Operating Expenses | Upsilon Consulting

In brief: Operating expenses in Morocco include all recurring costs tied to a company’s core activity, recorded under Class 6 of the PCGE. To be deductible from Corporate Tax, they must be incurred in the business interest, properly documented, and recorded in the correct fiscal year. Learn how to classify and optimize them to avoid rejection of accounts.

Operating expenses correspond to the charges related to the normal activity of the business. In Moroccan accounting, operating expenses encompass all recurring costs incurred by a company to carry out its day-to-day operations and generate revenue.

Indeed, these charges represent the expenses recognized in accounting. They are “economically justified” charges because they are necessary for the operation of the business. Unlike financial charges or non-recurring charges, operating expenses are directly linked to the normal cycle of production, sales, and administration.

Under the provisions of Article 10 of the General Tax Code (CGI), a company may deduct these operating expenses from its taxable income, subject to certain conditions. These conditions are designed to ensure that operating expenses are genuine, properly documented, and incurred in the direct interest of the business.

Accounting Treatment of Operating Expenses

The General Accounting Standards Code (CGNC) provides for Class 6 accounts for the recording of operating expenses. More specifically, operating expenses are allocated across accounts 61 to 65 of the General Chart of Accounts for Enterprises (PCGE).

The proper classification of expenses according to the chart of accounts rules is necessary to avoid the risk of Rejection of Accounts.

Classification in the PCGE (Class 61 to 65)

The Moroccan chart of accounts organizes operating expenses according to the following structure:

Section 611/612: Goods purchased for resale and raw materials consumed
Section 613/614: Other external charges (external services)
Section 616: Taxes and duties
Section 617: Personnel costs
Section 619: Operating allocations (depreciation and provisions)

When a company incurs expenditures that are:

Normal and regular: incurred in the course of its normal and regular activity;
Recurring: of a regular and recurring nature;
Period-specific: attributable to the accounting period in question;
Documented: corresponding to actual expenditures and supported by proper supporting documents;

The company must record them in the appropriate Class 6 sections of the accounting records. The Moroccan chart of accounts assigns a specific accounting code for each category of these expenditures.

At each reporting date, the cumulative total of these charges appears in the “income statement,” also known as the “statement of income and expenses” (CPC). This is one of the mandatory schedules to be attached to the annual tax return.

What Are the Different Types of Operating Expenses?

Purchases Resold and Consumed (Section 611/612)

These are purchases of goods made in Morocco or imported for resale. When a company has a trading activity, the goods it purchases (as well as related procurement costs) must appear in its income statement.

Furthermore, consumed purchases are those that enter the manufacturing cycle of products, either through incorporation or through disappearance during their production. These purchases correspond, for example, to raw materials, packaging, and other consumable supplies.

It should be noted that the company must adjust the value of purchases each year-end for changes in inventory. The change in inventory is the difference between the opening inventory at the beginning of the period and the closing inventory at the end of the period. Thus, only goods actually resold or consumed constitute charges for the current accounting period.

Other External Charges (Section 613/614)

These are charges other than purchases, commonly referred to as external services. They include:

Rental of premises or equipment;
Leasing payments;
Repairs and maintenance;
Insurance costs;
Various subscriptions (telephone, internet, software);
Bank charges;
Professional fees (lawyers, accountants, consultants);
Transportation and travel expenses;
Advertising and communication costs.

These external operating expenses often represent a significant portion of total operating expenses, particularly for service-based companies.

Taxes and Duties (Section 616)

These are taxes and duties borne by the company, excluding corporate tax (IS), which is classified as a non-recurring charge.

Deductible taxes and duties include:

In terms of direct taxes: the communal services tax and the professional tax;
In terms of indirect taxes: customs duties, registration fees, stamp duties, and the annual special tax on motor vehicles (TSAVA).

Personnel Costs (Section 617)

The company must record as operating expenses:

Personnel and labor costs and related social charges (CNSS, AMO, CIMR);
Including housing allowances and representation allowances;
And other cash or in-kind benefits granted to the company’s employees.

These charges are generally subject to social security contributions and Income Tax withholding at source. All labor costs, including social charges, are deductible from the Corporate Tax base.

Operating Allocations (Section 619)

These include the operating allocations comprising:

Depreciation allowances over the useful life of fixed assets recorded on the balance sheet;
Provisions for asset impairment and for risks and charges.

These operating expenses are an integral part of the operating result and are deductible from the Corporate Tax base, provided the deductibility conditions set out in the CGI are met.

Tax Deductibility Conditions for Operating Expenses

Article 10 of the General Tax Code sets out the conditions for the tax deductibility of operating expenses. For an expense to be fiscally deductible, it must meet four cumulative conditions:

Incurred in the interest of the business: the expense must have a direct connection to the professional activity of the company.
Correspond to an actual expenditure: the expense must be real and not fictitious, supported by valid documentary evidence (invoices, contracts, payslips).
Relate to the current fiscal year: in accordance with the matching principle, each operating expense must be allocated to the fiscal year in which it was incurred.
Be recorded in the accounts: the expense must be entered in the company’s accounting records.

Non-Deductible Operating Expenses

Certain expenditures, although recorded in the accounts, are not tax-deductible and must be added back through the reconciliation table from accounting profit to taxable profit. These include:

Fines, penalties, and surcharges of any nature;
Personal expenses of the manager unrelated to the business;
Donations and gifts exceeding the authorized thresholds;
Charges not supported by valid documentary evidence;
The portion of operating expenses exceeding regulatory limits (for example, promotional gifts exceeding 100 MAD including tax per unit).

Fixed Costs vs. Variable Costs

Operating expenses can also be classified as fixed or variable costs, a distinction essential for management analysis:

Fixed costs (structural charges): these remain stable regardless of the level of activity. Examples include rent, fixed salaries, depreciation, and insurance.
Variable costs (operational charges): these fluctuate in proportion to the volume of activity. Examples include purchases of goods, raw materials, and sales commissions.

This distinction makes it possible to calculate the company’s break-even point, meaning the level of revenue at which the company covers all its operating expenses and begins to generate profit.

Impact on Operating Income

Operating income is calculated as the difference between operating revenue and operating expenses. This intermediate management balance is a fundamental indicator of the company’s operational performance.

A positive operating income indicates that the company’s core business activity is profitable, independent of financial and exceptional operations.

Operating Expense Analysis Ratios

Several ratios help analyze the efficiency of operating expense management:

Operating expenses / Revenue ratio: measures the share of revenue absorbed by operating expenses. The lower this ratio, the more efficient the company is at controlling its costs.
Personnel costs / Revenue ratio: evaluates the weight of the payroll relative to the volume of activity.
Purchases / Revenue ratio: reflects the gross commercial margin or the margin on material consumption.

These ratios should be compared against industry averages and tracked over time to detect any deviation.

Strategies for Optimizing Operating Expenses

Controlling operating expenses is a key lever for competitiveness. Here are the main optimization strategies:

Renegotiating supplier contracts: obtaining better pricing on purchases and external services.
Optimizing payroll costs: adjusting headcount to actual needs, outsourcing non-strategic tasks.
Digitalizing processes: reducing operating costs through paperless workflows and automation.
Tax planning: ensuring maximum deductibility of operating expenses by complying with the conditions of Article 10 of the CGI.
Regular budget monitoring: implementing rigorous management control to anticipate and correct variances.

Accounting Entries for Main Operating Expenses

Recording operating expenses follows PCGE rules. Here are the main journal entries:

Purchase of goods: Debit 6111 (Purchases of goods) + Debit 34552 (Recoverable VAT on charges) / Credit 4411 (Suppliers)
Rent: Debit 6131 (Rentals and rental charges) / Credit 4411 (Suppliers)
Salaries: Debit 6171 (Employee compensation) / Credit 4432 (Compensation due to employees)
Social charges: Debit 6174 (Social charges) / Credit 4441 (CNSS) + Credit 4443 (Pension funds)
Depreciation allowance: Debit 6191 (Operating depreciation allowances) / Credit 28xx (Accumulated depreciation for the relevant asset)

Frequently Asked Questions

What are operating expenses in Moroccan accounting?

Operating expenses (charges d’exploitation) in Morocco include all costs incurred in the normal course of business operations, such as purchases of goods and raw materials, personnel expenses, rent, insurance, transport, and depreciation allowances. They are recorded according to the PCGE (Plan Comptable General des Entreprises) and reduce the company’s taxable profit.

Are all operating expenses tax-deductible in Morocco?

Not all operating expenses are automatically tax-deductible. To qualify for deduction from Corporate Tax, expenses must be incurred in the interest of the business, properly documented with supporting invoices, recorded in the correct accounting period, and not exceed reasonable amounts. Certain expenses such as fines and penalties are specifically excluded from deductibility.

How are operating expenses different from financial expenses in Morocco?

Operating expenses relate to the company’s core business activities (purchases, salaries, rent, depreciation), while financial expenses arise from the company’s financing activities (interest on loans, exchange losses, bank charges). Both categories reduce taxable profit but are reported separately in the income statement under the Moroccan accounting framework.

Deductible Expenses: Corporate Tax in Morocco

Accounting in Morocco: What You Need to Know

Rejection of Accounts in Moroccan Tax Law

Operating Allocations in Morocco

Moroccan Chart of Accounts (PCGE)