Legislative changes introduces range of tax reductions and incentives to Morocco

Given the frame of reference and the national and international context, the Finance Law of 2018 seeks to address a number of priority areas. These include the support of public services such as education and health care, as well as the stimulation of employment and the reduction of geographic inequality, particularly the urban-rural divide. Furthermore, the Law seeks to encourage industrial development, and nurture private investment, and small and medium-sized enterprises. The Finance Law also aims to advance regionalisation, improve overall governance and accelerate the implementation of reform. In order to meet these objectives, the Law introduces a series changes to the tax regime.

CORPORATE INCOME TAX: The Law institutes a new scale for corporate income tax (CIT) rates, increasing the tax scale from 10% on net profits over Dh300,000 (€27,800) to 31% on net profits over Dh5m (€463,000).

This provision concerns only Article 19-I-A of the General Tax Code of Morocco. Therefore, the new tax scale is not applicable to taxpayers who are subject to other reduced rates already granted by the General Tax Code. The new CIT entered into effect on the fiscal year starting in January 2018.

OPCI: Prior to the Finance Law of 2018, the CIT exemption concerned exclusively the profits made by collective investment placements in real estate (organismes de placement collectif en immobilier, OPCIs), corresponding to the rental profits of buildings for professional use. This is in accordance with the provisions laid out by Article 6-I-A-31° of the General Tax Code and under some conditions laid out by the Article 7-XI. The new Finance Law grants the permanent and total exemption from CIT of all activities and operations carried out by OPCIs, as stipulated by Law No. 70-14, which was enacted by Dahir (royal decree) No. 1-16-130 of August 25, 2016.

TAX REDUCTIONS: The Finance Law provides a tax reduction for persons or companies taking a stake in the capital of innovative young companies operating in new technologies. The tax reduction is equal to the amount of their stake in the company.

This reduction is offered to companies subject to CIT, taxpayers whose professional incomes are determined by actual net income or simplified net income regimes, and taxable farm operators. This tax reduction is subject to the following conditions:

• The amount eligible for the tax reduction is capped at Dh200,000 (€18,500), per company.

• The total amount of the tax reduction must not exceed 30% of the tax due for the year of participation in the tax reduction.

• The stake in the capital of the aforementioned innovative companies must take the form of a cash contribution.

• The capital must be fully released during the same tax year.

• Securities acquired in return for participation must be retained for a minimum period of four years from the date of acquisition.

• In order to participate in the tax reduction, the filing of the stake in the young innovative company must be carried out at the same time as the tax return and for the same tax year.

• For personal income tax, the securities received in return for the participation must be entered in an account of the fixed assets of the concerned company. In the case of non-compliance with any of the above mentioned conditions, the tax reduction must be paid by the end of the financial year.

SUKUK: The Finance Law provides clarification regarding the incomes paid by funds for collective investment in securitisation (fonds de placement collectif en

MERGERS & DIVISIONS: Prior to 2018 the General Tax Code provided for the non-inclusion as taxable income of the capital gains of merged or divided companies. With these capital gains corresponding to the contribution of the non-depreciable items to the acquiring company or from the division, until the subsequent withdrawal or disposal of these items.

The Finance Law of 2018 provides for the replacement of this arrangement with the obligation of voluntary payment of the tax for deferred capital gains. The payment of this tax is to be affected by the acquiring company or by the company following division, with respect to the exit or disposal of the property concerned, before the expiration of the deadline for reporting tax. Previously, the accumulated losses of the acquiring company contained in their return of the last fiscal year preceding the merger or division were not carried forward to the profits of the following years. However, the Finance Law of 2018 includes the possibility for acquiring companies to carry forward the losses corresponding to depreciations recorded on the profits of the following fiscal years.

PERSONAL INCOME TAX: Before the new Finance Law came into effect, the General Tax Code provided that the taxpayer could deduct a maximum of 10% of the taxable global income, or 50% of the taxable net salary, premiums or contributions linked to individual or collective retirement insurance contracts. The new Law provides the opportunity for subscribers to continue to benefit from this deduction, in the case of the transfer of contributions or premiums from a supplementary retirement contract from one insurance company to another. This extension is provided on the condition that the transfer relates to the amount of premiums or contributions paid under the original contract.

Furthermore, while the General Tax Code previously granted an exemption from private income tax of compensation for damages in case of dismissal only when granted by a tribunal, the Finance Law of 2018 provides that this exemption is granted in the case of judicial or arbitral proceeding.

EXEMPTION CHANGES: Previously, the General Tax Code provided personal income tax exemption for gross monthly salary capped at Dh10,000 (€926) under the following conditions:

• Eligible companies must be established during the period between January 1, 2015 and December 31, 2019.

• To be eligible for the exemption benefit, recruitments must be carried out within the first two years of the creation of the company.

• The duration of the exemption is 24 months from the date of recruitment of the employee.

• Exemptions can be granted to no more than five employees. The Finance Law of 2018 has developed these conditions as follows:

• Eligible companies, associations or cooperatives must be established during the period between January 1, 2015 and December 31, 2022.

• To be eligible for the exemption benefit, recruitments must be carried out within the first two years of the commencement of operation of the company, association or cooperative.

• The duration of the exemption is 24 months from the date of recruitment of the employee.

• Exemptions can be granted to no more than five employees.

DIGITALISATION: The recent reforms introduced by the new Finance Law establish the obligation to submit all tax information electronically before paying income tax. This obligation includes all tax returns covered by the General Tax Code, including personal income tax, global income tax, and income from property and capital gains, as covered by Article 82, Article 84 and Article 84-I of the General Tax Code. However, taxpayers whose professional income is derived from a lump sum are excluded from this obligation.

VALUE-ADDED TAX: The new Finance Law also introduces a number of changes to the application of value-added tax (VAT). Beginning on January 1, 2018 an exemption from VAT payments was introduced for those leasing non-equipped professional premises. However, rental contracts for non-equipped professional premises signed prior to June 12, 2017 remain subject to VAT, where the following conditions apply:

• VAT on the acquisition of rented premises has been deducted or purchased with VAT exemption; and

• These rental properties relate to non-equipped professional premises which were previously subject to VAT prior to June 12, 2017 in accordance with the old combined provisions of Articles 89-I-10° and Article 96-9° of the General Tax Code. Opting for the VAT exemption, as stipulated in Article 90-4° of the General Tax Code, is irrevocable and can be applied to more than one premises. The exemption can relate to an entire real estate project, or be limited to only one building or even a few apartments.

Additionally, individuals who have built non-equipped professional spaces for the rental market and have therefore benefitted from a VAT exemption, deduction or reimbursement, will be subject to VAT on the whole premises when the property is rented.

VAT EXEMPTIONS: The Finance Law of 2018 also provides for the right to reimbursement of VAT for companies responsible for carrying out seawater desalination projects. The Law also provides specific exemptions from VAT for various aquaculture sector inputs, including:

• Food for fish and other aquaculture animals;

• Fingerlings (alevins de poissons) and larvae of other aquaculture animals; or

• Spat of shellfish (naissains de coquillages). The Law also provides exemptions from import VAT for:

• Emergency non-commercial shipments;

• Medicines for the treatment of meningitis;

• Goods received as donations intended to be distributed, for free, to the needy or victims;

• Materials intended to provide free humanitarian services imported by certain charitable organisations;

• Sporting goods and equipment intended to be donated to the country’s sports federations;

• Goods sent via post to ambassadors, diplomatic and consular services, and foreign members of official international organisations based in Morocco. The provisions of the new Finance Law provide the right to recover the non-apparent VAT charge on any purchase of unprocessed milk bought locally for the production of milk derivatives sold locally, other than those referred to under Article 91-IA-2° of the General Tax Code. Therefore this provision does not apply to purchases of unprocessed milk used in the production of milk or cream, regardless of whether it is pasteurised or non-pasteurised, condensed or non-condensed, sweetened or unsweetened, as well as milk formula for newborns or handicraft butter.

VAT REFUND: Taxpayers benefitting from the recovery of non-apparent VAT in accordance with the provisions of Article 125b of the General Tax Code must file for the refund at the tax office before the expiry period of two months following the previous accounting year. The tax return must state the recovery rate using the sample form supplied by the tax administration. Furthermore, the tax return must include the following information:

• The recovery percentage referred to in Article 125b of the General Tax Code, calculated from the transactions carried out for the previous financial year and applied for the current year.

• The global items used for the determination of this percentage.

FURTHER EXEMPTIONS: Additional exemptions from VAT, with the right to local deductions, are granted in the case of the import of the following goods, materials and services:

• Imported, or acquired locally, as well as services provided by the Mohammed V Foundation for Solidarity;

• Imported, or acquired locally, as well as services provided by the Cancer Research Institute, created in accordance with Law No. 08-00 relating to groups of public interest, promulgated by Dahir No. 1-00-204 of May 19, 2000 in accordance with its mission;

• Imported, or acquired locally, as well as services provided by the Mohammed VI Foundation for the Protection of the Environment;

• Imported, or acquired locally, as well as services provided by the Moroccan League for the Protection of Children. Exemption from VAT is also provided for sports federations recognised as being a public utility, without deductible rights. As aforementioned VAT exemptions were effective as of January 1, 2018.

ISLAMIC CONTRACTS: The new Finance Law makes a distinction, in terms of determining the tax base, between the following:

• The purchase of houses for personal use by individuals, which are subject to a VAT rate of 10%, applicable to the amount of the rental margin under the fixed contract;

• Other types of acquisitions, considered as professional leasing transactions, which are subject to a VAT rate of 20%, applicable to the amount of rent paid on each due date defined in the ijara mountahia bitamlik (IMB), an Islamic banking offer which is designed as a leasing contract covering properties intended for principal residential uses, with a purchase option. The Law also provides specific rules in the case of an acquisition made through a murabaha (cost-plus financing) contract. Namely, the right to deduct VAT on the acquisition, paid by a credit institution or by a assimilated body, is transferred to the purchaser subject to VAT, either individuals or companies, provided that the amount of the corresponding VAT is distinct from the said contract.

Furthermore, the Finance Law of 2018 makes amendments to Article 106 of the General Tax Code, dealing with transactions excluded from the right of deduction. Therefore, credit institutions and assimilated entities are not entitled to VAT deductions on:

• Acquisition of residential houses intended for rent under an IMB contract; and

• Acquisitions intended to be sold under a murabaha contract.

REGISTRATION FEES: In order to encourage the formation of companies and economic interest groups, the new Finance Law proposes a series of exemptions from the payment of registration fees. These exemptions apply in the following instances:

• The formation and increase of the capital of companies or economic interest groups, carried out either through contributions in cash, the incorporation of debts into current account of shareholders, or by the incorporation of profits and reserves; and

• The formation of the capital of companies or economic interest groups carried out by contributions in kind, assessed by a contributions commissioner chosen from among the persons entitled to serve as commissioner for accounts. The capital increase by contribution in kind remains subject to registration fees at a rate of 1%, or at a rate of Dh1000 (€92.60) when the subscribed capital for the contribution does not exceed the amount of Dh500,000 (€46,300).

LAND FEES: Exemptions from registration fees are also introduced for bare-land acquisition for the construction of hotels. However, it requires the fulfilment of the following conditions:

• The purchaser must be committed to carrying out the construction of the hotel project within a maximum period of six years following the acquisition of the bare land.

• The purchaser must guarantee payment of the registration fees in the event that the above stated condition is not honoured, under the conditions and procedures laid out in Article 130-II-B of the General Tax Code.

• The release of the mortgage is granted by the inspector responsible for registration only upon presentation by the hotel of the certificate of conformity issued by the relevant authority.

• The land and the constructions carried out must be registered and retained as assets by the company owning the land for at least 10 years following the date of the commencement of the operation.

CANCELLATION OF PENALTIES: The Finance Law of 2018 provides specific measures for the cancellation of all or part of penalties, fines, surcharges, late fees and collection expenses, relating to taxes and duties under the General Tax Code, as well as those repealed or inserted into the code through the Finance Law of 2018. Total cancellation of all aforementioned penalties is granted on the condition that the taxpayers concerned pay the principal before January 1, 2019.

This also includes the principal of taxes and duties provided for in the General Tax Code, that were owed prior to January 1, 2016 but which remained unpaid as of December 31, 2017.

This cancellation does not cover penalties, surcharges, recovery costs and so forth, relating to taxes and duties that have been subject to a tax base correction procedure prior to January 1, 2018. In such situations a written agreement with the issuance of the charges before the aforementioned date, and the payment in whole or part of the penalties in subsequent years, must be made. However, for those liable only for fines, penalties, surcharges and recovery fees that remained unpaid until December 31, 2017, they may benefit from a 50% reduction in fines, penalties, surcharges and recovery costs, provided that they pay 50% of the remaining sum before January 1, 2019.

Lastly, any surcharge, penalty, interest for late payment or recovery cost of state debt other than fiscal and Customs debts, as specified under Article 2 of Law No. 15-97 of the Public Debt Recovery Code, issued by revenue orders prior to January 1, 2016, which remained unpaid as of December 31, 2017, are now cancelled, provided that the relevant taxpayer pays the principal amount of said receivable before January 1, 2019.