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Income Tax in Morocco


Personal Income Tax:

Individuals who have their tax residence in Morocco are subject to an individual income tax on their worldwide income.

Individuals not having their tax residence in Morocco are subject to tax only on Moroccan-sourced income.

Personal income tax rates:

The individual income tax is calculated on the basis of the following progressive scale:

Annual taxable income (MAD*)
Tax rate (%)
0 to 30,000
Exempted
30,001 to 50,000
10
50,001 to 60,000
20
60,001 to 80,000
30
80,001 to 180,000
34
More than 180,000
38

Residency Rule:

According to Moroccan law, tax residence is determined by one of the following criteria (in the order listed):

· The place of permanent home.
· The centre of economic interest.
· The duration of stay in the country exceeding 183 days within any period of 365 days.

Taxable Income:

The categories of revenues and capital gains subject to individual income tax are the following:

· Salary revenues.
· Professional revenues.
· Revenues derived from agricultural farms.
· Real estate revenues and capital gains.
· Revenues and capital gains on financial instruments.

Salary revenues:

The net taxable salary corresponds to the gross wage, including benefits and payments in kind or cash, granted to the employee reduced by the amount of social security contributions.

Some exemptions are provided (e.g. allowances granted to cover employment expenses).

Pension revenues:

Finance Law 2015 sets a progressive scale for the deductions applied to pension revenues as follows:

· 55% on the pension income not exceeding MAD 168,000 yearly.
· 40% on the pension income exceeding MAD 168,000 yearly.

Individuals resident in Morocco benefit from a reduction of 80% of individual income tax relating to pensions of foreign source duly repatriated to Morocco.

Professional revenues:

Under the standard regime, the tax basis of professional revenues is the difference between trading income and expenditure.

Revenues derived from agricultural farms:

Low-scale individual farmers:

Individual farmers that realise annual turnover of less than MAD 5 million qualify for a total exemption of individual income tax starting from 1 January 2014. If such individuals realise turnover that exceeds MAD 5 million in say year (n), they become liable to individual income tax in year (n), year (n+1), year (n+2), and year (n+3).

Moreover, such individuals qualify for a reduced rate of 20% during the first five fiscal years following the first year during which they become liable to individual income tax.

Medium and large-scale individual farmers:

Finance Law 2014 provides for a progressive approach to tax medium and large-scale individual farmers that realise annual turnover exceeding MAD 5 million.

As such, the above individuals realising annual turnover that exceeds MAD 35 million, MAD 20 million, or MAD 10 million should become liable to individual income tax, respectively, in 2016, 2018, and 2020.

Moreover, such individuals qualify for a reduced rate of 20% during the first five fiscal years following the first year during which they become liable to individual income tax.

Real estate revenues and capital gains:

Real estate revenues:

Revenues derived from real estate rentals are subject to the individual income tax at the standard progressive tax rates.

For non-furnished properties, the rental income benefits from a 40% tax deduction. Moreover, rental revenues related to non-furnished new properties benefit from a three-year exemption from the individual income tax.

Real estate capital gains :

Capital gains earned from the sale of properties by individuals are subject to a flat rate of 20% of capital gains. The tax amount cannot be lower than 3% of the selling price.

The capital gain derived from the sale of real estate is calculated as follows:

Capital gain = (selling price - selling expenses) - (updated purchasing price + purchasing expenses)

Where:

·  ‘purchasing price’ includes the investment expenses and interests on loans for investment financing, and

· ‘updated purchasing price’ corresponds to the ‘purchasing price’ times a coefficient set by the tax authorities based on a cost of living index.

Capital gains derived from the sale of property benefit from an exemption of the individual income tax if it is used as a principal residence for at least six years.

Revenues and capital gains on financial instruments:

Revenues on financial instruments:

The individual income tax is levied on revenues of shares (dividends) as well as revenues of fixed income instruments (interests) at the following rates:

Nature of revenue
Tax rate (%)
Dividends
10
Foreign source dividends
15
Interest earned by individuals, excluding those subject to real or simplified regime
30

The net taxable revenue is determined by the gross amount of the financial instrument revenue less bank charges and account carrying charges.

Capital gains on financial instruments:

The individual income tax is levied on capital gains derived from the sales of shares, bonds, and other similar financial instruments at the following rates:

Nature of capital gain
Tax rate (%)
Capital gains derived from the sale of listed shares 
15
Capital gains derived from the sale of non-listed shares 
20
Capital gains derived from the sale of bonds
20

The net capital gain is the difference between:

·  selling price decreased by the expenses engaged for the sale of the financial instruments (brokerage fees) and

· acquisition price increased by the expenses engaged for the acquisition of the financial instruments.

Concerning bonds, the selling and acquisition prices correspond to the capital amount, excluding interest receivable but not yet due.

Deductions from Income:

Employment expenses:

The deductions from gross salary concern, mainly, social security contributions, retirement contributions, and a lump-sum deduction equal to 20% of the gross salary (with a ceiling of MAD 30,000 per year).

Pension insurance contributions:

Finance Law 2015 sets the following limits for deductibility of pension insurance contributions:

· 50% of net taxable salary for individuals receiving only salary income.
· 50% of net taxable salary or 10% of the global taxable income for individuals receiving salary as well as other categories of revenues.
· 10% of the global taxable income for individuals receiving revenues other than salary income.

Personal deductions:

Charitable contributions:

Charitable contributions are deductible if granted to organisms and societies expressly provided by the tax law.

Mortgage interest expenses:

Loan interests relating to the acquisition of a main house are tax deductible up to the limit of 10% of the taxable global revenue.

Professional deductions:

Professional expenses incurred in the operation of the business are generally deductible unless specifically excluded.



Corporate Income Tax:

Corporate income tax:

 The following companies are subject to corporate income tax:

· Resident companies (those incorporated in Morocco)

· Nonresident companies deriving taxable income from activities carried out in Morocco

· Nonresident companies deriving capital gains from sales of unlisted shares and bonds in Morocco (unless a double tax treaty between Morocco and the residence country of the beneficiary provides otherwise)

· Branches of foreign companies carrying on business activities independent of those performed by their head office

In general, only Moroccan-source income is subject to tax unless a provision of a double tax treaty provides otherwise.

Tax rates:

 The regular corporate tax rates are proportional rates. The following are the rates.

Taxable income:

Exceeding MAD
Not Exceeding MAD
Rate %
0
300,000
10
300,001
1,000,000
20
1,000,001
5,000,000
30
5,000,0001
-
31

The rates in the above table apply to the total taxable income of the company. For example, if a company’s taxable income is MAD400,000, the total taxable income is taxed at 20%.

Banks, financial institutions and insurance companies are subject to tax at a rate of 37%.

The minimum tax equals the greater of the minimum fixed amount of MAD3,000 and 0.5% of the total of the following items:

·  Turnover from sales of delivered goods and services rendered
· Other exploitation income (for example, directors’ fees received when the company acts as an administrator of another company, revenues from buildings that are not used in the company’s activities, and profits and transfers of losses with respect to shared operations)
· Financial income (excluding financial reversals and transfers of financial expenses)
·  Subsidies received from the state and third parties

The rate of minimum tax is reduced to 0.25% for sales of petroleum goods, gasoline, butter, oil, sugar, flour, water and electricity. The minimum tax applies if it exceeds the corporate income tax resulting from the application of the proportional rates or if the company incurs a loss. New companies are exempt from minimum tax for 36 months after the commencement of business activities.

Before January 2016, if minimum tax is applied because of the incurrence of tax losses or because the minimum tax amount exceeded the corporate income tax, the minimum tax could be offset against the corporate income tax due in the following three years. Effective from 1 January 2016, the minimum tax can no longer be offset against corporate income tax.

Nonresident contractors may elect an optional method of taxation for construction or assembly work or for work on industrial or technical installations. Under the optional method, an 8% tax is applied to the total contract price including the cost of materials, but excluding VAT.

Tax incentives:

 Morocco offers the same tax incentives to domestic and foreign investors. Various types of companies benefit from tax exemptions and tax reductions, which are summarized below.

Permanent exemptions:

 Permanent tax exemptions are available to agricultural enterprises and cooperatives with annual turnover of less than MAD5 million, excluding VAT.

Capital risk companies are exempt from corporate income tax on profits derived within the scope of their activities (these are profits related to purchases of companies’ shares that support such companies’ development and the sales of such shares thereafter).

Total exemption followed by permanent reduction:

 Export companies are exempt from corporate income tax on their profits related to their export turnover during the first five years following their first export transaction. These companies benefit from a reduced rate of 17.5% in subsequent years. Exporters of recycled metals cannot benefit from the 17.5% rate. For the exportation of services, the 17.5% rate applies if both of the following conditions are met:

· The related turnover must be realized in foreign currencies (other than dirhams) that is properly repatriated to Morocco.

· The currencies must be repatriated to the Moroccan bank account of the company.

Hotel companies benefit from a tax exemption and a tax reduction with respect to their profits corresponding to their foreign currency revenues that are generated by their hotels and are remitted to Morocco either directly or through travel agencies. Hotel companies are fully exempt from tax on such profits for the first five years following their first foreign currency sale operation, and they benefit from a reduced rate of 17.5% on such profits in subsequent years. Management companies of “real estate residences for tourism promotion” also benefit from this measure, under the same conditions. A “real estate residence for tourism promotion” is a residence assimilated to a hotel in which the housing units belong to one or more owners and of which a minimum percentage of the housing units (fixed by regulations at 70%) is managed by a licensed management company for at least 9 years.

Regional or international head offices that have Casablanca Finance City status are subject to a reduced 10% corporate income tax rate beginning on the date of obtaining such status. Other Casablanca Finance City companies benefit from a five-year exemption and subsequently a reduced rate of 8.75%.

Permanent reductions:

Mining companies, including those that sell products to export companies, benefit from a reduced corporate income tax rate of 17.5%.

Total exemption followed by temporary reduction. Export companies established in Moroccan free zones (zones franches) are exempt from corporate income tax for the first 5 years of activity and are subject to corporate income tax at a rate of 8.75% for the following 20 years. This rule also applies to operations rendered between companies established in the same Moroccan free zone and between companies established in different Moroccan free zones.

Temporary exemption:

 Under a transitional measure, the following agricultural enterprises continue to benefit from the temporary corporate income tax exemption:

· From 1 January 2016 until 31 December 2017: agricultural enterprises with turnover of less than MAD20 million

· From 1 January 2018 until 31 December 2019: agricultural enterprises with turnover of less than MAD10 million

Companies holding a hydrocarbon exploration and exploitation permit are exempt from corporate income tax for 10 years from the beginning of hydrocarbon regular production.

Subject to certain conditions, real estate developers benefit from a total exemption from corporate income tax and other taxes with respect to construction programs for social housing under agreements entered into with the government. This temporary regime applies from 1 January 2010 through 31 December 2020.

Temporary reduction:

Handicraft companies, private schools and educational institutes benefit from a reduced corporate income tax rate of 17.5% for their first five years of operations.

Banks and holding companies located in offshore zones benefit from a reduction in corporate income tax for the first 15 years of operation. Banks may elect to pay a minimum corporate income tax of USD25,000 or pay tax at a reduced rate of 10%. Holding companies pay a flat tax of USD5,000 per year.

Tax-free intra-group restructuring:

 A recently enacted decree introduced a new provision establishing a tax-neutrality mechanism for the sale of fixed assets between companies of the same group. This regime allows the transfer or sale of these assets without affecting the taxable income of the transferor. It applies if the concerned companies are part of a group created by a parent company and includes only companies in which it holds directly or indirectly at least 95% of the share capital. At the transferee level, depreciation on fixed assets is tax deductible, but such deduction is limited. These transactions are subject to a fixed registration duty of MAD1,000.

Exemption for newly incorporated industrial companies:

 To promote investment in the industrial sector, the decree provides for exemption from corporate income tax for newly created industrial companies for a period of five consecutive years from the starting date of business operations. The eligible industrial activities for this tax incentive will be defined by another decree.

Capital gains:

Capital gains on the sale of fixed assets are taxed at the proportional corporate tax rates.

Nonresident companies are taxed on profits derived from sales of unlisted shares of Moroccan companies at the proportional corporate income tax rates, unless a double tax treaty between Morocco and the residence country of the beneficiary provides otherwise. In addition, they must file an income declaration before the end of the month following the month in which the sales occurred.

Special rules apply to mergers and liquidations of companies.



Administration:

Within three months after the end of their financial year, companies must file a corporate income tax return with the local tax administration where their headquarters are located. The companies’ financial statements must be enclosed with the return.

Companies must make advance payments of corporate income tax. For companies with a 31 December year-end, the payments must be made by 31 March, 30 June, 30 September and 31 December. Each payment must be equal to 25% of the previous year’s tax.

If the minimum tax does not exceed MAD3,000, it is fully payable in one installment. Payment of the minimum tax exceeding this amount is made in accordance with the rules applicable to the corporate income tax.

Dividends:

Dividends are generally subject to a 15% withholding tax. However, withholding tax does not apply to dividends paid to Moroccan companies subject to Moroccan corporate tax if a property attestation is delivered by the beneficiary company. Such companies are also exempt from corporate income tax on the dividends.

Foreign tax relief:

Foreign tax relief is granted in accordance with the provisions of Morocco’s double tax treaties and the Moroccan Tax Code.





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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.