Morocco enacts Finance Law 2023 | A review of key tax measures

• Morocco enacted Finance Law 2023 with publication in the official bulletin on 23 December 2022.
• This Alert summarizes the key tax measures including a reform on corporate tax rates.

Morocco enacted Finance Law n° 50-22 for the Fiscal Year 2023 (FL 2023) and it was published in the official bulletin n° 7154 bis of 23 December 2022.

This Alert summarizes the key tax measures introduced by FL 2023.

Key tax measures of FL 2023

Reform of corporate tax rates

FL 2023 introduced a phased reform of corporate income tax rates over a period of four years with the objective of converging towards unified tax rates applicable from 2026 onwards, replacing the proportional tax system and the multiplicity of derogatory regimes.

The unified target rates are as follows:

• 20% applicable to all companies with net taxable profit of less than MAD100 million

• 35% applicable to companies with net taxable profit of MAD100 million or more, excluding companies with Casablanca Finance City (Casablanca FC) status and those located in Industrial Acceleration Zones (IAZ)

• 40% applicable to credit institutions and similar organizations, Bank Al Maghrib, Caisse de Dépôt et de Gestion and insurance and reinsurance companies

The progressive implementation of the new tax rates will be carried out according to the following schedule:

In MAD	Net tax income	Current rate	2023	2024	2025	2026
Standard corporate income tax rate	=< 300 000	10%	12.5%	15%	17.5%	20%
	> 300 000 and <= 1 000 000	20%	20%	20%	20%
	> 1 000 000 and < 100 000 000	31%	28.5%	25.5%	22.75%
	> = 100 000 000		32%	33%	34%	35%
Industrial companies	>1 000 000 and = < 100 000 000	26%	24.5%	23%	21.5%	20%
Activities with 20% marginal rate	>1 000 000 and < 100 000 000	20%	20%	20%	20%	20%
	> = 100 000 000		23.75%	27.5%	31.25%	35%
Financial companies (*)		37%	37.75%	38.5%	39.25%	40%
Casablanca FC and IAZ regimes		15%	16.25%	17.50%	18.75%	20%

(*) Credit establishments and similar institutions, Bank Al Maghrib, Caisse de Dépôt et de Gestion and insurance and reinsurance companies.

Installment calculation and transition between rates

Instalments due for each fiscal year during the transition period are calculated according to the corporate income tax rates applicable to that year.

In addition, the 35% rate is reduced to 20% only if the net taxable profit is less than MAD100 million during three consecutive fiscal years for the companies concerned.

Investment incentive

FL 2023 has also introduced an investment incentive, applicable during the period from 1 January 2023, to 31 December 2026, for the benefit of companies incorporated as from 1 January 2023, which undertake to invest at least MAD1.5 million over a period of five years under an agreement to be signed with the Moroccan Government. These companies will be subject to a tax rate capped at 20% for fiscal years beginning on or after 1 January 2023.

The investment will have to consist of tangible fixed assets that must be retained for at least 10 years. The companies concerned are also subject to a specific reporting requirement.

The measure excludes public establishments and corporations and their subsidiaries in accordance with the legislative and regulatory texts in force.

Renewal of the measure related to Social Solidarity Contribution

FL 2023 has renewed the application of the social solidarity contribution on profits and income (SSC) for the years 2023, 2024 and 2025. The SSC will apply under the same conditions and at the same rates as previously stipulated.

Progressive reduction of the withholding tax rate on income from shares and similar revenues

FL 2023 has provided for a gradual reduction of the withholding tax (WHT) rate on income from shares and similar revenues to reach a rate of 10% by 2026 compared to the current rate of 15%. The implementation schedule is as follows:

Year	2022	2023	2024	2025	2026
WHT rate	15%	13.75%	12.5%	11.25%	10%

The above rates apply to income from shares and similar revenues derived from business profits generated in respect of each financial year from 1 January 2023, to 31 December 2026.

In addition, income from shares and similar revenues that are distributed and that derive from profits earned in respect of financial years opened before 1 January 2023, remain subject to the 15% rate.

Reduction of minimum contribution rates

FL 2023 has introduced a unified rate of the minimum contribution of 0.25%, applicable to all companies regardless of the declared accounting current income.

FL 2023 has also reduced the former rate of 0.25% to 0.15% for commercial companies in respect of sales of certain commodities and petroleum products.

The FL further reduced the minimum contribution rate from 6% to 4% for individuals engaged in a liberal profession.

Introduction of a withholding tax on fees, commissions, brokerage fees and other similar remunerations

FL 2023 has introduced a WHT on fees, commissions, brokerage fees and other similar remuneration paid to, made available or recorded on behalf of legal entities or individuals under the regime of the actual net income or the simplified net income as follows:

• The WHT rate is 5% when the remuneration is paid to legal entities by the Government, Local Authorities and Public Institutions and Enterprises.

• The WHT rate is 10% when the remuneration is paid to an individual.

The WHT levied is deductible from the amount of corporate income tax or personal income tax, with the right to refund.

Remuneration paid to legal entities by private operators is not subject to WHT.

Extension of the 70% reduction on the net capital gain resulting from the sale of fixed assets in the event of reinvestment

Companies will continue to benefit, for the years 2023, 2024 and 2025, from a 70% deduction on the net capital gain resulting from the sale of fixed assets, excluding land and buildings.

The transitional and derogatory measure will apply under the same conditions as previously provided.

Amendment of the tax regime for real estate investment funds (OPCIs)

Non-renewal of the 50% reduction measure upon the contribution of real property that expired on 31 December 2022

FL 2023 has provided for the permanent instatement in the law of the deferral of payment of corporate income tax or personal income tax corresponding to the net capital gain or real estate profit realized following the contribution of real property to an OPCI.

Cancellation of the 60% deduction on income from profits distributed by OPCIs

The measure has been replaced by a 40% deduction applicable only to income from the rental of real estate distributed by OPCIs that open their capital to the public, through the surrender of at least 40% of the existing shares.

Other tax measures of FL 2023

Measures relating to Corporate Income Tax

The other measures instituted by FL 2023 mainly apply to companies located in the IAZs and those with Casablanca FC status.

Exclusion of financial companies from IAZ tax benefits

FL 2023 has excluded financial companies from the tax benefits provided for IAZs. These companies are:

• Credit institutions

• Insurance and reinsurance companies

Introduction of the possibility for companies with Casablanca FC status to assign provisions for investment

FL 2023 has introduced the possibility for service companies with Casablanca FC status to make provisions for investments in participating interests. These provisions are deductible within the limit of 25% of the taxable profit after loss carryforward, subject to compliance with the following conditions:

• The investment in equity securities must be made during the fiscal year following that in which the provision is created

• The holding of the acquired securities for at least four years, as from the date of their acquisition

• The recording of the amount of each investment allowance per fiscal year at the level of a special section of the balance sheet liabilities

• The filing with the tax authorities of a statement to be appended to the tax return

As a transitional measure, the limits of the rates allowed for the formation of the aforementioned investment provisions are set progressively for fiscal years beginning on 1 January 2023, and ending on 31 December 2026, as follows:

	2023	2024	2025	2026
Limits on allowable rates	7.7%	14.3%	20%	25%

Limitation of the period for the five-year exemption for companies with Casablanca FC status

Under the new provisions of FL 2023, companies with Casablanca FC status qualify for the five-year exemption from corporate income tax for the first 60 months following the date of their incorporation.

Limitation of the exemption from withholding tax on income from shares and similar revenues 

FL 2023 has narrowed the scope of the WHT exemption for dividends and other similar equity income paid to, made available or recorded on behalf of nonresidents by companies located in IAZ and companies with Casablanca FC status.

Accordingly, the said exemption is now applicable only to dividends and other similar equity income from foreign source.

Measures relating to Value Added Tax (VAT)

Increase in VAT rates applicable to certain liberal professions

FL 2023 has revised the VAT rate from 10% to 20% for transactions carried out by the following professions:

• Lawyers

• Notaries

• Interpreters

• Adouls

• Bailiffs

• Veterinarians

Exemption without right to deduct VAT for various professions under a certain threshold

The professions of lawyer, interpreter, notary, adoul, bailiff, architect, metrologist, geometer, topographer, surveyor, engineer, consultant, approved accountant, expert in any field and veterinarian, previously subject to VAT regardless of their turnover, now benefit from the VAT exemption threshold of MAD500,000 without deduction right.

Institution of administrative formalities for the VAT exemption fo agricultural equipment 

As of 1 January 2023, the exemption of goods and materials intended exclusively for agricultural use, the list of which is provided for in the General Tax Code, will become conditional upon the completion of formalities to be provided for by regulation.

Measures relating to Personal Income Tax

Renewal of the exemption from income tax for 36 months for new open-ended employment contracts

FL 2023 has extended until 31 December 2026, the 36-month exemption from income tax applicable to employees at their first recruitment.

It should be noted that this transitional measure was introduced by the Finance Law for the year 2021 and extended by the Finance Law 2022.

FL 2023 has thus extended the benefit of the measure under the same conditions, namely:

• The employee must be recruited under an open-ended contract concluded between 1 January 2023, and 31 December 2026

The employee's age must not exceed 35 years on the date of recruitment.

Renewal of the income tax exemption for employees of newly created companies

The measure relating to the income tax exemption of the gross monthly salary capped at MAD10,000 has been extended for newly created companies until 31 December 2026.

The benefit is granted for a period of 24 months, within the limit of 10 employees recruited under a permanent contract and during the two years from the beginning of the operation of the companies concerned.

Increase of the rate of the allowance for professional expenses

The flat-rate allowance for expenses incurred in the course of employment has been revised as follows:

• From 20% to 25% for gross annual taxable income exceeding MAD78,000 with an increase in the deduction ceiling from MAD30,000 to MAD35,000

• From 20% to 35% for gross annual taxable income less than or equal to MAD78,000

Limitation of the exemption for severance payments in the event of dismissal or voluntary departure

FL 2023 has limited the income tax exemption to the total amount of MAD1 million paid in respect of the following indemnities:

• Severance pay

• Compensation for voluntary departure

• Compensation for damages granted in case of dismissal

Therefore, in the case of accumulation of several indemnities, the total amount of these exempted indemnities cannot exceed the abovementioned threshold.

Cancellation of the tax benefits granted to employees of certain financial companies with Casablanca FC status

Employees of companies with Casablanca FC status are subject to income tax at a specific rate of 20% for a maximum period of 10 years from the date of their employment.

FL 2023 has excluded from this benefit the employees of credit institutions and insurance and reinsurance companies with Casablanca FC status. Thus, as of 1 January 2023, the employees of these companies will be taxed according to the provisions of common law.

Amendment of the withholding tax rate applicable to compensation paid to non-permanent teachers

Educational or training establishments are now required to apply a final WHT of 30% instead of 17% for salaries and allowances paid to teachers who are not part of their permanent staff.

Revised tax treatment of premiums and contributions relating to individual or group retirement insurance contracts

FL 2023 has introduced the following changes:

• The age condition required for servicing the benefits of insurance contracts has been reduced to 45 years instead of 50 years.

• The deduction rate applicable to the annuity paid out, including as a lump sum, at the end of eligible insurance contracts has been raised to 70% for the amount less than or equal to MAD168,000. The deduction rate is maintained at 40% for the surplus.

The spread over a maximum period of four years has remained unchanged.

Furthermore, FL 2023 has implemented a WHT at a non-final rate of 15% for redemptions of retirement insurance contracts made before the age of 45 or before the minimum eight-year term provided for eligible contracts.

Implementation of a withholding tax applicable to service providers under the auto-entrepreneur regime or the Unified Professional Contribution (UPC) regime

The WHT provided for by FL 2023 applies to the annual turnover of the above-mentioned service providers which exceeds MAD80,000 per client. The rate is set at a final rate of 30%.

Exemption of tips

Tips received directly by beneficiaries without the intervention of the employer are now exempt from income tax.

Amendment of the tax treatment of property income and profits

FL 2023 has included several provisions concerning the taxation of property income and profits:

Property income

Tax collection

• Property income paid by public or private legal entities to non-professional individuals remains subject to the 10% and 15% WHT. However, these rates become non final.

• The option for spontaneous payment has been removed.

• Property income must be declared on the annual global income tax return and will be taxed at the rate of the income tax scale after a 40% deduction.

• The tax withheld will be deducted from the global income tax with the right to a refund.

Taxation of income from profits distributed by OPCIs to individuals

• Inclusion of such income in the category of property income (instead of income from movable assets), which is taxed as part of the beneficiaries' annual global income tax return after a 40% deduction.

• Exemption of OPCIs from the WHT requirement when the distributed income is paid to individuals subject to tax according to the actual or simplified net income regime. 

Real estate profits

Prior consultation procedure

• Introduction of the possibility of requesting the prior opinion of the administration concerning the elements for the computation of the net taxable real estate profit and the amount of the corresponding tax or, as the case may be, concerning the right to the benefit of the exemption from the said tax, within 30 days following the sale provisional agreement.

• In which case, the administration will issue the applicant a tax assessment certificate within 60 days of the application.

• If the taxpayer subsequently submits a tax return on the basis of the tax assessment certificate, he/she will be exempt from tax audit.

• If the taxpayer subsequently submits a tax return on the basis of the tax assessment certificate, he/she will be exempt from tax audit.

• If the taxpayer fails to file a tax return based on the tax assessment certificate, FL 2023 requires the payment of a provisional amount equal to the difference between the declared tax and 5% of the transfer price, with the right to a refund after the adjustment procedure has been initiated.

Tax rate

FL 2023 has deleted the 30% rate that was applicable to land profits made on the first transfer of land included in the urban perimeter. Henceforth, a single unified rate of 20% applies to all real estate profits.

Transfer of principal housing property

FL 2023 has reduced the minimum duration of assignment of a property to the principal residence to five years instead of six years for the benefit of the exemption on the basis of land profits.

The law has also clarified the concept of principal housing property. This corresponds to:

• The only housing available to the person concerned

• The dwelling chosen by the person concerned as his or her main residence if he or she has several dwellings

• The dwelling that Moroccans residing abroad keep as their home in Morocco or the one occupied free of charge by their spouse, their ascendants or descendants in the first-degree direct line 

Update of the real estate rich concept

The definition of real estate rich companies has been revised by FL 2023 by reducing the proportion of real estate or securities issued by real estate companies to 50% of the total gross assets instead of 75% of the gross fixed assets.

Henceforth, is considered as real estate rich company, any company whose gross assets are constituted for 50% at least of their value by buildings or by securities issued by companies with real estate purpose or by other real estate rich companies, which are not assigned by these companies to their own industrial, commercial, artisanal, agricultural business, to the exercise of a designated profession or to the housing of their employees.

Other provisions

Exchange of information between the tax administration and other public administrations and institutions

FL 2023 has established the possibility for the tax administration to exchange information with other administrations and public bodies, within the framework of an agreement, in accordance with the legislation on the protection of individuals with respect to the processing of personal data and subject to compliance with professional secrecy.

Introduction of a procedure for inactive companies

FL 2023 has instituted specific procedures for inactive companies in the following cases:

• Companies that have not complied with any obligation to declare and pay taxes for the last three fiscal years and have not carried out any activity during this period:

FL 2023 has provided for a procedure for their registration in the so-called "inactive companies" register and the suspension of the application of the automatic taxation procedure.

• Companies that have not made any turnover or have paid the minimum contribution for the last four financial years:

FL 2023 has instituted a simplified and temporary procedure allowing them to rectify their tax situation and benefit from the exemption from tax audit in addition to the automatic cancellation of penalties for failure to file returns and pay taxes.

These companies must file a declaration of total termination of activity during the year 2023 and pay a lump sum tax of MAD5,000 for each year not statute barred. Capital gains from the sale or withdrawal of tangible or intangible assets, as well as compensation received in return for the termination of business or the transfer of customers, remain taxable in normal conditions.

For additional information with respect to this Alert, please contact the following:

Ernst & Young et Associés Sarl, Casablanca

• Abdelmejid Faiz

• Kamal Himmich

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.