Tahfiz program : Recruiting incentive in morocco

Tahfiz is a recruitment incentive program in Morocco. It provides both employers and employees with tax benefits and reduced social security contributions. Tahfiz is an Arabic word that can be translated as stimulation. This program is managed by the National Agency for the Promotion of Employment and Skills (ANAPEC). The TAHFIZ program is part of […]

Outsourcing services to morocco

Morocco is increasingly popular destination for outsourcing services companies due to several advantages. Indeed, Morocco is positioned as a competitive and attractive destination for offshoring.

Morocco has several advantages for the outsourcing of services including:

  • Firstly, its strategic geographical location;
  • Second, its cultural and linguistic assets;
  • Third, the availability and quality of its human resources;
  • Fourth, the quality and competitive cost of its hosting and telecommunication infrastructure
  • Finally, the continuous improvement of the business environment, which is more and more in line with international standards.

Nevertheless, one of the major assets of attraction for offshoring companies remains the incentive tax system.

Indeed, the outsourcing of services (offshoring) in Morocco benefits from an advantageous tax regime. This special regime continues to attract foreign companies to settle in Morocco.

Under the provisions of Article 6 of the General Tax Code, companies operating in the field of outsourcing services benefit :

  • Firstly, a total exemption from corporate tax for 5 years;
  • Secondly, a reduced tax rate beyond that (20%)

In addition, the State offers considerable advantages in terms of exemption from social charges for employees.

This article deals with the regime of outsourcing services, the conditions for obtaining the exemption, and the various advantages of Morocco as a destination.

What is offshoring in Morocco / Outsourcing service to Morocco ?

Offshoring is a concept that is quite similar to subcontracting. In both cases, the client delegates to an external specialized service provider the responsibility of carrying out its activity. However, “offshoring” involves the transfer of activities to another country.

It is the transfer to another country (Morocco in our case), of all or part of the production circuit. The goal is to :

  • to re-import on the domestic territory the produced services;
  • benefit from services at lower cost through the intermediary of the company established in the said country.

Morocco was elected best offshoring destination for the year 2012 by the European Outsourcing Association (EOA).

By 2020, the objective defined by the Industrial Acceleration Plan (PAI) is to achieve a GDP of 16 billion dirhams and 100,000 jobs.

Morocco has put in place attractive incentives, including :

  • training and improving competitiveness ;
  • Mobilization of integrated industrial platforms dedicated to offshoring activities (P2I Offshoring).

Tax incentives for outsourcing services (offshoring in Morocco)

Corporate tax

The companies which intervene in the field of outsourcing (offshoring) of services benefit from :

  • Exemption from corporate tax for a period of 5 years;
  • Reduced rate of 20% beyond the exemption period.

This rate has been maintained by the finance bill 2023.

This measure benefits both companies operating inside or outside the dedicated P2i zones. The conditions to benefit from this exemption relate to:

  • First, the nature of the activity;
  • Second, the effectiveness of the latter (the company must actually carry out an activity in Morocco and have employees).

Example: A customer relations center that serves abroad with teleoperators in Morocco, a computer development center,…

The activities eligible for the specific tax regime are companies operating in the activities of off shoring.

These activities are broken down, in virtue of the circular 5/2016, into five channels:

  • CRM : Customer Relationship Management
  • BPO : Outsourcing of business processes
  • ITO : Outsourcing of information technology processes
  • ESO : Outsourcing of engineering and R&D activities.
  • KPO : Outsourcing of strategic activities with a “knowledge” content and requiring specific expertise and knowledge.

As a reminder: Corporate tax (I.S) in Morocco is a tax that applies to the profits made by companies. It applies in particular to limited liability companies and corporations. It is a tax established on a declarative basis.

The corporate tax is based on the taxable profit which corresponds to the difference between the products (receipts) and the deductible expenses (costs related to the exploitation).

Read also: Corporate tax in Morocco (I.S)

Value added tax

In Morocco, value added tax is an indirect ad valorem tax that applies to all sales of goods and services.

However, for services used abroad (notably outsourcing of services: offshoring), this tax does not apply. In fact, it benefits from an exemption with the right to deduct the VAT on purchases.

The companies operating in the sector of outsourcing of services can benefit from a refund of the VAT credit.

In general, when a company is exempt with the right to deduct, it is entitled to claim the VAT credit refund. A refund file containing, among other things, proof of the exempted turnover and proof of the tax paid to suppliers must be submitted.

In addition, newly established companies have the right to apply for the VAT-exempt acquisition of their capital goods. This application is subject to certain formalities.

Exporters as well as companies operating in the outsourcing of services (offshoring) can apply for the exempt purchase of inputs for their activities (subject to formalities).

Read also: VAT in Morocco, What you need to know

 

Taxation of distributed dividends

When a Moroccan-based company distributes dividends to a Moroccan or foreign shareholder, it is subject to a withholding tax at a rate of 15%.

However, the provisions of tax treaties apply and may lead to a reduction of this rate.

Read also: Withholding tax: What products are subject to withholding tax?

Please note that finance bill 2023 has decided that this rate will be progressively reduced to 10% (this rate will be effective in 2026).

 

Read in french : Offshoring de service au Maroc

 

Tax audit in morocco : what you should know

Tax audit in morocco is a procedure by which the tax authorities verify the accounting of a company under local GAAP. Indeed, a tax audit aims at verifying the accuracy of a company’s tax returns. It also aims at verifying the sincerity of the accounting that supports these tax returns.

The tax authorities have, under the provisions of the general tax code, the ability to control the declarations made by taxpayers. This control can take several forms:

  • Firstly, on-site tax inspection ;
  • Secondly, control on documents ;
  • Finally, the particular procedures which are mainly :
    • Firstly, the control of the consistency of the harvest in terms of agricultural income;
    • Secondly, the examination of the whole tax situation of the taxpayers;
    • Thirdly, the control of the prices on acts and estimated declarations;
    • Finally, the right of ascertainment.

In this article, we deal specifically with the case of the audit of accounting. The other types of control are treated in other articles of the blog of Upsilon Consulting.

In addition, Upsilon Consulting offers tax consulting services and support in tax audits. For more information, please visit our page: Upsilon Consulting – Tax assistance

Tax audit : Legal aspects

According to the provisions of article 210 of the Moroccan CGI, the tax administration taxpayers’ returns. These include, declarations and acts used for the establishment of taxes, duties and fees.

This same article requires taxpayers to:

  • Firstly, to provide all necessary justifications;
  • Secondly, to present all accounting documents to the administration’s sworn agents.

This right is exercised through agents who have at least the rank of assistant inspector. They have a mandate (called “commission”) to carry out the tax audit.

The company must provide the tax inspector with all information on computer support to facilitate their treatment.

If documents and supporting evidence are missing, Administration can use its discretionary power. In this cas, Administration agents can establish new taxation based on the element they are in possession of.

How does a tax audit take place?

As mentioned above, the administration can proceed to verification of :

  • tax bases resulting from a declaration made by the taxpayer
  • accounting records
  • physical existence of the assets.

For this purpose, it must respect a precise formalism which is fixed by the legal provisions in force.

Tax audit – Notice of audit

Administration must notify the taxpayer (15) fifteen days before the date set for the audit.

Audit shall start within a period not exceeding five (5) working days from the noticed date.

This document must include :

  • First, the name and rank of the auditing officer;
  • Secondly, the period concerned by the audit;
  • Thirdly, the nature of the taxes to be audited;
  • Finally, the date of commencement of the audit operation.

Audit cannot start before expiration of the (15) days’ notice period. Otherwise, results of this verification may be cancelled by a court.

Tax audit – Place of audit

According to the provisions of article 212 (I- 2 e paragraph) of the C.G.I., the place of verification is:

  • for legal entities, the registered office or the main establishment;
  • for individuals, the tax domicile or the main establishment and for taxpayers not resident in Morocco, the elected tax domicile.

In this respect, the auditor:

  • is not entitled to require the taxpayer to send him accounting documents or extracts from his accounts ;
  • does not have to take away the original books and accounting documents, except with the express authorization of the taxpayer

Audit period

In accordance with the provisions of article 212 (I- 4th paragraph) of the C.G.I., a tax audit cannot last :

  • Firstly, more than six (6) months for companies whose turnover, excluding VAT< (50) million dirhams;
  • Secondly, more than twelve (12) months for companies whose turnover, excluding VAT > fifty (50) million dirhams.

The period of six (6) or twelve (12) months shall run from the 16th day following the date of notification.

The turnover declared in the income and expense account is understood to be the turnover (excluding VAT).

It is in fact the turnover as defined by the General Accounting Standards Code (C.G.N.C.)

Suspension of the verification period

The periods of six (6) and twelve (12) months do not take into account the suspensions of the audit.

Administration may, in fact, suspend the audit for :

  • failure to present the mandatory accounting documents
  • refusal to submit to the audit.

Starting point of each period of suspension begins on the date of notification of the letter of formal notice.

The period of suspension of the verification stops on the date of the communication to the agent :

  • Firstly, the documents and accounting records requested;
  • Secondly, a letter confirming the absence of the documents and records.

Assistance by a tax consultant in the event of a tax audit

In order to reinforce the guarantees to taxpayers, article 212- I of the C.G.I. allows the taxpayer to call upon a tax consultant. The consultant assists the company during the audit operations and to prepare answers after notification.

In this respect, the taxpayer is guaranteed to freely choose the title, the qualification and the number of people who can provide this assistance.

The taxpayer is also free to be assisted by this counsel during the audit work or to be replaced directly by the consultant. A legalized writing mandate should be signed by the taxpayer identifying the consultant.

Do auditors have the right to take away accounting documents during an audit?

No. Under no circumstances may the agent of the administration take away an original document or accounting voucher without the taxpayer’s consent.

The inspector must sign a receipt. This receipt lists the original documents in question.

The duplicate of the receipt, countersigned by the taxpayer or his legal representative, is placed in the tax file of the person concerned.

When the documents are returned, the auditor must obtain a discharge from the taxpayer or his legal representative.

Refusal to hand over accounting documents

If the taxpayer refuses to provide the inspector with the accounting documents necessary for the verification of his declarations, the inspector initiates the formal notice procedure provided for in article 229 of the C.G.I., which may lead to an automatic taxation.

End of the tax audit

Pursuant to the provisions of article 212 (I- 6 e paragraph) of the C.G.I., the administration must inform the taxpayer of the date of the end of the verification work.

In this respect, article 212 (II- 1st paragraph) provides that at the end of the on-site tax audit, the administration must:

  • Firstly, in case of rectification of the tax bases, engage, according to the case, the procedure provided for in article 220 or 221 of the C.G.I.;
  • Secondly, if the verification does not lead to any adjustment, notify the taxpayer in the manner provided for in article 219 of the code.

If the Administration wishes to verify again the entries of a fiscal year, it has the right to do so. However, a second audit cannot result in a new modification of the taxable bases.

 

Read in French : Contrôle fiscal au Maroc : Ce qu’il faut savoir

Withholding tax rate on dividends: What will change in 2023

Withholding tax rate on dividends: What will change in 2023

The draft finance law for 2023 in Morocco (PLF 2023) has introduced a series of reforms to the tax system. Indeed, the enactment of certain provisions is likely to completely overturn the long-standing tax system.

In this article, Upsilon Consulting reviews the provisions relating to the withholding tax rate on dividends.

Progressive decrease of the dividend withholding tax rate – Common law regime

In 2022, the rate of corporate income tax withheld on dividends in Morocco is set at 15%. This rate is applicable to all income from shares and similar income.

The PLF 2023 proposes to gradually reduce the rate of withholding tax on dividends and similar income.

Indeed, this rate will be gradually reduced to 10% (instead of 15% currently). The new tax rates are as follows

Amount of gross proceeds Rate currently in force Proposal PLF 2023

Gross amount of dividends Rate in force Proposition PLF 2023
2022 2023 2024 2025 2026
Applicable rate 15% 13.75% 12.5% 11.25% 10%

Income from profits made in respect of financial years opened before January 1, 2023, remains subject to the 15% rate.

The income from shares and similar income distributed is considered to have been earned in the earliest fiscal years.

The objective of this provision is to mitigate the impact of the increase in corporate tax rates for certain companies.

Specific regime relating to OPCIs

OPCIs currently benefit :

Firstly, of the total exemption from corporate tax;
Secondly, taxation with a 60% deduction of their dividends for investor shareholders;
Thirdly, the deferment of payment of the corporation tax or the income tax on the net capital gain or the property profit realized following the contribution of buildings to these organizations;
Finally, the application of a 50% tax reduction on the subsequent sale of the securities received as consideration for the said contribution.

This tax incentive has been put in place to support OPCIs during their initial launch phase.

From January 2023, the PLF 2023 proposes :

  • First, the abolition of the 60% allowance applied to dividends distributed by OPCIs ;
  • Secondly, the abolition of the 50% tax reduction on the capital gain realized following the contribution of real estate assets to the OPCI.

These measures are applicable to the profits distributed by the OPCIs from the financial years opened as from January 1, 2023.

Dividends paid by companies located in the CFC and the ZAI

In 2022, companies located in (1) the Casablanca Finance City zone and (2) the Industrial Acceleration Zones will benefit from a permanent exemption from withholding tax on dividends. This exemption concerns legal entity shareholders and also concerns dividends from Moroccan sources.

From 2023, the PLF 2023 proposes the abolition of this permanent exemption. Thus, the PLF 2023 proposes to limit the application of the permanent exemption from withholding tax to foreign source dividends distributed to non-residents.

These measures are applicable to dividends and other similar income from participations distributed from fiscal years beginning on or after January 1, 2023.

 

Finance bill 2023 : New corporate tax rates

The draft finance law for 2023 in Morocco (Finance Bill 2023) has introduced a series of reforms to the tax system. Indeed, the promulgation of some measures is likely to completely change the taxation system that we have known for a long time.

In this article, Upsilon Consulting proposes to summarize the main tax measures of the Finance Bill 2023 regarding the corporate income tax rates.

Objective of the recasting of the corporate income tax rates in the Finance Bill 2023 in Morocco

According to the presentation document of the measures, the recast of the corporate income tax rates for objectives:

  • First, the elimination of the variability of the proportional standard rate according to the tax result and its replacement by a unified standard rate of common law.
  • Secondly, the suppression of the preferential regimes applied to the industrial acceleration zones and to CFC.
  • Thirdly, the elimination of the difference between the rates applied to local and export sales.
  • Fourthly, the improvement of the contribution of large companies with a net profit of more than MAD 100 million.
  • Finally, the improvement of the tax contribution of credit institutions and similar organizations.

Finance bill 2023 – Modification of the tax rates for corporate income tax – Common law system

The finance bill 2023 suggests a progressive modification of the corporate tax rates. Indeed, the announced objective of this bill is the gradual convergence towards a unified common law rate of 20%.

Currently, the common law rate corresponds to a progressive scale that varies between 10% and 31%.

 

The new rates proposed in the 2023 Finance bill are as follows:

 

Net income level Current rates Finance bill 2023 proposal
2022 2023 2024 2025 2026
Less than or equal to 300 000 10% 12.5% 15% 17.5% 20%
From 300 001 a to 1 000 000 20% 20% 20% 20% 20%
From 1 000 000 to 99 999 999 31% 28,75% 25.5% 22,75% 20%
Equal to or higher than 100 000 000 31% 32% 33% 34% 35%

Finance bill 2023 – Specific regimes 

In addition, the project proposes to revise the current corporate income tax rates, which are limited in scope, towards unified rates. These are, in particular:

  • Firstly, companies exporting products and services.
  • Secondly, hotel companies and tourist entertainment establishments.
  • Thirdly, the mining companies exporting.
  • Fourthly, the artisanal enterprises.
  • Fifth, private educational or professional training institutions.
  • Sixth, sports companies.
  • Seventh, real estate agents (legal entities) for income from the rental of university buildings, residences and campuses.
  • Eighth, taxable agricultural holdings
  • Lastly, companies performing service outsourcing activities.

 

The new rates proposed in the 2023 Finance bill are as follows:

 

Net income level Current rates Finance bill 2023 proposal
2022 2023 2024 2025 2026
Less than or equal to 300 000 15% 16,25% 17.5% 18,75% 20%
From 300 001 to 1 000 000 15% 16,25% 17.5% 18,75% 20%
From 1 000 000 to 99 999 999 15% 16,25% 17.5% 18,75% 20%
Equal to or higher than 100 000 000 15% 20% 25% 30% 35%

 

Revision of the rates for companies located in industrial acceleration zones and CFCs

 

The project proceeds to maintain the five-year exemption for these companies. However, these companies benefited from a specific rate set at 15% after the exoneration period:

 

  • First, for companies operating in industrial acceleration zones, beyond the five (5) year exoneration period,
  • Secondly, for service companies with “Casablanca Finance City” status, in accordance with the legislation and regulations in force, beyond the five (5) year exoneration period.

 

The 2023 Finance Plan proposes to revise the current tax rates as follows:

 

Net income level Current rates Finance bill 2023 proposal
2022 2023 2024 2025 2026
Less than or equal to 300 000 15% 16,25% 17.5% 18,75% 20%
From 300 001 to          1 000 000 15% 16,25% 17.5% 18,75% 20%
From 1 000 000 to  99 999 999 15% 16,25% 17.5% 18,75% 20%
Equal to or higher than 100 000 000 15% 20% 25% 30% 35%

 

Revision of rates for industrial companies

 

In 2022, industrial companies benefited from a rate of 26% (when the result was less than MAD 100 million).

 

The 2023 Finance Bill proposes to revise the I.S. tax scale as follows:

 

Net income level Current rates Finance bill 2023 proposal
2022 2023 2024 2025 2026
Less than or equal to 300 000 10% 12.5% 15% 17.5% 20%
From 300 001 to 1 000 000 20% 20,00% 20,00% 20,00% 20%
From 1 000 000 to  99 999 999 26% 24.5% 23% 21.5% 20%
Equal to or higher than 100 000 000 31% 32% 33% 34% 35%

 

Finance bill 2023 – Review of the tax rate for credit and insurance companies

 

In 2022, the corporate tax rate is 37% for:

 

  • Firstly, credit institutions and similar organizations,
  • Secondly, Bank Al Maghrib,
  • Third, the deposit and management fund, and
  • Fourth, insurance and reinsurance companies.

 

The PLF 2023 proposes to increase the tax rate applicable to these institutions gradually to 40%.

 

The new tax rates for these companies are as follows:

 

Net income level Current rates Finance bill 2023 proposal
2022 2023 2024 2025 2026
Applicable rate 37% 37,75% 38,50% 39,25% 40%

Installment payments

 

As a transitional measure, the instalments due for each fiscal year opened during the period from January 1, 2023, to December 31, 2026, are calculated according to the corporate income tax rates applicable to that fiscal year.

Read in french : PLF 2023

VAT in Morocco: Quick summary

Tax ID in Morocco

VAT on services

Tax Treatment of VAT on services Article 89 of the General Tax Code lists providing services amongst taxable transactions. Provision of services is a very broad concept. Indeed, it includes all payable transactions that do not entail a delivery of goods. Moreover, VAT on services also applies to transactions and activities that fall within the […]