Dividends in Morocco (2024): Withholding tax
Dividends in Morocco
The term dividend corresponds to the share of profits that a company distributes to its shareholders or associates. A company must distribute dividends to shareholders in proportion to their holdings. In common parlance, we sometimes use the term: profit distribution.
In this article, we analyze the taxation of dividends and in particular the withholding tax on dividends in Morocco. But before that, let’s analyze some legal bases. We also carry out a comparison between salaries and dividends, therefore the case of a managing partner of an SARLAU.
Dividends Vs Salary – Manager of an SME
Compensation management is a crucial aspect in the life of a business manager, particularly in Morocco, where the choice between receiving a salary or dividends raises many questions.
This decision, far from being trivial, impacts both the financial situation of the manager and the economic health of the company. In this article, we will explore the advantages and disadvantages of each of these options, taking into account the tax and social implications and Moroccan regulatory specificities.
We will also discuss the key criteria to consider to make an informed choice between salary and dividends in Morocco, while putting into perspective the responsibilities and obligations that result from this. Our goal is to provide comprehensive analysis that guides executives in their compensation strategy, aligned with their company’s long-term goals.
Salary remuneration
In the Moroccan entrepreneurial world, the remuneration of managers in the form of salary presents both significant advantages and disadvantages, which must be examined carefully.
Advantages of salary in comparison with dividends in Morocco
On the benefits side, the main attraction of a regular salary is automatic social security coverage. This protection offers the manager essential guarantees such as the right to reimbursement of medical expenses and the creation of a retirement pension, significant benefits in the context of the management of his personal financial security. In addition, receiving a salary allows for some predictability and financial stability, with a fixed monthly income.
Indeed, in general, being remunerated only in dividends in Morocco implies that dividends can be received after the annual closing. Conversely, the salary is received monthly, which allows for better cash flow management.
Disadvantages of salary
Opting for a salary also involves notable challenges. One of the major disadvantages lies in the financial burden that this represents for the company. A high salary for the manager increases the costs borne by the company, thus directly impacting its cash flow.
On the tax front, the manager is faced with a relatively high tax rate of up to 38% for Income Tax (IR), a significant tax burden compared to alternatives. Attached is the progressive IR scale concerning salaries:
|
Tax rate |
|
|
Less than 30,000 |
0% |
|
From 30,0001 to 50,000 |
10% |
|
From 50,001 to 60,000 |
20% |
|
From 60,001 to 80,000 |
30 % |
|
From 80,001 to 180,000 |
34% |
|
Beyond 180,000 |
38% |
Social contributions
In addition to the salary IR which must be collected by the employer, it is necessary to pay social security charges. These charges are subdivided into the employer’s share and the employee’s share (as salaries are generally negotiated on a net basis, both are to be paid in addition by the employer). The total CNSS&AMO contribution rates are around 27.83%:
- Total employer share: 21.09% (including 8.98% calculated on an amount capped at 6,000 dirhams, the rest calculated on gross salary without ceiling)
- Total salary share: 6.74% (including 4.48% calculated on an amount capped at 6,000 dirhams, the rest calculated on gross salary without ceiling)
In summary
if the salary ensures social protection and financial stability for the manager, it requires solid cash flow on the part of the company and results in heavier taxation. These elements must be carefully evaluated to determine whether this form of remuneration is the most suitable for both the manager and the financial health of the company.
On a purely fiscal level, the salary is much more expensive. However, the manager benefits from social protection.
It is not uncommon, depending on the case, that we advise our clients to choose an option where we combine remuneration containing a minimum salary portion and an annual supplement in dividends.
Remuneration of the manager in dividends in Morocco
The choice to compensate a manager with dividends presents a different configuration, with its own advantages and challenges.
From a tax point of view, the dividend option is particularly attractive.
Indeed, in Morocco, from January 1, 2024, dividends are subject to withholding tax of only 13.75% ( previously, 15% before the 2023 LDF ), much lower than the tax rate on salary .
This characteristic makes dividends financially more beneficial, especially for executives with high incomes.
What share income is subject to withholding tax in 2023?
In 2022, the rate of corporate tax withheld at source on dividends in Morocco is set at 15%. In fact, this rate is applicable to all products from shares, shares and similar income.
The PLF 2023 proposes to gradually reduce the rate of withholding tax on dividends and similar income.
In fact, this rate is gradually decreasing to 10% (instead of 15% currently). The new tax rates are as follows:
| Amount of gross revenue | Rate currently in effect | PLF 2023 proposal | |||
| 2022 | 2023 | 2024 | 2025 | 2026 | |
| Applicable rate | 15% | 13.75% | 12.5% | 11.25% | 10% |
Income from profits made for financial years opened before January 1, 2023, remains subject to the rate of 15%. From 2024, dividends paid in respect of 2023 profits will be taxed at the rate of 13.75%. In addition, dividends from profits for the 2024 financial year will be taxed at the rate of 12.5%.
The proceeds from distributed shares, shares and similar income are considered to have been taken from the oldest financial years.
The objective of this provision is to mitigate the impact of the increase in corporate tax rates for certain companies.
Other advantages of dividend compensation
In addition to being subject to lower taxation, dividends are not subject to social security contributions. This corresponds, in fact, to a considerable tax saving for managers.
However, opting exclusively for dividends in Morocco also has its disadvantages. The most significant is the lack of social security coverage, forcing the manager to take out private insurance for his social protection and retirement, which implies more complex management of his personal finances.
In conclusion, although dividends (distribution of profits) offer a notable tax advantage and contribute to the financial health of the company, they require from the manager greater financial flexibility and prudent planning in terms of social security and retirement. The choice of this option must therefore be carefully considered, taking into account the financial stability of the company and the personal needs of the manager.
How to decide between dividends in Morocco and a salary
The decision to choose between a salary and dividends for the remuneration of a business manager in Morocco should not be taken lightly. It requires a thorough assessment of several key factors. First, the cash flow and financial health of the business are primary considerations. If the company has a solid and regular cash flow, opting for a fixed salary could be viable without negatively impacting its finances. On the other hand, in a context of variable profits or for companies in the start-up or expansion phase, favoring dividends could be a more appropriate strategy.
Another crucial element is the personal needs and tax situation of the manager. For example, if social security is a priority or if the manager has structured retirement planning, a salary may be beneficial. However, if the manager wishes to minimize his personal taxation and maximize profits reinvested in the company, dividends in Morocco may be a more advantageous option.
Additionally, it is important to consider income flexibility. While a salary provides stability and predictability, profit distributions, while potentially higher, are closely dependent on the financial performance of the company. This uncertainty can be a risk factor for certain leaders.
Finally, it is possible to adopt a hybrid approach, combining salary and dividends. This strategy can offer a balance between financial stability and tax optimization, while taking into account the benefits of social security. The final choice will therefore depend on a detailed analysis of the company’s needs and the manager’s personal and financial objectives.
Dividends in Morocco – Legal bases
Regulations relating to executive remuneration in Morocco are an area to carefully consider when choosing between salary and dividends. It is important to emphasize that there are no specific regulations strictly governing executive remuneration, particularly in large companies.
Legal bases governing dividends in Morocco
The distribution of dividends in Morocco can be done in different forms of companies. The law lays down precise rules in the case of limited companies .
Thus, according to the provisions of article 331 of Law 17-95 on public limited companies “ After approval of the summary statements for the financial year and recognition of the existence of distributable sums, the ordinary meeting determines the share allocated to shareholders in the form of dividends .
The profit that a company can distribute is made up of the net profit for the financial year:
- reduced by:
- previous losses
- levies for endowment of the legal reserve
- statutory reserves
- increased, where applicable, by the profit carried forward from previous years.
Read also: Deficits carried forward in Morocco: What rules?
It is necessary to specify that the general meeting can only decide on the distribution of a dividend once it has approved the accounts for the financial year. Indeed, this approval:
- legally approves the accounts for the financial year
- and notes the existence of a distributable profit or reserves.
The same provisions also apply in the case of SARLs .
Furthermore, in other forms of companies, the texts do not specify the terms of distribution of dividends in Morocco. Thus, the terms of distribution of profits of partnerships and civil companies refer to the provisions of the Dahir of Obligations and Contracts.
| In all cases, as long as the company is subject to IS , the rules for withholding tax on dividends apply. These rules apply whether the company is subject automatically or by option. |
Tax regime for dividend distribution
According to the provisions of article 13 of the general tax code , “ Proceeds from shares, shares and similar income subject to withholding tax (…) are:
I.- income from the distribution of profits by companies subject to corporate tax, such as:
– dividends, interest on capital and other similar participation income;
– the sums distributed from the levy on profits for the depreciation of capital (…);
– the liquidation bonus (…);
– reserves released for distribution. »
| Please note that the text uses the general notion of “share proceeds” which is not limited only to dividends in Morocco but affects all similar distributions (statutory interest, liquidation bonus, etc.) |
What share proceeds are subject to withholding tax?
Companies that distribute dividends in Morocco (or stock products in general) must withhold tax on the gross amount of these dividends. To this end, the company which distributes them must:
- Proceed with the withholding tax on dividends;
- Pay this withholding tax to the Treasury within 30 days;
- Make an annual summary declaration of the deductions paid.
As a result, the company pays the partner the net amount of the withholding.
Furthermore, the scope of application of withholding tax goes beyond the sole framework of dividends. It also covers all variable-income securities products. This income means, in fact,:
- Dividends, capital interest and other similar participation products. These are, in fact, the sums that a meeting allocates to a shareholder or a partner during the distribution of profits.
- Amounts distributed from the levy on profits for:
- capital amortization or,
- the repurchase of shares or shares in companies;
- liquidation bonus increased by reserves established less than ten (10) years ago. In this case, the distributor must carry out the withholding even in the event of prior capitalization of these reserves;
- reserves released for distribution.
For more details on the liquidation bonus, also read Dissolution of company (SARL) in Morocco
Event giving rise to withholding tax
The event giving rise to the withholding tax on the proceeds of the actions is constituted by:
- The actual payment. This involves the direct delivery of funds into the hands of the shareholder or partner by payment in cash.
- Making it available to shareholders. The provision consists of the paying party making available to the beneficiary, without possibility of withdrawal, the amount of the products to be distributed. It is therefore equivalent, in tax terms, to an actual payment or payment.
- Registration into account. It means registration in current accounts of partners, current bank accounts of beneficiaries or current accounts agreed in writing between the parties.
Dividends paid by companies located in the CFC and the ZAI
In 2022, companies established (1) in the Casablanca Finance City zone and (2) in industrial acceleration zones benefited from a permanent exemption from withholding tax on dividends. This exemption concerns shareholders who are legal entities and also concerns dividends from Moroccan sources.
From 2023, the FL introduces the elimination of this permanent exemption. Thus, The FL 2023 limits the application of the permanent exemption from withholding tax to dividends from foreign sources , distributed to non-residents.
These measures are applicable to dividends and other similar participation income distributed, originating from financial years beginning on or after January 1, 2023.
Withholding tax on dividends in Morocco paid to non-residents
The profits of establishments that a foreign company operates in Morocco are assimilated to dividends in Morocco. As a result, the establishment must submit to withholding tax the sums it pays or makes available to the head office.
This is the case with the profits that the company deducts from the sums that the head office has lent or advanced to them.
This rule applies subject to the application of the provisions of double taxation treaties.
Consequently, companies must submit these profits to withholding tax.
Distribution of hidden dividends
These are adjustments to the results declared and made following a tax audit as part of the rectification procedure. This is particularly the case for:
- concealed products;
- unjustified remuneration and charges;
- benefits granted to associates.
These adjustments are subject to withholding tax, even if they do not cover the declared deficits. However, adjustments relating to depreciation and provisions do not give rise to the application of tax withheld at source, since the corresponding sums have not been disbursed. The same applies, among other things, to reinstatements relating to:
- fees duly justified but not declared on the appropriate state of the tax return;
- cash payments of justified charges whose amount is equal to or greater than ten thousand (10,000) DH.
Rate of withholding tax on dividends in Morocco – Tax conventions
When a company pays its dividends in Morocco to another company subject to IS, withholding tax does not apply. However, article 6 of the general tax code specifies that to benefit from this exemption the beneficiary company subject to IS must provide a certificate of ownership of the securities which includes its IS identification number.
Furthermore, when the company pays these dividends to non-residents, there are two cases:
- Case of countries with which Morocco has a double taxation agreement: the provisions of the said agreement should be applied;
- In the absence of an agreement: The common law rate applies
Presentation of Upsilon Consulting Services
As part of the financial and tax management of companies, Upsilon Consulting offers a range of professional services adapted to the specific needs of managers and companies in Morocco. Our expertise covers a wide range of areas, including tax optimization, financial planning, as well as governance and compensation strategy consulting. At Upsilon Consulting, we understand the unique challenges Moroccan businesses face, and we are committed to providing tailored solutions that maximize benefits while minimizing tax and financial risks.
Our team of experts, with their extensive experience and knowledge, is ready to support you in making informed decisions regarding executive compensation, ensuring full compliance with local regulations. Whether you are looking for an optimal compensation strategy or need advice on tax structuring your business, Upsilon Consulting is your trusted partner in successfully navigating Morocco’s complex financial landscape.
