In brief: Withholding tax on interest in Morocco applies at 20% for legal entities and 30% for undisclosed beneficiaries. It covers all fixed-income investment products including bonds, deposits, and loans. The tax is creditable against Corporate Tax.
What Is Withholding Tax on Interest?
Withholding tax on interest in Morocco applies to all fixed-income investment products.
The fixed-income investment products subject to withholding tax are defined in accordance with the provisions of Article 14 of the General Tax Code (CGI).
This article stipulates that:
“Fixed-income investment products subject to the withholding tax provided for in Article 4 above are those:
- paid, made available, or recorded in the accounts of individuals or legal entities;
- in respect of interest and other similar income (…).”
This withholding tax on interest applies in particular to income from:
- Bonds, cash vouchers, and other debt securities;
- Term and demand deposits, and investment deposits;
- Loans and advances, whether granted by individuals, legal entities, or credit institutions;
- Repurchase (repo) operations.
Generally speaking, any lending operation that gives rise to interest payments or similar fixed-income products is subject to this withholding tax.
Withholding Tax on Interest in Morocco
What Is a Fixed-Income Investment Product?
A fixed-income investment subject to withholding tax on interest includes any money loan that an individual or legal entity grants to another person. This loan must carry a fixed remuneration agreed upon by both parties. This remuneration may take the following forms:
- interest,
- prizes,
- premiums, and
- other similar products and income.
Fixed-income investments take the form of either debt securities or repurchase (repo) operations.
It is this income that is subject to withholding tax on interest (or on fixed-income products in Moroccan tax terminology).
What Is a Fixed-Income Investment Security?
Fixed-income investment securities can take several forms.
1. Bonds
Bonds are defined as negotiable securities that generate interest. A bond represents a fraction of a loan. Generally, bonds are repayable over a long or medium term.
Furthermore, bonds may be issued by public authorities, public limited companies (SA), or banks.
2. Cash Vouchers
Cash vouchers are also interest-bearing debt securities. They are issued by companies or banks. They may be registered or bearer securities.
Treasury Bills
Treasury bills are public debt securities that generate interest.
Other Debt Securities
These are securities representing debt claims that generate interest, issued at the discretion of the issuer. They include:
- Certificates of deposit;
- Finance company bonds;
- Commercial paper;
- FCPT and UCITS securities.
Mortgage, Preferential, and Unsecured Claims
These are loan agreements that generate interest. They may include:
- First, mortgage claims: when the guarantee is real property owned by the borrower;
- Second, preferential claims: when the beneficiary has a priority repayment right;
- Finally, unsecured (chirographic) claims: when there is no guarantee by mortgage or priority right.
Generally speaking, as soon as a loan agreement, whether represented by a security or not, generates interest, withholding tax on interest applies. In other words, the form of the loan is immaterial. As long as it generates interest, the withholding tax is owed by the issuer.
To this end, this interest is subject to Corporate Tax withheld at source on fixed-income investment products.
What Is the Withholding Tax Rate on Interest?
When a company pays interest to a person subject to Corporate Tax, it must apply a withholding tax on interest at the rate of 20%.
In this case, the beneficiaries must disclose, when collecting said income:
- the company name and the address of the registered office or main establishment;
- the trade register number and the Corporate Tax identification number.
However, if the beneficiary does not disclose their identity (or if they are an individual), the withholding rate is 30%.
Furthermore, the taxable base consists of interest excluding VAT.
Finally, note that this withholding tax is creditable against Corporate Tax installments as well as the final Corporate Tax settlement for the interest beneficiary (legal entity).
When Must the Withholding Tax Be Paid?
The borrower must pay the withholding tax on interest at the following times:
- When interest is paid;
- When interest is made available;
- When interest is recorded in an account.
First, Payment
This refers to the direct transfer of funds to the beneficiary in cash.
Second, Making Funds Available
Making funds available means holding the interest at the beneficiary’s disposal, without the possibility of retraction. Under the law, it is therefore equivalent to an actual payment.
Third, Recording in an Account
“Recording in an account” refers to recording in:
- First, partners’ current accounts,
- Then, beneficiaries’ bank current accounts,
- Finally, current accounts agreed upon in writing between the parties.
Consequently, recording interest in the aforementioned accounts is equivalent to payment.
Who Must Apply Withholding Tax on Interest?
First, note that the paying party must apply withholding tax on interest regardless of the beneficiary.
Thus, beneficiary companies, whether or not they have a registered office in Morocco, are liable for Corporate Tax on all interest or fixed income they receive.
Furthermore, this withholding applies automatically for Moroccan beneficiaries. The law also subjects foreign beneficiaries to this withholding when a double taxation treaty grants this right to Morocco.
Finally, note that when a treaty applies, the applicable rate is the one provided for in the treaty.
Filing and Payment Obligations
The entity that withholds the tax on interest must file a declaration and remit the amount withheld to the tax administration. The withholding tax must be paid to the Treasury within one month following the month in which the interest was paid, made available, or recorded in an account. The declaration is filed using the specific form provided by the Directorate General of Taxes (DGI) and must include the identity of the beneficiary, the gross amount of interest, the applicable rate, and the amount of tax withheld.
Failure to withhold or to remit the tax within the prescribed deadline results in penalties. The paying entity becomes jointly liable for the tax due, plus a surcharge of 10% and late-payment interest of 5% for the first month and 0.5% per additional month of delay.
Creditability Against Corporate Tax
The withholding tax on interest is not a final tax for legal entities subject to Corporate Tax. It constitutes a prepayment that is fully creditable against the quarterly Corporate Tax installments (acomptes provisionnels) and the final annual Corporate Tax liability. If the total withholding tax exceeds the Corporate Tax due, the excess may be offset against future installments. This mechanism ensures that interest income is not taxed twice — once at source and again as part of corporate profits.
For individuals, however, the withholding tax may serve as a final discharge depending on the nature of the income and the taxpayer’s situation.
Impact of Double Taxation Treaties on Withholding Tax on Interest
Morocco’s extensive network of over 60 double taxation treaties frequently provides for reduced withholding tax rates on interest. For example, the Morocco-France treaty caps the withholding tax on interest at 10%, while the Morocco-UAE treaty may provide for a full exemption in certain cases. Companies receiving interest from Moroccan sources should carefully review the applicable treaty to determine whether a reduced rate applies. To benefit from a treaty rate, the beneficiary must generally provide a certificate of tax residence from their home country.
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Frequently Asked Questions
What is the withholding tax rate on interest in Morocco?
The standard withholding tax rate on interest in Morocco is 20% for interest paid to resident individuals and 10% for interest paid to non-resident entities. When a double taxation treaty applies, the treaty rate may be lower than the domestic rate.
Is withholding tax on interest a final tax in Morocco?
For legal entities subject to Corporate Tax, the withholding tax on interest is not a final tax. It constitutes a prepayment that is fully creditable against quarterly Corporate Tax instalments and the annual Corporate Tax liability. For individuals, it may serve as a final discharge depending on their tax situation.
Which types of interest are subject to withholding in Morocco?
Withholding tax applies to interest on loans, bonds, deposits, current account advances, and any other form of remuneration for the use of capital. This includes interest paid between related companies, as well as interest on shareholder loans.
How do double taxation treaties affect withholding tax on interest?
Morocco has signed over 60 double taxation treaties that frequently provide for reduced withholding rates on interest. For example, the Morocco-France treaty caps the rate at 10%, while the Morocco-UAE treaty may provide for a full exemption in certain cases. A certificate of tax residence from the beneficiary’s home country is required to apply the treaty rate.
FURTHER READING
Transfer Pricing: What You Need to Know
Expense Reports - Tax Deduction in Morocco
Deductible Expenses - Corporate Tax in Morocco
