The Moroccan Finance Act 2018 established a simplified tax framework for cases of temporary cessation of business activities applicable to companies (corporations or individual professional) subject to corporation tax or income tax in respect of professional income determined according to the regime of actual net income or the regime of simplified net income.

Tax incentives:

This framework allows eligible companies to lodge a declaration of temporary cessation of activity for a period of 2 years, renewable for a single year, with:

  • The exemption from payment of the minimum amount of the minimum contribution relating to the years concerned by this declaration (i.e. 3,000 MAD for companies and 1,500 MAD for professionals) ;
  • A reduction in the VAT declaration obligations through the filing of only one declaration per year concerning the turnover relating to the previous year, possibly accompanied by the payment of the corresponding VAT and this, before the end of the month January of each year.

Tax obligations:

Eligible companies can subscribe to the declaration of temporary cessation of activity, in the month following the closing date of the last financial year of their business activity. However, these companies must continue to file their tax returns for corporation tax and income tax in respect of professional income.

In the event of resumption of activity during the period covered by the aforementioned declaration, the concerned taxpayer must notify the administration through an information letter within a period not exceeding one month following the resumption of activity. The tax payer should also proceed to the regularization of his tax situation for the financial year concerned under the conditions of common tax law.

Legal references: 

Articles 144-I-C-3°; 150 bis ; 221-I et 232-VIII-17° of the Moroccan Tax Code

The Moroccan Finance Act 2017 has introduced a derogatory tax regime regarding real estate contributions in kind to REITs. Indeed, this specific taxation mode expressly derogates from articles 8 and 33-II of the Moroccan Tax Code which define the notions of taxable income. This regime is temporary applicable to contributions made until December 31, 2022.

Previously, this regime was applicable to contributions made until December 31, 2020. However, the 2021 Finance Act has provided for an additional two-year period for the application of the transitional measure to encourage real estate contributions to REITs.

Thus, the article 247-XXVI of the Moroccan Tax Code provides that taxpayers who proceed to the contribution of real estate registered in their fixed assets to a REIT are not taxed on the net capital gain realized as a result of the said contribution, subject to the following conditions:

  1. Filing of a specific declaration at the tax administration within 60 days;
  2. Evaluation of the contribution by a certified public accountant;
  3. Commitment in the contribution deed to pay the tax on the capital gain at the time of sale of the REIT’s securities;
  4. The contribution must be made before December 31, 2022 (Finance Act 2021).

If these conditions are satisfied, the company having made the contribution, benefits at the time of the total or partial disposal of the REIT shares, from a 50% reduction in corporate tax on the capital gain realized following the contribution of real estate to the REIT.

This leads to the computation of the tax at the time of the recognition of the capital gain on the contribution, and its payment at the time of the total or partial transfer of REIT shares.

Furthermore, in accordance with the provisions of article 6-I (A and C) of the MTC, the REIT benefit from:

  • The total and permanent exemption from corporate income tax for activities carried out and authorized by law n°70.14 regulating REITs.
  • Permanent exemption from withholding tax on dividends received by REITs as well as on interests paid to REITs.

The benefit of the above-mentioned exemptions was subject to the respect of certain conditions provided by article 7-XI of the MTC, namely:

  1. To evaluate the elements contributed to these organizations by a certified public accountant;
  2. To keep the real estate contributed to the said REITs for a period of 10 years minimum as from the date of the said contribution;
  3. To distribute :
    • 100% of the dividends and income from equity securities;
    • 100% of the income from fixed-income investments;
    • At least 60% of the capital gain realized on the sale of securities;
    • At least 85% of the result of the fiscal year relating to the rental of buildings constructed for professional use. The 2021 finance act has completed these provisions by specifying that REITs which distribute at least 85% of the result of the financial year relating to the rental of buildings constructed for residential use are also eligible for the above-mentioned exemptions.

Legal references:

  • The articles 6-I (A et C), 7-XI et 247-XXVI of Moroccan Tax Code (MTC)
  • The law 70-14 relating to OPCI

The Finance Act 2018 has introduced a registration duty exemption for acts of capital increase realized by cash, by incorporation of shareholder’s current account or by capitalization of profits or reserves.

However, the proportional rate of 1% remained applicable to some capital increase operations carried out by:

  • Contributions in kind;
  • Incorporation of liquid and payable debts on the company (other than those appearing in shareholder’s current account);
  • Incorporation of capital gains resulting from the revaluation of the company’s assets in case of merger.

The Finance Act 2021 has reduced the registration duties applicable to acts of capital increase carried out through the above mentioned operations. This rate is now 0.5% instead of 1%, it is applied on the amount or value of the contribution, including the share premium.

It should be noted that merger operations are subject to the common law regime for contributions carried out at the capital increase of companies. However, in the event of a merger by absorption, the deed recording the capital increase of the absorbing company is subject to registration duty at the rate of 0.5%, calculated on the amount or value of the contribution, including the merger premium and after deduction of the liabilities encumbering the contribution borne by the absorbing company.

The Finance Act 2020 has introduced a 25% tax rebate on the taxable basis corresponding to the mobile payment turnover made by individual professionals working under the simplified net income regime or the lump sum benefice regime.

This tax benefit aims to reduce the payments in cash and to foster payment through mobiles. It allows the following operations to be carried out:

– Money transfers;

– Payment of commercial transactions;

– Cash withdrawal and deposits.

In order to stimulate this payment method, the Amending Finance Act 2020 has replaced the above-mentioned rebate with provisions which stipulate that the turnover generated through mobile payment is not considered for five consecutive years when determining:

– The taxable basis of the income tax due by professional taxpayers working under the Simplified Net Income regime (RNS) or the Unique Professional Contribution regime (CPU);

– Thresholds for the application of income tax according to the above-mentioned regimes;

– Thresholds for application of VAT.

This measure is applicable for income declarations filed for the years 2020 to 2024.

Legal reference:

Article 247 ter of Moroccan Tax Code (MTC).

In order to facilitate restructuring operations, The Finance Act for FY2017 introduced a tax incentive scheme in favor of intragroup operations related to reallocation of production means and transfer fixed assets.

According to this regime completed by the Finance Act 2020, the transfer of fixed assets can be carried out between companies subject to corporate income tax, except for real estate investment trusts, without affecting their taxable income, if the said transactions are carried out between the members of a corporate group, constituted at the initiative of a “parent company” which holds continuously, directly or indirectly, at least 80% of the share capital of the said companies.

Fixed assets concerned:

  • Tangible fixed assets (Land, construction, office equipment…);
  • Intangible assets (Patents, trademarks, commercial funds…);
  • Financial fixed assets (Equity securities, fixed loans…).

Conditions of the transfer:

  • The fixed assets subject to the transfer must be registered in the fixed asset of the companies concerned by the transfer operations.
  • The transfer of fixed assets is any operation resulting in a transfer of ownership of tangible, intangible and financial fixed assets between companies members of the same group;
  • The fixed assets must not be sold to another company that is not part of the group and must not be removed from the fixed assets of the companies to which they have been transferred;
  • The companies concerned by the transfer operations must not leave the group.

Consequences:

  • The transferred fixed assets, according to the aforementioned conditions, must be evaluated at their actual value on the day of the transfer and the resulting capital gain is not taken into consideration for the determination of the tax result of the companies having carried out the said transfer.
  • The companies which benefit from the transfer of fixed assets can deduct from their tax result the depreciation charges of these fixed assets only up to the limit of the depreciation calculated on the basis of their original value booked at the level of the group company which carried out the first transfer operation.

In order to carry out the operations of transfer of fixed assets (tangible, intangible and financial), and to benefit from the tax incentive regime for intra-group restructuring operations, the following declarative obligations must be respected:

For the parent company:

  • File a specific application before its local tax administration within three months of the opening date of the fiscal year in which the option for the tax incentive is made;
  • Accompany this application with a list of the companies that are members of the group, specifying the name, the fiscal ID and the address of these companies as well as the percentage of their capital held by the parent company in order to join the group;
  • Produce a copy of the agreement of the companies to join the group.

In the event of a change in the composition of the group, the parent company must attach to its tax return for each financial year a statement listing the new companies integrated the group, with a copy of the deed recording their agreement, as well as the companies that left the group during the previous financial year.

In case of transfer operations, the parent company must also produce a statement clarifying all the operations of transfer of fixed assets carried out between the companies members of the group during a specific fiscal year, as well as the destination of the said fixed assets after the transfer operation, and this within a period of 3 months following the closing date of the fiscal year during which the transfer was carried out or the one during which a change in the destination of the said fixed assets was operated.

For members of the corporate group:

When a company becomes a member of the group, it must file a statement showing the group to which it belongs, the parent company that formed it and the percentage of share capital held by the parent company and the other companies in the group, within three months of the opening date of the first fiscal year in which it joined the group.

The companies having transferred the fixed assets within the group must file a statement specifying their original value appearing in the assets of the company of the group having carried out the first operation of transfer as well as their net book value and their real value at the day of the transfer and this, within the three months following the closing date of the fiscal year of the transfer.

The companies having profited from the transfer of the aforementioned fixed assets must file within three months following the closing date of each fiscal year, a statement specifying the original value appearing in the fixed assets of the company of the group having carried out the first operation of transfer, the net book value and the actual value at the date of the transfer as well as the deductible depreciation and those added back into the taxable result.

If a company leaves the group or if a fixed asset is withdrawn or sold to a company that is not part of the group, the local tax administration must be notified by the concerned company within three months following  the closing date of the financial year concerned.

Legal references:

Article 161 bis-I of Moroccan Tax Code (MTC)

Article 20 bis of Moroccan Tax Code (MTC)

The Moroccan Finance Act for FY2019 introduced the obligation to complete the registration formality for deeds and agreements recording monetary obligations or acknowledgements of debt of one person towards another.

In this respect, the Tax Administration has confirmed in a tax ruling dated March 2020, that agreements for advances on shareholders’ current accounts whether written or verbal and whatever the form of the deed recording them, authentic or private, are subject to the proportional registration duty of 1.5%. This position has caused an outrage of the business community, which considers this measure as an obstacle on corporate financing by its partners.

The Finance Act for 2021 provided the appropriate response to this issue of taxation of financing by cancelling the Registration Duties applicable to deeds recording advances in shareholders’ current accounts as well as deeds relating to the obligations and acknowledgements of debt referred to the Article 18 of Act No. 103-12 related to credit institutions.

The article 18 of Act No. 103-12 covers in particular: Commercial credit, lease- purchase agreements, cash transactions with companies which belong to the same group, the issue of securities and debt securities traded on a regulated market, the granting of payroll advances or loans to employees for social reasons, the issue of vouchers and cards delivered for the purchase of goods or services from a person…

Therefore, as from January 2021, are exempt from Registration Duties: the deeds recording advances in shareholders’ current accounts as well as the deeds relating to the obligations and acknowledgments of debt referred to in Article 18 of Law n°103-12 related to credit institutions and similar entities.

In addition, it should be noted that private or authentic deeds relating to obligations and acknowledgements of debt remain subject to the registration formality even through exempted from payment of registration duties.

Legal references:

Articles 127-I; 129-V-9; 136-III of Moroccan Tax Code.

 

Written by Ali SALIM  TAX Manager

This note summarizes tax regimes that may be applicable to persons who intends to stars their own project as independent entrepreneurs, so that transactions happen in a tax safe environment. There are basically 3 options:

  • Simplified self-entrepreneur regime;
  • Individual registration with taxes (Patente);
  • Creation of company;

1-     Simplified self-entrepreneur regime (régime de l’auto entrepreneur)

The person registered under the simplified self-employment regime is recognized by the tax authorities, according to Law No. 114.13. This person can establish invoices for the benefit of his clients. The invoiced amounts are excluding VAT.

Condition: annual turnover less than 200,000 MAD mad and activity to be within the permitted listed

Taxation : 1% of turnover

Reporting formality : submitting a sales report file

Other : simplified registration and cancellation procedure, exemption from accounting formality, no need for domicilium or rental.

2-    Professionnal registered activity as an individual

The independent entrepreneur may obtain a tax registration called “patent” (numéro de taxe professionnelle) and perform his professional activity. Under this regime, he can establish invoices to his clients.

Taxation at independent entrepreneur’s end:

  • Taxable income subject to personal income tax under progressive rate (up to 38%) with a minimum contribution of 0.5% of the turnover (this contribution can not be less than 3000 Mad)
  • Minimum patent of 3000 Mad (after 5 years of exemption)
  • VAT of 20% on the gross amount invoiced . this VAT is recoverable by the client under common law conditions.

Reporting formality at independent entrepreneur’s end:

  • Annual personal income tax return accompanied with the balance sheet of the professional activity;
  • Quarterly VAT returns;
  • Patent annual report;

3-    Creation of a sole shareholder company

The independent entrepreneur may establish a private sole shareholder limited liability company and proceed to the invoicing of services performed to his clients.

Taxation:

Taxable benefit subject to corporate income tax under proportional rate here after with a minimum contribution of 0.5% of the turnover (this contribution cannot be less than  3000 Mad)

Pre Tax fiscal result CIT Rate
Less than 300 000 10%
From 300 001 to 1 000 000 20%
Higher than  1 000 000 31%
  • Taxation of 15% of the gross amount of dividends paid
  • Minimum patent of 3000 Mad (after 5 years of exemption)
  • VAT of 20% on the gross amount invoiced. This VAT is recoverable by the client under common law conditions.

 

Reporting formality at independent entrepreneur’s end:

  • Financial statements to be accompanied by annual tax returns (tax benefit return, dividends return, ..)
  • Financial statement and minutes of annual assembly to be submitted to the commercial court
  • Quarterly VAT returns
  • Patent annual report

Other: difficult process to shut down the company if needed to

 

Written by Imane BENABOUD  TAX Manager

The 2021 Finance Bill was discussed and approved at the last Council of Government meeting held on Friday, October 16. It was immediately presented to both houses of Parliament on Monday, October 19, by the Minister of Finance.

Pending the distribution of a summary presentation on the tax measures provided for in the PLF 2021, you can download it in Arabic and French versions:

 

The Moroccan tax authorities allow businesses that are subject to VAT to claim a refund of their VAT credit (resulting from the fact that the amount of tax collected and due is less than the amount of tax to be recovered), in certain cases limited by law.

Indeed, some businesses are more likely to be in a VAT credit situation because of a particular legislative provision: those that export, those that purchase at the standard rate and then invoice their customers VAT-exempt, or those that have made significant investments.

It is not necessary to remind that these entities eligible for VAT refund remain subject to a well-defined formalism in order for their request for refund to be admissible.

Many companies have been refused the refund of certain invoices, the reasons for rejection are many and varied: foreclosure, non-recoverable VAT for reasons of funds or form…

In this article, we present some tips to increase the chances of obtaining a VAT credit refund with a minimum rejection rate.

Respect of the deadline for VAT credit refund:

The application must be made before the end of the year following the quarter in which the VAT credit was born (Article 103 of the CGI). For the request for reimbursement of fixed assets, the deadline is the month following the quarter during which the VAT credit was born (Article 103 bis of the CGI).

It should be noted that invoices for which payment was made prior to the quarter for which the refund is claimed may be rejected on the grounds of foreclosure if the refund application is filed within a period exceeding one year following the date of payment of the said invoice.

Compliance with VAT deductibility rules:

Particular attention must be paid to the tax treatment applicable to VAT when entering an invoice in the accounts: deductible VAT or accounting including VAT, particularly in the event of non-deductibility of VAT (Article 106 of the French General Tax Code). All invoices must also include all the information required by Article 145 of the French Tax Code, at the risk of being rejected for formal reasons.

In order to control the risk of invoice rejection, it is important to set up effective upstream controls and to check invoices and other documents supporting the justification of the information appearing in the statements and statements drawn up by the company before submitting any claim for reimbursement.

It is also recommended to make sure that the information in the statements of deductions and other statements or statements accompanying the application is consistent with the information in the periodic VAT returns filed by the company and that they are consistent with the supporting documents (bank statements, invoices, import file, etc.).

Consistency of the refund application:

It is necessary to ensure that the supporting documents are presented in such a way as to facilitate the control of the payment of the said purchases by means of bank statements or proof of other means of payment (cash, compensation, etc.).

It is recommended to set up a numbering system allowing the identification of invoices at the level of payment receipts and to ensure that these invoices bear the references and date of payment.

The classification of the invoices must be carried out by taking care to present them according to their nature, by respecting the following organization which makes it possible to ensure the coherence with the VAT declarations:

  • Current expense purchases :

– Internal purchases by grouping the purchases by VAT rate: 20%, 14%, 10%, or 7%.

– Import purchases by grouping purchases by VAT rates of 20%, 14%, 10%, or 7%.

  • Fixed asset purchases: annual amount of domestic and import purchases, grouping purchases by VAT rate: 20% or 14%.

 

Written by Imane BENABOUD  TAX Manager

The initial finance law of 2020 introduced an arsenal of transitional measures allowing taxpayers to regularize their situation with regard to different legislations (tax, exchange regulations, … ) during the year 2020. The Amending Finance Act published on July 27, 2020 extended the deadlines for the application of these measures to take into account the application constraints related to the pandemic context. The following table provides a better understanding of the different types of amnesty, their scope of application and the deadlines for their implementation.

Written by Imane BENABOUD  TAX Manager