The 2008 Finance Act published in Official Gazette 5591 bis (December 31, 2007) marked a continuation of Morocco’s efforts to create a transparent tax climate for domestic and foreign investors. However, if some of the tax provisions enacted during 2008 were constructive steps that made Morocco more attractive to new investors, other provisions could be viewed as constraints.
It appears that the 2009 budget bill under discussion will not provide the same tax climate change as the finance acts of 2007 and 2008. No major positive corporate income tax (CIT) improvements are expected if the 2009 budget bill becomes law.
Perhaps the Moroccan tax administration is exploring new ways to establish tax rules in Morocco. It has been reported that tax officials are working on a new comprehensive guideline on the application of the newly fashioned Moroccan Tax Code. The guideline, which will have binding power comparable to a statement of practice, will focus mainly on CIT matters. At the time this article was written, the guideline was expected to be issued before December 31, 2008.
The standard CIT rate dropped from 35 percent to 30 percent on January 1, 2008, and the special CIT rate applicable to financial institutions and insurance companies was cut from 39 percent to 37 percent, and will drop to 35 percent on January 1, 2009.
A reduced CIT rate of 17.5 percent in force since the beginning of the new fiscal year has been extended to several domains and activities. It applies during the first five years of activities for companies operating in the craft industry and the private educational and professional training sectors; for enterprises located and operating in areas specified by decree; and for real estate developers involved in the construction of university campuses.
If export enterprises are fully exempt from CIT on income relating to exports of goods and services during their first five years of activities, they will be subject to the 17.5 percent CIT rate beginning with their sixth year of activities and for an unlimited period of time. Export enterprises selling finished goods to companies established in export-free zones are subject to the reduced 17.5 percent CIT rate under the same conditions.
Export enterprises operating in specified areas and carrying out their activities there are eligible for an additional special reduced CIT rate of 8.75 percent through December 31, 2010, with the 17.5 percent CIT rate to be reinstated on January 1, 2011.
A portion of the income generated by hotels is also subject to the 17.5 percent CIT rate as of their sixth year of operation.
Apart from the CIT rate reduction, a tax exemption of 25 percent to 50 percent of profits has been granted through December 31, 2009, for profits generated by companies that raise financing through an initial public offering on the Moroccan stock exchange.
The participation exemption regime applicable to the taxation of dividends also has been amended. The new regime, which grants a 100 percent deduction to recipients of dividends distributed among Moroccan-based companies, was extended, effective January I, 2008, to dividends received from foreign subsidiaries.
Some newly applicable tax provisions, however, have tainted the generous path set by the Moroccan Treasury.
First, the 2008 Finance Act repealed the full CIT exemption that had been applicable to real estate developers’ profits derived from the construction of social housing programs. Such profits have been taxed at a reduced 17.5 percent CIT rate since January 1, 2008, and will be subject to the standard CIT rate of 30 percent in 2009.
According to new clarifications regarding the application of the special offshore CIT regime, the annual flat CIT of $500 will apply only ta holding companies acting exclusively in the management of portfolio securities for other offshore banks and corporations.
The maximum rate of deductible interest payable to shareholders has been capped at 3.48 percent for fiscal 2008.
The tax rate for capital gains derived from the disposal of a Moroccan-based company’s stock was in-creased to 15 percent (from 10 percent), and a flat rate of 20 percent was introduced for capital gains on the sale of foreign stock. The tax on dividends derived from such foreign stock also was increased to a flat personal income tax rate of 30 percent.
The 7.5 percent withholding tax on dividends distributed by companies operating in export free zones to their resident individual shareholders was increased to 10 percent. For stock option plans, the holding period required to benefit from the existing favorable tax regime was reduced from five years to three years.
As for capital gains realized on real estate assets, gains derived from the sale of a principal residence benefit from a full exemption, provided that the building was occupied by the seller for four years from the date of acquisition, and the sale price does not exceed MAD 200,000 (approximately $24,600). Notably, the full capital gain exemption on the sale of a principal residence after eight years of occupancy with no other restrictions is still applicable.
VAT and Indirect Taxes
Under a measure designed to increase Morocco’s attractiveness as an investment location, business equipment imported for use in state-approved projects that amount to more than MAD 200 million are exempt from VAT for 36 months.
A measure that has been harshly criticized by the business sector revoked the reduced 10 percent VAT rate for leasing transactions, making them subject to the standard 20 percent rate.
In 2008, Morocco signed first-time income tax trea-ties with Iran, Croatia, Indonesia, and Latvia, and started treaty negotiations with Burkina Faso, Mexico, Saudi Arabia, Turkmenistan, and Cyprus.
Draft Budget Bill
Minister of Economy and Finance Salaheddine Mezouar presented the 2009 budget bill to the Parliament in October.
Despite the Moroccan business sector’s numerous amendment requests, few changes have been included in the current version of the bill. One of the main changes requested was a simplification of the tax reorganization rules. Indeed, a free reorganization tax regime is needed to secure the tax neutrality of mergers, contributions, and spinoffs. It seems that the tax administration has not paid much attention to that re-quest, however, as it was not included in the budget bill. Also requested to no avail was a decrease of the standard VAT rate from 20 percent to 19 percent.
The key CIT provisions in the 2009 budget bill include:
the extension of the CIT exemption for income derived from the agricultural sector to the end of 2013;
a restrictive new condition for the application of the special offshore holding regime now exclusively reserved for the management of nonresident companies’ securities — closes the doctrinal de-bate about the possibility of structuring a Moroccan investment through an offshore holding company; and;
the exclusion of companies operating in the ex-port of recycled metals from the CIT exemption regime for export enterprises.
As for personal income tax changes, the main provision concerns a decrease in the progressive rate scale. The top rate would decrease from 42 percent to 40 percent. In addition, the deductible allowance for professional activities would increase from 17 percent to 20 percent, provided that the yearly deductible amount does not exceed MAD 24,000.