January 25, 2023
Morocco enacts Finance Law 2023 | A review of key tax measures
Morocco enacted Finance Law n° 50-22 for the Fiscal Year 2023 (FL 2023) and it was published in the official bulletin n° 7154 bis of 23 December 2022.
This Alert summarizes the key tax measures introduced by FL 2023.
Key tax measures of FL 2023
Reform of corporate tax rates
FL 2023 introduced a phased reform of corporate income tax rates over a period of four years with the objective of converging towards unified tax rates applicable from 2026 onwards, replacing the proportional tax system and the multiplicity of derogatory regimes.
The unified target rates are as follows:
The progressive implementation of the new tax rates will be carried out according to the following schedule:
(*) Credit establishments and similar institutions, Bank Al Maghrib, Caisse de Dépôt et de Gestion and insurance and reinsurance companies.
Installment calculation and transition between rates
Instalments due for each fiscal year during the transition period are calculated according to the corporate income tax rates applicable to that year.
In addition, the 35% rate is reduced to 20% only if the net taxable profit is less than MAD100 million during three consecutive fiscal years for the companies concerned.
FL 2023 has also introduced an investment incentive, applicable during the period from 1 January 2023, to 31 December 2026, for the benefit of companies incorporated as from 1 January 2023, which undertake to invest at least MAD1.5 million over a period of five years under an agreement to be signed with the Moroccan Government. These companies will be subject to a tax rate capped at 20% for fiscal years beginning on or after 1 January 2023.
The investment will have to consist of tangible fixed assets that must be retained for at least 10 years. The companies concerned are also subject to a specific reporting requirement.
The measure excludes public establishments and corporations and their subsidiaries in accordance with the legislative and regulatory texts in force.
Renewal of the measure related to Social Solidarity Contribution
FL 2023 has renewed the application of the social solidarity contribution on profits and income (SSC) for the years 2023, 2024 and 2025. The SSC will apply under the same conditions and at the same rates as previously stipulated.
Progressive reduction of the withholding tax rate on income from shares and similar revenues
FL 2023 has provided for a gradual reduction of the withholding tax (WHT) rate on income from shares and similar revenues to reach a rate of 10% by 2026 compared to the current rate of 15%. The implementation schedule is as follows:
The above rates apply to income from shares and similar revenues derived from business profits generated in respect of each financial year from 1 January 2023, to 31 December 2026.
In addition, income from shares and similar revenues that are distributed and that derive from profits earned in respect of financial years opened before 1 January 2023, remain subject to the 15% rate.
Reduction of minimum contribution rates
FL 2023 has introduced a unified rate of the minimum contribution of 0.25%, applicable to all companies regardless of the declared accounting current income.
FL 2023 has also reduced the former rate of 0.25% to 0.15% for commercial companies in respect of sales of certain commodities and petroleum products.
The FL further reduced the minimum contribution rate from 6% to 4% for individuals engaged in a liberal profession.
Introduction of a withholding tax on fees, commissions, brokerage fees and other similar remunerations
FL 2023 has introduced a WHT on fees, commissions, brokerage fees and other similar remuneration paid to, made available or recorded on behalf of legal entities or individuals under the regime of the actual net income or the simplified net income as follows:
The WHT levied is deductible from the amount of corporate income tax or personal income tax, with the right to refund.
Remuneration paid to legal entities by private operators is not subject to WHT.
Extension of the 70% reduction on the net capital gain resulting from the sale of fixed assets in the event of reinvestment
Companies will continue to benefit, for the years 2023, 2024 and 2025, from a 70% deduction on the net capital gain resulting from the sale of fixed assets, excluding land and buildings.
The transitional and derogatory measure will apply under the same conditions as previously provided.
Amendment of the tax regime for real estate investment funds (OPCIs)
Non-renewal of the 50% reduction measure upon the contribution of real property that expired on 31 December 2022
FL 2023 has provided for the permanent instatement in the law of the deferral of payment of corporate income tax or personal income tax corresponding to the net capital gain or real estate profit realized following the contribution of real property to an OPCI.
Cancellation of the 60% deduction on income from profits distributed by OPCIs
The measure has been replaced by a 40% deduction applicable only to income from the rental of real estate distributed by OPCIs that open their capital to the public, through the surrender of at least 40% of the existing shares.
Other tax measures of FL 2023
Measures relating to Corporate Income Tax
The other measures instituted by FL 2023 mainly apply to companies located in the IAZs and those with Casablanca FC status.
Exclusion of financial companies from IAZ tax benefits
FL 2023 has excluded financial companies from the tax benefits provided for IAZs. These companies are:
Introduction of the possibility for companies with Casablanca FC status to assign provisions for investment
FL 2023 has introduced the possibility for service companies with Casablanca FC status to make provisions for investments in participating interests. These provisions are deductible within the limit of 25% of the taxable profit after loss carryforward, subject to compliance with the following conditions:
As a transitional measure, the limits of the rates allowed for the formation of the aforementioned investment provisions are set progressively for fiscal years beginning on 1 January 2023, and ending on 31 December 2026, as follows:
Limitation of the period for the five-year exemption for companies with Casablanca FC status
Under the new provisions of FL 2023, companies with Casablanca FC status qualify for the five-year exemption from corporate income tax for the first 60 months following the date of their incorporation.
Limitation of the exemption from withholding tax on income from shares and similar revenues
FL 2023 has narrowed the scope of the WHT exemption for dividends and other similar equity income paid to, made available or recorded on behalf of nonresidents by companies located in IAZ and companies with Casablanca FC status.
Accordingly, the said exemption is now applicable only to dividends and other similar equity income from foreign source.
Measures relating to Value Added Tax (VAT)
Increase in VAT rates applicable to certain liberal professions
FL 2023 has revised the VAT rate from 10% to 20% for transactions carried out by the following professions:
Exemption without right to deduct VAT for various professions under a certain threshold
The professions of lawyer, interpreter, notary, adoul, bailiff, architect, metrologist, geometer, topographer, surveyor, engineer, consultant, approved accountant, expert in any field and veterinarian, previously subject to VAT regardless of their turnover, now benefit from the VAT exemption threshold of MAD500,000 without deduction right.
Institution of administrative formalities for the VAT exemption fo agricultural equipment
As of 1 January 2023, the exemption of goods and materials intended exclusively for agricultural use, the list of which is provided for in the General Tax Code, will become conditional upon the completion of formalities to be provided for by regulation.
Measures relating to Personal Income Tax
Renewal of the exemption from income tax for 36 months for new open-ended employment contracts
FL 2023 has extended until 31 December 2026, the 36-month exemption from income tax applicable to employees at their first recruitment.
It should be noted that this transitional measure was introduced by the Finance Law for the year 2021 and extended by the Finance Law 2022.
FL 2023 has thus extended the benefit of the measure under the same conditions, namely:
The employee's age must not exceed 35 years on the date of recruitment.
Renewal of the income tax exemption for employees of newly created companies
The measure relating to the income tax exemption of the gross monthly salary capped at MAD10,000 has been extended for newly created companies until 31 December 2026.
The benefit is granted for a period of 24 months, within the limit of 10 employees recruited under a permanent contract and during the two years from the beginning of the operation of the companies concerned.
Increase of the rate of the allowance for professional expenses
The flat-rate allowance for expenses incurred in the course of employment has been revised as follows:
Limitation of the exemption for severance payments in the event of dismissal or voluntary departure
FL 2023 has limited the income tax exemption to the total amount of MAD1 million paid in respect of the following indemnities:
Therefore, in the case of accumulation of several indemnities, the total amount of these exempted indemnities cannot exceed the abovementioned threshold.
Cancellation of the tax benefits granted to employees of certain financial companies with Casablanca FC status
Employees of companies with Casablanca FC status are subject to income tax at a specific rate of 20% for a maximum period of 10 years from the date of their employment.
FL 2023 has excluded from this benefit the employees of credit institutions and insurance and reinsurance companies with Casablanca FC status. Thus, as of 1 January 2023, the employees of these companies will be taxed according to the provisions of common law.
Amendment of the withholding tax rate applicable to compensation paid to non-permanent teachers
Educational or training establishments are now required to apply a final WHT of 30% instead of 17% for salaries and allowances paid to teachers who are not part of their permanent staff.
Revised tax treatment of premiums and contributions relating to individual or group retirement insurance contracts
FL 2023 has introduced the following changes:
The spread over a maximum period of four years has remained unchanged.
Furthermore, FL 2023 has implemented a WHT at a non-final rate of 15% for redemptions of retirement insurance contracts made before the age of 45 or before the minimum eight-year term provided for eligible contracts.
Implementation of a withholding tax applicable to service providers under the auto-entrepreneur regime or the Unified Professional Contribution (UPC) regime
The WHT provided for by FL 2023 applies to the annual turnover of the above-mentioned service providers which exceeds MAD80,000 per client. The rate is set at a final rate of 30%.
Exemption of tips
Tips received directly by beneficiaries without the intervention of the employer are now exempt from income tax.
Amendment of the tax treatment of property income and profits
FL 2023 has included several provisions concerning the taxation of property income and profits:
Taxation of income from profits distributed by OPCIs to individuals
Real estate profits
Prior consultation procedure
FL 2023 has deleted the 30% rate that was applicable to land profits made on the first transfer of land included in the urban perimeter. Henceforth, a single unified rate of 20% applies to all real estate profits.
Transfer of principal housing property
FL 2023 has reduced the minimum duration of assignment of a property to the principal residence to five years instead of six years for the benefit of the exemption on the basis of land profits.
The law has also clarified the concept of principal housing property. This corresponds to:
Update of the real estate rich concept
The definition of real estate rich companies has been revised by FL 2023 by reducing the proportion of real estate or securities issued by real estate companies to 50% of the total gross assets instead of 75% of the gross fixed assets.
Henceforth, is considered as real estate rich company, any company whose gross assets are constituted for 50% at least of their value by buildings or by securities issued by companies with real estate purpose or by other real estate rich companies, which are not assigned by these companies to their own industrial, commercial, artisanal, agricultural business, to the exercise of a designated profession or to the housing of their employees.
Exchange of information between the tax administration and other public administrations and institutions
FL 2023 has established the possibility for the tax administration to exchange information with other administrations and public bodies, within the framework of an agreement, in accordance with the legislation on the protection of individuals with respect to the processing of personal data and subject to compliance with professional secrecy.
Introduction of a procedure for inactive companies
FL 2023 has instituted specific procedures for inactive companies in the following cases:
FL 2023 has provided for a procedure for their registration in the so-called "inactive companies" register and the suspension of the application of the automatic taxation procedure.
FL 2023 has instituted a simplified and temporary procedure allowing them to rectify their tax situation and benefit from the exemption from tax audit in addition to the automatic cancellation of penalties for failure to file returns and pay taxes.
These companies must file a declaration of total termination of activity during the year 2023 and pay a lump sum tax of MAD5,000 for each year not statute barred.Capital gains from the sale or withdrawal of tangible or intangible assets, as well as compensation received in return for the termination of business or the transfer of customers, remain taxable in normal conditions.
For additional information with respect to this Alert, please contact the following:
Ernst & Young et Associés Sarl, Casablanca