Status report: The advantages attached to gaining CFC status

Law 44-10 enacted in December 2010, created the first Moroccan financial centre. Since the kingdom represents Africa’s second-largest market capitalisation, the common ambition of the Moroccan legislature and the Casablanca marketplace is to create a financial centre that will attract international and regional investments from the Maghreb and West Africa.

GAINING STATUS: Law 44-10 created Casablanca Finance City (CFC) status; which is granted to financial companies to exempt them (within the first five years following the grant of CFC status) from the payment of any taxes applicable to export revenues and profits made in connection with asset transfers originating from abroad (with the exception of real estate-related transactions). After the first five years the tax rate applicable to export revenues and profits made in connection with asset transfers originating from abroad is 8.75%. Other tax incentives may apply depending on the service performed and the type of firm.

To gain CFC status, financial companies must apply to the Moroccan Financial Board (MFB). Notably, in order to benefit from the abovementioned tax incentives, applicants must commit to generate (i) 20% of their revenues with foreign companies during the first year following the grant of the CFC status, (ii) 40% of their revenues with foreign companies during the second and third years following the grant of the status, and (iii) 60% of their revenues with foreign companies during the fourth year following the grant of the CFC status, as well as in subsequent years. The tax incentives and the obligation for CFC firms to generate their incomes through the execution of transactions with foreign companies is indication of the lawmakers’ intent to encourage global investors to set up a branch or a subsidiary in Morocco and to invest in the region.

EARLY ENTRANTS: Two years after the creation of CFC, the CFC status has already proven successful. For example in mid-2012, CFC status was granted to three major players in the financial and consulting services, as well as the manufacturing industry, namely Invest AD, which is part of the Abu Dhabi sovereign wealth fund; Boston Consulting Group and the German auto and truck parts manufacturer, Continental AG.

The companies which are eligible to apply for CFC status are financial companies that qualify as any of the following: (i) credit institutions, including activities such as financial engineering; (ii) insurance and insurance brokerage firms; (iii) financial institutions operating in the asset management sector; (iv) regional or international headquarters; and (v) financial services companies, such as rating agencies, legal advisors, auditors or companies carrying out financial off shoring.

APPLYING: In order to apply for CFC status, eligible companies must follow a five-step process. The first step consists in sending a letter of intent to the MFB. If accepted, the applicant must then apply with the appropriate authorities to obtain a licence if the contemplated activity is subject to a licence requirement, such as banking, private equity, and insurance or brokerage activities. If not already registered as a business in Morocco, the applicant will then have to set up a local presence by following the normal incorporation process of companies with the trade office. Once registered with the trade office, the applying entity will then submit its application to the MFB by completing a standard application form together with submitting a business plan. The MFB will then approve (or not) the application within 45 days from submission of the application. In addition to application fees ranging from €1555 to €3887, CFC companies must also pay an annual fee, which varies from €3110 to €9330.

Other reforms are also currently being discussed and implemented to modernise the financial market. A draft law on derivatives is expected to be passed in 2013, as well as a draft law to introduce securities-lending transactions. Additionally, the geographical area of the CFC had yet to be determined at the time of publication.