Did you know? It is possible to obtain a VAT credit refund in Morocco. It is necessary, however, to apply for it and to respect certain rules of substance and form.
Upsilon Consulting gives the key elements of the process.
Read our guide on investing in Morocco.
VAT credit refund – Basis
As a general rule, companies act as collectors of the Value Added Tax (VAT).
The Company :
- Collects VAT on its sales, from its clients;
- Pays the VAT on its purchases to its suppliers (or directly to customs in the case of imports).
The VAT to be paid is the difference between the VAT collected on taxable transactions (sales, provision of services, etc.) and the VAT deductible on purchases, expenses and fixed assets.
VAT collected and deductible VAT are also referred to as “output VAT” and “input VAT” respectively.
When the deductible VAT is higher than the VAT collected, the company benefits from VAT credit.
In some cases provided for in the General Tax Code, your company can obtain, at your request, a refund of the VAT credit.
Why a VAT credit refund?
In order to understand the necessity for the VAT credit refund system, the specific case of exporters will be analyzed in the rest of this article.
The export of goods and services is exempt from VAT under the provisions of Article 91-I of the General Tax Code (C.G.I).
VAT is based on a principle known as “border compensation”, which consists in subjecting the exported product to the taxation of the country of destination only. This principle aims to avoid double taxation.
However, as the exporter uses VAT-inclusive purchases during the production of the goods in question, this will inevitably produce a VAT credit. In the case of an exporter, this VAT credit is “structural”. This is because the exporter does not collect VAT on sales. As a result, the VAT he pays to his suppliers accumulates structurally as VAT credit. The exporter will never be able to offset it against his sales.
In order to address this situation, the CGI has made it possible for exporters to file claims for VAT refunds.
REFUNDABLE Tax Amount
Refunds are calculated up to the amount of a hypothetical value added tax calculated on the basis of the exempt turnover. This means that even if the deductible VAT is higher than the theoretical amount of :
Exempt Turn Over * Tax rate
the difference will not be refundable. However, if the amount of the tax to be refunded is less than the above limit, the difference may be used to determine the refund limit for the following period(s).
Conditions for exercising the right to reimbursement
Since the entry into force of the Financial Law of 2014, the exercise of the right to reimbursement is solely bound by the actual and justified payment of the tax:
- On import: proof of tax payment is established by issuing customs clearance receipts;
- Inland: it is justified by mentioning the references and methods of payment (cash, cheques , etc.) on the invoices or memoranda.
Practical guide to claim a VAT credit refund
I- The claim for reimbursement referred to in 1° of Article 103 of the General Tax Code must be made on or in accordance with a form established by the Administration. Moreover, the following supporting documents must also be joined:
1º. – In the case of direct imports by beneficiaries giving right to refund :
- Copy of the purchase invoices
- Copy of the import declaration and the receipt for payment of value added tax
- A statement indicating, for each import:
- First, the import declaration’s number
- Also, the number and date of the customs receipt confirming the final payment of duties and exact nature of the goods
- Finally, the value used for the calculation of the value added tax and the amount of the tax paid;
In the case of local purchases, the claim must be supported by a summary statement including :
a) The reference to the invoices or memoranda as well as their identification number given by the tax authorities ;
b) The exact nature of the goods, services or works, the amount of the corresponding invoices or statements and, where applicable, the rate and amount of the value added tax mentioned on these invoices or statements;
c) The reference and payment terms of these invoices or memoranda
These statements must also include, in a separate column, the registration number of the purchase and processing invoices or the customs documents.
Besides, exporters must also attach to the documents referred to above, export notices established in accordance with a form provided by the tax authorities and copies of sales invoices issued in the name of recipients abroad, stamped by customs services and summarized on separate statements.
Other refund cases
This situation does not apply only to exporters. Indeed, it applies to all activities benefiting from the exemption with right of deduction provided for in Articles 92 and 94 of the CGI. This includes the sales of:
- Fertilizers ;
- Certain products for agricultural use
- Capital goods to be recorded in a fixed asset account
- Capital equipment of international transport companies
Besides, apart from operations carried out under the benefit of Articles 92 and 94 of the General Tax Code, Article 103 provides for the following cases :
- Cessation of taxable activity,
- Companies that have paid the tax on their capital goods,
- Leasing companies
Since January 1st, 2016, the tax on capital equipment and tools either acquired domestically or imported by taxpayers is eligible for refund in accordance with the provisions of Article 103 bis of the CGI, excluding those acquired by public institutions and public companies.
Real estate developer
In addition, the refund right also concerns real estate developers, natural or legal persons, who carry out construction projects for low-value housing whose surface varies between 50 and 60 m² and whose disposal price does not exceed MAD 140,000.
Main grounds for rejecting a refund claim
For a VAT refund claim to be admissible, the following grounds for rejection must be avoided:
Foreclosure : Claim filed past the deadline
Claims for VAT refunds are foreclosed after a period of 1 year. This period starts to run from the end of the quarter in which the taxpayer paid the VAT.
Thus, an invoice that the taxpayer declared in June 2020 is eligible for a refund until 30 June 2021. Past this deadline, the taxpayer is no longer entitled to the refund.
Other grounds for rejection – Formal requirements
The tax administration may reject a VAT refund on formal grounds. Here are some examples:
- Invoice not presented ;
- Irregular invoice (not meeting commercial standards) ;
- Inadmissible delivery note ;
- Absence of an identification number ;
- Invoice number: missing, overwritten or added after the fact (without certification) ;
- Absence of the import declaration ;
- Date of issue of invoices: missing, overwritten or added after the fact ;
- Invoice prior to company identification
- Inconsistency between the number on the Goods Declaration (Déclaration Unique de Marchandises D.U.M) and the number on the receipt
- Missing copy of import purchase invoice ;
- Handwritten receipt not certified by customs ;
- Absence of the original receipt for VAT payment
Simplified procedure for VAT refund
In order to improve the processing of VAT refund applications, the Decree No. 2-18-638 of 4 March 2019 introduced a simplified procedure.
The companies concerned by this procedure are those that have had their accounts certified by a chartered accountant or an auditor.
As such, the applicant must prepare and submit the application for VAT credit refund at the end of each quarter.
The applicant must submit three important documents with the refund claim:
- First, a summary statement of the turnover achieved under VAT exemption or suspension;
- Second, a summary statement of purchases on which the applicant has paid recoverable VAT;
- Last, a certificate issued by a statutory or legal auditor (or a certified accountant).
The certificate must confirm the accuracy of the information contained in the detailed statement of deductions. In addition, it must confirm that the information is consistent with the company’s accounting records.
In fact, the auditor verifies the eligibility of the company for the simplified refund procedure.
Upsilon Consulting can handle your V.A.T. refund claim, Get a quotation online.
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