Sign up for tax alert emails GTNU homepage Tax newsroom Email document Print document Download document
March 20, 2020
Morocco enacts Finance Law 2020
Morocco’s Finance Law N° 70-19 relating to financial year 2020 (FL 2020) is now effective and introduced several amendments to Moroccan tax law. The provisions of FL 2020 should be read in conjunction with the recommendations of the National Conference relating to Tax (Assises Nationales de la Fiscalité) which took place in May 2019 and with the conclusions of the European Commission which placed Morocco on the “grey list” of the Common European Union (EU) list of third-country jurisdictions for tax purposes.
This Alert summarizes the main measures introduced by FL 2020.
Corporate Income Tax (CIT)
FL 2020 amended the progressive rate of CIT that entered into force in 2019, increasing the intermediary rate of 17.5% to 20%.
In addition, the marginal 31% rate has been reduced to 28% for companies performing industrial activities and where taxable income is lower than 100 million Moroccan Dirhams (MAD).
The applicable rates for financial years open as of 1 January 2020 are:
In addition, the rate of the minimum contribution to CIT was decreased from 0.75% to 0.5%. As a reminder, its taxable basis includes the turnover plus certain other income.
FL 2020 also introduced a 0.6% rate for companies that remain in a tax loss position (excluding capital allowances) after a 36-month exemption period.
These new rates are applicable to declarations filed as from 1 January 2020, and therefore to financial years ending 31 December 2019 onwards.
FL 2020 amended the export regime by repealing the five-year exemption that was previously applicable and increased the 17.5% CIT rate to 20%.
The applicable rules could be summarized as follows:
The changes brought by FL 2020 could be summarized as follows:
FL 2020 changed the name of “Export Free Zones” to “Industrial Acceleration Zones” (IAZ), and changed the regime applicable to companies set up in those zones as from 1 January 2021 as summarized in the below table:
FL 2020 introduced a new beneficial regime for companies performing service outsourcing activities inside or outside the dedicated offshoring zones (“plateformes industrielles intégrées” or “P2I”) existing in certain cities such as Casablanca, Rabat and Fez.
Such companies benefit from a five-year exemption followed by a taxation limited to 20%.
The definition of service outsourcing is still to be clarified, in particular for companies outside P2Is, since those companies do not need to obtain any specific license to perform their activities.
This new regime is applicable to financial years open as from 1 January 2020.
Finance Law 2017 had introduced a tax neutrality regime for intra-group transfers of capitalized tangible assets, a group constituted by a Moroccan parent company and its subsidiaries held, directly and indirectly, at more than 80%.
Despite the benefits of such provisions for restructuring transactions inside a group, the way it was drafted excluded certain transactions that were typically needed in the context of such restructuring, including in particular transfers of shares and patents.
In that context, FL 2020 extended the scope of this tax neutrality regime to capitalized intangible and financial assets, including intra-group transfers of equity interests and patents.
FL 2020 introduced the possibility for taxpayers identifying irregularities in their tax declarations, resulting in an underassessment of taxable income, to regularize their situation by:
Such procedure involves an automatic cancellation of penalties.
In addition, taxpayers going through this procedure may be exempted from tax audit for the financial years regularized, if they consult the tax authorities beforehand, and if an explanatory note made with the assistance of an expert (chartered or licensed accountant) is filed along with the declaration.
Exemption from tax audit may also be available under certain conditions where a specific agreement concluded between the tax authorities and the professional organization to which the taxpayer belongs, and which sets, on the basis of the database available to the tax authorities, the standards on which this adjustment should be carried out.
The CbCR will include the country-by-country split of tax and accounting figures of the company, in addition to the identity, place of exercise and nature of activities relating to the multinational group of enterprises that the Moroccan company belongs to.
This reporting must be submitted electronically within 12 months as from the financial year end.
The new Moroccan CbCR will apply to Moroccan companies that:
This obligation is also applicable to any enterprise which fulfills any of the following conditions:
It has been appointed for this obligation by the group of multinational companies it belongs to and has informed the Moroccan tax authorities accordingly. Indeed, where two or more enterprises subject to Moroccan CIT belonging to the same multinational group are subject to the Moroccan CbCR, one of them can be appointed by the group to submit the declaration on behalf of the others to the extent it informs the tax authorities beforehand.
In addition, CbCR applies to any enterprise subject to Moroccan CIT, directly or indirectly held by an enterprise that is located in a country that concluded with Morocco an exchange of information agreement for tax purposes and is required to submit a CbC report, but that has been informed by the Moroccan tax authorities that such country fails to automatically share the country by country reporting it has in its possession.
Failing to declare or submit the CbC report is punishable by a MAD500,000 fine.
Individual Income Tax (IIT)
Before FL 2020, a 55% tax deduction was applicable to retirement pensions and life annuities for the portion not exceeding MAD168,000 per year, the surplus benefitting from a 40% tax rebate.
FL 2020 increased the 55% deduction to 60%.
Before FL 2020, only premiums relating to retirement insurance contracts entered into as from 1 January 2015 were subject to a deduction cap of 50% of the net taxable salary.
In accordance with FL 2020, all retirement insurance premiums paid as from 1 January 2020 are subject to such limitation, whatever the date of the contract.
Under FL 2020, individuals that contribute all the equity securities they hold in one or more companies to a Moroccan holding company subject to CIT, are not subject to tax on the net capital gain made on such contribution, to the extent they meet the following conditions:
A specific declaration should also be submitted by those individuals within 60 days as from the contribution deed date.
Value-Added Tax (VAT)
Before FL 2020, small manufacturers and service providers (i.e., with annual turnover below MAD500,000) were excluded from the scope of VAT. As from 1 January 2020, they will enter into the scope of this tax, but will be exempt with no right to deduct input VAT.
FL 2020 also provides that this exemption only applies to individuals and not companies. As such, companies performing manufacturing or service activities with a turnover below MAD500,000 will be subject to VAT.
In order to harmonize the tax treatment of Chari’a-compliant participative finance products with those of standard bank products, FL 2020 notably introduced the following provisions:
FL 2020 notably included the following goods in the scope of VAT at a 20% rate:
FL 2020 changed the rate of the following goods as follows:
FL 2020 provided for the exemption from VAT of human and animal vaccines as well as certain medicines to be listed in a decree. Also, water pumps working with solar energy or any other renewable energy are now exempt from import VAT where they are used for the agricultural sector.
Before FL 2020 the above-mentioned products were in practice subjected to both a specific VAT rate computed based on their volume or weight, as well as the standard 20% VAT rate based on the sale price (or exempted).
The specific VAT rate based on the volume or weight was deleted from the Moroccan Tax Code to become a new excise tax (Taxe intérieure de consommation), accordingly only the standard 20% VAT rate will now apply on those products.
Moroccan registration duties apply to certain deeds that are mandatorily subject to the registration formality and are generally based on the value mentioned in such deeds.
FL 2020 introduced new exemptions from registration duty for the following deeds:
Before FL 2020, significant uncertainties surrounded the application of penalties to the failure or delay to register deeds mandatorily subject to the registration formality but exempt from the registration duty. This issue became particularly important further to the exemption from registration duties applicable to transfers of shares in Moroccan companies whose predominant business is not real estate.
In that respect, the tax authorities adopted in practice a challengeable position under which they computed penalties based on the theoretical rate applicable in the absence of an exemption, which was according to the tax authorities 4% for transfers of the abovementioned shares, i.e., the rate that was in force before the exemption came into effect.
FL 2020 now clarified this situation and provides for a 0.5% penalty, reduced to 0.25% in the event of a delay not exceeding 30 days, computed on the same tax basis as the registration duties (e.g., sale price mentioned in the deed for the case of transfers of shares). This penalty cannot be lower than MAD500 and cannot exceed MAD100,000.
In accordance with the Organisation for Economic Co-operation and Development (OECD) recommendations, FL 2020 introduced the Automatic Exchange of Information for tax purposes in Moroccan domestic law.
Under this new provision, financial institutions are required to identify information relating to the tax residency of all financial account holders and, if applicable, their beneficial holders.
Such financial institutions should communicate to the Moroccan tax authorities, through a template issued by them, all information required for the purpose of applying treaties concluded by Morocco allowing an automatic exchange of information for tax purposes.
Such declaration notably includes information relating to the identification of financial account holders and, if applicable, beneficial holders, as well as financial information relating to those accounts, including income from securities, account balance, redemption value of life insurance and capitalization contracts or assimilated, and capital gains from the sale or redemption of financial assets.
Failure to identify or declare the accounts, as well as the communication of incomplete, insufficient or mistaken information is punishable by a MAD2,000 fine per account.
A decree should clarify the practical modalities of this new provision, including the deadline of the first reporting. FL 2020 already mentioned that the first financial year to be reported will be 2020.
Several regularization procedures were introduced by FL 2020, among which a spontaneous regularization relating to assets and liquidities held abroad.
This regularization covers assets and liquidities held abroad before 30 September 2019 and declared through the regularization process before 31 October 2020. It will allow the concerned taxpayer to benefit from the cancellation of taxes potentially applicable to those assets and liquidities, and foreign exchange control related penalties and fines.
For regularization purposes, taxpayers should pay a spontaneous contribution amounting to:
1. Date of entry into force yet to be confirmed by the tax authorities.
For additional information with respect to this Alert, please contact the following:
Ernst & Young et Associés Sarl, Casablanca