence for Touristic Promotion is a residence whose housing units are owned by one or many co-owners, provided at least 70% of these housing units are managed by a management company.
In a tax viewpoint, the former legal regime did not provide any favorable measure for Real Estate Residences for Touristic Promotion. The Finance Act gives Real Estate Residence for Touristic Promotion specific incentives by establishing a temporary exemption of Corporate Income Tax for their management companies (i.e. Article 7 of the Finance Act as an amendment to article 6 (I-B-3°) of the GTC).
As per the provisions of the Finance Act, not only will the abovementioned management companies benefit from a total and quinquennial Corporate Income Tax exemption but also from a reduced rate of 17.5% applicable to a taxable basis corresponding to the turnover in foreign currencies and duly repatriated in Morocco.
1.4. Favorable measures for small companies
Starting from January first 2011, the companies which report annual turnover (free of VAT), equal or lower than three million Moroccan Dirhams (MAD 3,000,000), (i.e. about two hundred thousand Euros (EUR 270,000)), will be entitled to benefit from a reduced Corporate Income Tax rate of 15%.
One key effect of this new provision is to emphasize Morocco’s involvement in the battle against informal practices in the business sector, which was the major topic of the Technical Conference of the Islamic Countries Association of Tax Authorities that was held last September 2010 in Marrakesh. Indeed, this measure is aimed at reducing the tax pressure on small companies by providing them incentives to proceed with their registration and comply with their tax obligations.
1.5. Deletion of the withholding tax with regards to the leasing of planes
Unlike major worldwide countries, Morocco has been imposing a tax on the leasing of international transportation planes by applying a withholding tax of 10% on all royalties that were being paid in foreign countries, taking into account that such a legal regime was significantly affecting the Moroccan aeronautic sector.
Therefore, following the pressure of lobbying airline companies for harmonizing Moroccan tax law with international practices, the Finance Act provides the exemption of leasing duties and other duties with respect to chartering activities, leasing and maintenance of planes, the main objective of these provisions being the restoration of a competitive aeronautic sector and the implementation of a fair and free competitive environment at the international level.
2. Personal Income Tax
2.1. Renewal of the exemption with respect to internships’ allowances
In order to better enable young graduates to achieve success in the workplace, Moroccan authorities have adopted since January first, 2006 an exemption measure applicable to internships’ allowances paid to young graduates (i.e. Article 57 (16°) of the GTC).
The Finance Act has renewed this measure by putting it in effect until December 31, 2012 within the limit of a maximum threshold of six thousand Moroccan Dirhams (MAD 6,000), to be monthly paid to interns who hold at least an undergraduate degree or have graduated from a professional training program and who have been hired by private sector companies.
2.2. Renewal of the exemption for the transfer of a sole proprietorship to a company
In its effort to introduce favorable tax provisions in the informal business sector in Morocco, the Finance Act (i.e. Article 7 as an amendment to article 247 (XVII) of the GTC) has maintained the exemption that applies to the gross capital gain earned on certain assets and liabilities resulting from a transfer of a sole proprietorship to a company being subject to the Corporated Income Tax. In any case, the abovementioned transfer shall be performed between January first, and December 31st, 2011.
2.3. The tax administration’s tolerance for taxpayers who register as such for the first time, starting from January first, 2011
In order to bring various taxpayers’ situations into line with the law, especially those who perform a non-declared professional activity, the Finance Act provides that, under some criteria, the taxpayers shall be subject to tax payments only for the income earned and operations performed after January first, 2011. Thus, in order to fall under the tax administration’s tolerance, a taxpayer must meet the following criteria:
- The activity carried on by the taxpayer has been subject to the Personal Income Tax before January first 2011 ;
- The registration is performed for the first time at the business license tax roll, starting from January first 2011 ;
- An inventory of the stock at the identification date (i.e. the inventory list must mention the nature, quantity and value of the stored items) shall be submitted to the local tax department where the taxpayer is to be registered.
In addition, the Finance Act also includes that, regarding taxpayers that are subject to Personal Income Tax under the real net income or the simplified net income regimes, their inventory products in stock are valued in such a way that, following any repurchase or assignment, the gross margins are equal or greater than 20%.
Moreover, provided Value-Added Tax applies, the foregoing gross margin (i.e. that results from the assignment of inventory products and is valued as mentioned above) shall be subject to tax with no deduction right until the “informal” inventory’s exhaustion.
Finally, the Finance Act permits to the taxpayers who register as such for the first time to benefit whatsoever from the favorable measures of the GTC.
2.4. Application of a tax regime to employees of companies benefiting from the “Casablanca Finance City” status
In the edge of improving the attractiveness of its tax system and the assimilation of its taxpayers in the Moroccan business sector, the Finance Act provides that any individuals, whether they are expatriates or local employees working for a company benefiting from the “Casablanca Finance City” status will be subject to a full tax rate of 20% applicable for a maximum period of five (5) years starting from the beginning of their assignments.
This new measure could be compared with the one adopted by the legislation regarding the “offshoring” activities which state that the Personal Income Tax shall not exceed 20% of the taxable gross income for each employee who works in a company located within one of the “offshoring” dedicated areas. Nevertheless, note that as per the foregoing legislation the company which benefits from the favorable tax incentive must submit an application file to obtain income tax refunds for any Personal Income Tax paid over the 20% threshold, along with the submission of all relevant evidentiary tax documents.
Therefore, the abovementioned provision, as introduced by the Finance Act, tends to be more favorable to the taxpayers, in as much as they are subject to a limited taxation of 20% directly, while preventing the concerned company from (i) initially paying the tax because of a progressive tax rate schedule and (ii) then asking for a partial refund.
2.5. Deduction of costs with respect to the “Mourabaha” in the assessment of the taxable real estate earnings
The Finance Act endows assignors who had entered into a “Mourabaha¹” contract to finance a real property purchase with the same tax treatment as those who had contracted a loan for the same purpose.
In these conditions and as with interests that are paid on loans agreed by credit institutions, the costs that are incurred in a “Mourabaha” contract are considered as investment expenses that must be added to the real property’s purchase price.
2.6. Exemption of movable capital realized income and earnings within a savings plan in shares, a home savings plan and an education savings plan
Unlike other countries, such as European partners or OECD state members, there is no, so as to say, taxation law in Morocco with regards to savings plan, except for specific tax provisions that apply to income and earnings resulting from investments in savings products.
In this regards, the Finance Act completes such provisions. Indeed, this Act refers to the movable capital gains as the net income earned by individuals between the opening of the Share Savings Plan and the redemption date, the shares or liquid assets’ withdrawal or the closing date of the foregoing plan.
In addition, the Finance Act is deemed to promote savings and develop access to property by implementing exemption regimes for interests earned by the holder of a home savings plan or an education savings plan under certain conditions.
In the meanwhile, one other objective of the Finance Act is to enhance exchange transactions by providing an exemption for movable capitals gains and incomes within a Share Savings Plan, except income and earnings earned within stock-options’ allocation or shares’ acquisition. In this respect, the holder must undertake to keep all payments and capitalized products during a maximum period of five (5) years, provided the amount of these payments does not exceed six hundred thousand Moroccan Dirhams (MAD 600,000); otherwise, the realized net earnings will be subject to a tax rate of 15%.
For the abovementioned taxation regime with respect to Share Savings Plans to be applicable, firms in charge of managing such plans shall submit to the fiscal administration all information with regards to both subscribers and their products.
2.7. Decrease in the tax rate applicable to securities income issued from a foreign source
In the perspective of attracting foreign capitals in Morocco, the Finance Act decreases the tax rate which is applicable to gross securities income (dividends) issued from a foreign source and earned by individuals from 30% to 15%.
3. Value Added Tax
3.1. Renewal of the exemption for microcredit transactions
The Finance Act n° 35-05 for the budgetary year 2006 had implemented a VAT exemption with no option for microcredit associations to deduct credit transactions performed for the benefit of their clients.
Thus, this exemption has been renewed and will be in effect until December 31st, 2011.
3.2. Clarification and improvement of the definition of “beginning of an activity” with respect to the exemption applicable to the purchase of investment and equipment goods
We recall that as per provisions of articles 92 (I-6°) and 123 (22°) of the General Tax Code, investment goods subject to a tax deduction right and to be displayed in a fixed assets account, which were bought by companies that were subject to the value added tax during a period of twenty four (24) months starting from the beginning of their activities, shall benefit from a value added tax exemption.
However, note that, concerning investment agreements concluded for a total investment exceeding two hundred millions Moroccan Dirhams (MAD 200,000,000), the abovementioned exemption shall apply for a longer period of thirty six (36) months, starting from the beginning of the activity of the company which is undertaking the foregoing investment project.
In general, taxpayers were experiencing some doubts due to the lack of legal definition of the “beginning if activity” in the GTC. The legal administrative doctrine, whether published or not, has, after a while, eventually put an end to these doubts by clarifying this definition.
Consequently, the new Finance Act makes the situation much clearer by presenting the definition of the “beginning of activity” from a legal perspective.
In fact, the new “beginning of activity” definition is described as the date of the first commercial act which stands for the first purchase of goods and services, excluding (i) costs related to the company’s incorporation, (ii) as well as initial costs with respect to the company’s settlement within the limit of a period of three (3) months.
Furthermore, the foregoing twenty-four (24) month period will only start running at the date of the building permit’s grant for companies whose investment project is to be built.
Finally, regarding the VAT at importation, the twenty-four (24) month period with respect to the purchase of investment goods and the thirty-six (36) month period regarding the purchase of equipment goods set for companies that are building their investment projects, start running at the date of the building permit’s grant. Nevertheless, in the event of force majeure cases, these delays could be extended by a period of six (6) months, renewable once.
4. Tax audit
4.1. Adoption of a Charter of rights for taxpayers
Through the implementation of a Taxpayers’ Charter of rights and obligations, the Finance Act reinforces the protection of the taxpayers’ rights with respect to tax audits, by enabling them to be informed of their rights and duties in this regards. Note that this Charter shall be addressed to all taxpayers along with the accounting audit notice.
The failure to address this Charter to a taxpayer who is subject to a tax audit before the accounting audit notified date will lead to the voidance of the procedure. This new provision has a tremendous and positive effect on the legal security of the Moroccan tax audits procedures. However, as of today, no Charter sample was published. Finally, it is worth noticing that no indication is provided as to the opposability of the foregoing Charter to the Moroccan tax administration.
4.2. Implementation of a delay for an action procedure in the Local Commission of Taxation
Along with the adoption of a Taxpayers’ Charter of rights and obligations, the Finance Act includes a further measure aimed at protecting taxpayers’ rights. Indeed and from now on, the Act imposes to the tax auditor a maximum delay of four (4) months to notify any request and documents addressed to the Local Commission of Taxation, as well as any decisions of this Commission to the concerned Taxpayers.
The objective of such an obligation is to speed up the procedure beside the Local Commissions of Taxation, as the discretionary power of the tax auditor who is legally bound to refer a matter to these Commissions has become limited.
5.1. Amendment of the Temporary Exportation Regime for Passive Development
Article 152 of the Customs Code exclusively allows the temporary exportation of imported products and goods that are deemed to be in temporary admission for active development for the processing or transformation of these products and goods abroad.
The Finance Acts establishes a wider scope for readmission, under a given economic regime, of products and goods imported to Morocco further to their temporary exportation for passive development.
Indeed, the Finance Act provides the readmission of products and goods, which not only fall under temporary admission for active development, but also under the industrial customs warehouse regime and under the transformation under customs regime, within the limits of the requirements as specified at the period of subscription to one of these regimes.
Any failure to readmit the foregoing products and goods under one of the abovementioned economic regimes will involve their market consumption (i.e. the payment of duties and taxes due to the lack of economic regime at Customs).
5.2. Conversion of the transformation under customs regime
First of all, we recall that article 163 ter of the Customs Code limited the benefits of the transformation under customs regime only to individuals who had or could have the necessary tools required for the expected transformation of goods.
In this regards, the Finance Act includes, from now on, the option to use subcontractors under the foregoing regime, given the significant effect of this activity upon the Moroccan economy. Thus, any transformation services with respect to goods falling under the transformation under customs regime could be subcontracted, at the bidder’s own responsibility, to any individual who has the necessary tools required to perform the required transformation.
As a matter of fact, the legislator has used specific terms so as to emphasize the requirements needed for a subcontracting operation, namely in the purpose of limiting, in a transparency effort, the responsibility of both the subcontractor and the bidder.
1. We recall that a “Mourabaha” is a contract under which a credit institution purchases, upon a client’s request, a movable or immovable good in the purpose of reselling it at its initial purchase cost plus a predetermined compensation fee. This contract enables Islamic banks to finance their clients’ exploitation and investments needs, while being in compliance with Islamic Law.