In brief: A permanent establishment in Morocco is a fixed place of business through which a foreign company conducts activity. It triggers Corporate Tax obligations on Moroccan-source profits under the CGI, subject to double taxation treaty provisions.
With over 15 years of experience advising foreign companies on tax compliance and permanent establishment issues, Upsilon Consulting’s chartered accountants provide authoritative guidance on Moroccan territoriality rules.
Permanent Establishments in Morocco: What Rules Should Be Applied?
N.B: This article is a compilation and summary of the provisions of the Circular Note CGI 717 Volume 1.
In Morocco, a company must pay Corporate Tax at the location of its registered office. However, foreign companies may be subject to Corporate Tax on profits generated by their permanent establishments in Morocco.
In this article, we address:
- First, the territoriality rules relating to Corporate Tax in Morocco;
- Then, the definition of the concept of “permanent establishments”;
- Finally, the tax rules that apply to these permanent establishments in Morocco.
For all your questions and consultations: Contact Upsilon Consulting.
Territoriality Rules - The Case of Permanent Establishments
Article 5 of the General Tax Code in Morocco stipulates that a company is taxable in Morocco on:
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Profits and income it receives that are:
Related to assets it holds in Morocco (movable property, real estate, securities);
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Linked to activities it carries out in Morocco, even if these activities are occasional;
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Acquired in Morocco under a double taxation avoidance agreement signed by Morocco.
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Gross income related to service provision or royalties it receives;
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Profits generated by a permanent establishment in Morocco. One must therefore ask: what constitutes a permanent establishment under Moroccan tax law?
What Are Permanent Establishments in Morocco
Permanent establishments, as defined by:
- On one hand, the General Tax Code
- On the other hand, double taxation agreements, are:
Fixed places of business through which a foreign company carries out all or part of its activity.
Thus, a permanent establishment may be:
- a management headquarters,
- a factory,
- an office or branch,
- a workshop,
- or a construction or assembly site that exceeds a certain duration (generally six months).
Generally, these agreements do not consider certain presences of a foreign company as permanent establishments. These include:
- First, facilities used solely for storage purposes,
- Then, exhibition stands,
- Also, information meeting centers,
- Finally, any location offering any other preparatory or auxiliary activity.
Permanent Establishments in Morocco - What Are the Applicable Corporate Tax Rules
Operation by a Moroccan Company of Foreign Permanent Establishments
As a general rule, a company with its registered office in Morocco is subject to Corporate Tax. However, when it generates profits abroad, these are not subject to Corporate Tax when they are:
- Generated through a permanent establishment located abroad;
- Corresponding to a complete cycle of operations abroad.
However, it must subject to Corporate Tax:
- Remuneration for ad hoc services it provides to its permanent establishments abroad;
- The contribution to head office costs of these establishments by the Moroccan company.
It should be noted that the following are subject to Corporate Tax under common law rules:
- Dividends,
- Interest,
- Capital gains generated by foreign assets recorded in the Moroccan company’s balance sheet.
Carrying Out Commercial Operations or Service Provision from Morocco
When a company has its registered office in Morocco and carries out operations abroad, Corporate Tax is levied in Morocco. However, there is no taxation when:
- It carries out these operations through one or more permanent establishments;
- And the operations do not constitute a complete commercial cycle in Morocco.
This applies in particular to companies carrying out the following operations from Morocco:
- Exports,
- International triangular trade without transit through Morocco.
Taxation of Companies Without a Registered Office in Morocco
These companies are taxable on profits or income from Moroccan sources, specifically for:
- Possession of assets in Morocco;
- Carrying out an activity in Morocco;
- Carrying out occasional lucrative operations in Morocco;
- Receipt of gross income listed in Article 15 of the G.T.C..
A- Assets a Company Holds in Morocco
The law establishes Corporate Tax in Morocco on income and capital gains derived from the management or disposal of movable or immovable property. These include:
- Rent,
- Farm rents,
- Real estate profits,
- Capital share profits,
- Any other profit from the disposal or exploitation of an asset.
Obviously, this taxation applies subject to any contrary provision in an agreement signed by Morocco.
Thus, for example, the following form part of the Corporate Tax base in Morocco:
- Dividends,
- Interest and capital gains generated by securities,
- Capital gains on the sale of Moroccan real estate.
B- Carrying Out an Activity in Morocco
From a tax perspective, a company is considered to carry out an activity in Morocco in the following cases:
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It operates through one or more permanent establishments in Morocco. The law and agreements consider the following as permanent establishments:
A management or operating headquarters;
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A branch, agency, or sales outlet;
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A construction or assembly site;
-
A purchasing office or counter operated in Morocco.
In the latter case, a permanent establishment exists when:
- First, if the company purchases goods and resells them as is in Morocco.
- Second, if the office supplies one of its establishments (or its headquarters) abroad;
In the last two cases, tax in Morocco is calculated on the basis of commissions received by the office. Transfer pricing rules apply in this case.
Furthermore, it is important to note that:
“Operations carried out in Morocco constituting a complete commercial cycle are subject to Corporate Tax even in the absence of permanent establishments.”
C- Occasional Carrying Out of Activities in Morocco
The habitual nature of an operation is not necessary for it to be taxable. Indeed, occasional lucrative activities form part of the Corporate Tax base.
D- Remuneration for Services or Works
Income received by foreign companies that do not have permanent establishments in Morocco is subject to withholding tax. Indeed, this withholding is due in the cases provided for in Article 15 of the Moroccan General Tax Code.
However, when this income is in return for services provided by permanent establishments in Morocco, the withholding does not apply. Indeed, the amount received by the establishment forms part of the taxable income of the permanent establishment under Moroccan law.
Permanent Establishments - International Agreements
Finally, it is very important to emphasize that double taxation agreements take priority.
Thus, all the rules we have explained above may change depending on the provisions of international agreements.
This may include:
- First, a construction and assembly site. This is the case when its duration is less than the duration provided for by the relevant agreement;
- Then, income from the operation of international freight vessels if the management headquarters is located in Morocco;
- Finally, interest, dividends and royalties where the agreements provide for special conditions.
All international agreements signed by Morocco can be consulted on the website of the General Tax Directorate (DGI).
For all your questions and consultations: Contact Upsilon Consulting.
Frequently Asked Questions
What constitutes a permanent establishment in Morocco?
A permanent establishment is a fixed place of business through which a foreign company carries out all or part of its activity in Morocco. This includes management headquarters, factories, offices, branches, workshops, and construction or assembly sites exceeding a specified duration (generally six months).
Are foreign companies taxed on profits generated through a permanent establishment in Morocco?
Yes, foreign companies are subject to Corporate Tax on profits generated by their permanent establishments in Morocco. The tax is calculated on the income attributable to the permanent establishment under Moroccan domestic law, subject to any applicable double taxation treaty provisions.
Do double taxation treaties override Moroccan domestic rules on permanent establishments?
Yes, double taxation treaties take priority over domestic rules. The provisions of international agreements may alter the definition of permanent establishments, the duration thresholds for construction sites, and the tax treatment of specific income types such as interest, dividends, and royalties.
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Contact Upsilon Consulting for expert advice on permanent establishment taxation.
