One of the main features of the Finance Law of 2014 is that it was adopted in a rather particular political, economic and financial situation marked by the necessity to rebalance public finances through progressive reduction of the budget deficit, consolidation of tax resources and progressive reduction of tax exemptions. The tax measures of the Finance Law of 2014 focus essentially on the progressive implementation of the recommendations of the last national tax conference held in April 2013, the main features of which were the broadening of the tax base, rationalisation of fiscal expenses, improvement of companies’ competitiveness, simplification of procedures and the strengthening of administrative control. A revision of the value-added tax (VAT) – a reform postponed for many years – was also introduced in 2014. The Finance Law of 2014 maintained the trend initiated in 2012 through the creation of special taxes such as an air passenger ticket tax and a luxury tax designed to support the social cohesion fund. Here, we present the key measures included in the Finance Law of 2014. 1. CORPORATE INCOME TAX (CIT) A. Progressive taxation of the agricultural sector: Since 1984 the agricultural sector has benefitted from a tax exemption. Due to the years of drought that Morocco experienced at that time, agricultural income was exempted from any direct tax until December 31, 2000. In the same context, article 12 of the Finance Law No. 55-00 for the financial year 2001 extended the exemptions for agricultural income of any present or future direct tax until December 31, 2010. This exemption was extended until 2013 by the Finance Law No. 40-08 for the financial year 2009. It should also be pointed out that the tax exemptions granted to the agricultural sector represent 11-12% of overall tax expenditures (as specified in the annual report on tax expenditures of 2012 and 2013).
The Finance Law of 2014 introduces progressive taxation for the agricultural sector. This taxation will affect large agricultural companies, large farm holdings and farmers who generate sales in excess of Dh5m (€444,000), while farm holdings and farmers with sales of less than Dh5m (€444,000) will continue to benefit from the permanent exemption from CIT.
On a transitional basis, the Finance Law of 2014 plans for the continuity of the exemption from CIT as
- From January 1, 2014 until December 31, 2015 for farm holdings generating sales of less than Dh35m
- From January 1, 2016 until December 31, 2017 for farm holdings generating sales of less than Dh20m
- From January 1, 2018 until December 31, 2019 for farm holdings generating sales of less than Dh10m (€888,000); The Finance Law of 2014 introduces a reduced tax rate of 17.5% for farm holdings during the first five consecutive years from the first year of taxation. B. Fiscal deductibility of compensation for delays related to the timeliness of payment: The Finance Law of 2014 authorises the fiscal deductibility of compensation for delays governed by Law No. 31-10 and Law No. 15-95 forming the commercial code. This measure is applicable to compensation for delays paid and recovered as of January 1, 2014.
So, regarding the fiscal side, this compensation for delays can be regarded, depending on the case, either as income or as an expense, for the determination of the taxable result during their collection or payment. Consequently, the accounting of this compensation will be made according to the current accounting rules and the determination of the taxable fiscal result will be made by proceeding to the extra accounting rectifications. C. Tax exemptions granted to “Africa50”, or “Fonds Afrique 50”: In order to stimulate foreign investments, article 4 of the Finance Law of 2014 establishes a total and permanent exemption from corporate taxation for the Africa50. The African Development Bank (ADB) decided to create this fund during its last annual assembly held in Marrakech in May 2013 in order to finance Africa’s large infrastructure projects. The fund is planned to be domiciled in the financial centre of Casablanca Finance City. Thus, the Africa50 benefits from total and permanent exemption from corporate tax on all income, activities or operations and for potential income therefrom. 2. PERSONAL INCOME TAX (PIT) A. Introduction of a flat-rate tax scheme to support the “auto-entrepreneur”: A new taxation regime has been introduced by the Finance Law of 2014 in order to reduce the size of the informal sector, develop entrepreneurial spirit and facilitate access to the job market for young people.
In this context, the Finance Law of 2014 complemented article 32 of the General Tax Code by introducing a specific and optional tax regime for natural persons who carry out their professional activities as a self-employed worker (although this excludes taxpayers practising liberal professions). The option for the auto-entrepreneur scheme is subject to compliance with the following conditions. The amount of the annual turnover must not exceed:
- Dh500,000 (€44,400) for commercial, industrial and artisanal activities; or
- Dh200,000 (€17,760) for the provision of services. The self-employed must adhere to the social security scheme and must maintain a register of purchases and sales that is endorsed on a regular basis by a competent tax service in the place where they are domiciled for tax purposes. This option remains valid until the turnover does not exceed, for any period of two consecutive financial years, the aforementioned threshold. B. Abatement rates applicable to pensions & life annuities: Before January 1, 2014, the net taxable income corresponding to pensions and annuities was determined after application of a flat-rate reduction of 55% on the gross taxable income of pensions and life annuities. As of January 1, 2014, article 4 of the aforementioned Finance Law of 2014 amends these provisions by providing for the following abatement rates:
- 55% on the gross amount that does not exceed Dh168,000 (€14,918) annually; and
- 40% on the gross amount that exceeds Dh168,000 (€14,918) annually. These rates apply to the gross taxable amounts of such pensions and annuities, subject to the deduction thereafter of social contributions. C. Introduction of tax neutrality with respect to income tax on the contribution of equity securities for a Moroccan resident that is subject to corporate tax: The Finance Law of 2014 introduces a specific regime allowing deferred taxation of income tax for capital gains resulting from the contribution of equity securities to a holding company.
Indeed, the Finance Law of 2014 states that natural person who carries out the transfer of the whole of the equity securities they hold in one or more corporations to a holding company resident in Morocco and subject to corporate tax is not taxable in respect to the capital gains resulting from this transfer. This tax exemption is granted provided that the following conditions are met:
- The contribution shall be carried out between January 1, 2014 and December 31, 2015;
- The equity securities transferred must be evaluated by someone selected from among the persons entitled to perform the duties of an auditor;
- The beneficiary company of the contribution is committed in the act of contribution to keep the shares received for a minimum period of four years from the date of the aforementioned transfer;
- The person who carried out the contribution of all of his or her equity securities is committed in the contribution act to pay the income tax related to net capital gain resulting from the contribution, in case of partial or total redemption, reimbursement or cancellation of securities received against the contribution. For the company receiving the shares, the net capital gain resulting from the sale of the above capital securities, after the expiry of a period of four years, is determined by the difference between the transfer price and the value of the securities at the time of the contribution.
Regarding the tax returns level, the Finance Law of 2014 provides that taxpayers who made the contribution of all of their equity securities should return against a receipt, to the inspector of taxes instead of their fiscal domicile, a tax return on the basis of a model form prepared by the administration within 60 days of the date of the contribution. 3. VALUE-ADDED TAX The main tax measures provided by the Finance Law of 2014 fall within the context of a total reform of VAT. These measures concern the reduction of VAT rates, the introduction of the reverse charge system of VAT, the abolition of the rule of one-month lag and the introduction of the refund for accumulated VAT credit. A. Changes in VAT rates: Application of the rate of 10% or 20% for some exempt goods or services:
- The rate of 10% is applicable to catering services provided directly by a company to its employees and equipment intended exclusively for agricultural use.
- The rate of 20% is applicable to dried grapes, fishing gear, local acquisitions of a property, and equipment and goods used by the University Al Akhawayn in Ifrane.
- Application of the 10% rate to certain products initially subjected to the rate of 7%. It is proposed that with effect from January 1, 2014, the tax rate of 10% will be applicable to livestock feed.
- Application of the 20% rate to certain products subjected initially to the rate of 14%. It is proposed that, with effect from January 1, 2014, the tax rate of 20% will be applicable to certain products subject to the 14% rate, such as fats (animal or vegetable) and utility vehicles. B. Introduction of the VAT reverse charge system: The Finance Law of 2014 amends the provisions of the article 115 of the General Tax Code in order to simplify the tax return obligations that local companies must fulfil on behalf of foreign companies.
In practice, and in case of absence of accreditation of a tax representative in Morocco, the Moroccan client has to file a declaration of existence in the name and on behalf of the non-resident company and declare the VAT on a separate tax return with a different tax identification number.
Furthermore, the Moroccan company should continue to file, even in the absence of any operation with the foreign company, on a monthly basis, the VAT returns on behalf of the non-resident provider until submitting a declaration for cessation of activity on behalf of this client.
In this context, and in order to simplify the procedure of declaration of the withholding tax applicable to the payments made to the foreign companies, the Finance Law of 2014 allows the Moroccan client to declare the amount of the operation exclusive of VAT on its own VAT return, to calculate the tax payable and at the same time proceed to the deduction of the amount of the aforementioned VAT due.
In the case where client activity is excluded from the scope of VAT, the Moroccan customer is required to proceed to the recovery of VAT due in the name and for the account of the foreign company by way of the withholding tax.
This deduction is made on behalf of the Treasury on each payment made to the foreign company and remitted to the receiver of the tax administration in the month following the payment. C. The abolition of the one-month lag rule: It should be noted that before the Finance Law of 2014 and regarding the right of deduction, the basic rule is that this right arises at the end of the month following the month of the partial or total payment of the invoices made in the name of the beneficiary.
Furthermore, and starting from January 1, 2014, the right to deduct the VAT shall arise in the month of the total or partial payment of local purchases or imports of goods, wares or services.
The amount of VAT paid on purchases during the month of December 2013 and deductible in January 2014 will be deductible over a period of five years up to a proportion of one-fifth of that amount. This deduction is made during the first month or the first quarter of each year from 2014.
However, it should be noted that the amount of VAT deductible during the month of January 2014 on purchases paid during the month of December 2013 may be deducted in full in the month of January 2014 when the VAT amount does not exceed Dh30,000 (€2664). D. Introduction of a reimbursement system for VAT credit: The Finance Law of 2014 allows, by way of derogation, the reimbursement of the non-refundable VAT credit under the conditions of ordinary law.
Indeed, the VAT credit accumulated to the date of December 31, 2013 is eligible for reimbursement according to the conditions and the procedures laid down by the relevant regulations (decree), which will specify the mode, the time frame and the limits for appropriations.
The accumulated VAT credit, which is entitled to reimbursement, corresponds to the credit generated from January 1, 2004 and resulting from the difference between the VAT rate applied on the turnover and the production or acquisition costs as far as the credit generated by the acquisition of fixed assets.
The companies concerned are required to file, within two months following the publication in the official bulletin of the regulation (decree), an application for refund of the VAT credit, established according to a template provided by the tax administration, and to proceed to the cancellation of that VAT credit in respect of the return of turnover following the month or the quarter of the filing of the application.
The amount to be returned is limited to the total amount of VAT originally paid in respect of purchases, subtracting the amount of such purchases with application of the reduced VAT rate applicable by the taxpayer to its turnover.
With regard to the resulting VAT credit on the acquisition of capital goods, the amount to be returned is limited to the amount of the VAT charged on the acquisition of the property.
The tax administration proceeds to liquidate the VAT credit when it ensures the veracity of such credit. The liquid reimbursements are subject to decisions of the minister of finance or the person delegated by him for that purpose and give rise to the establishment of reimbursement orders.
The Finance Law of 2014 establishes a derogation to the limitation period allowing the tax administration to correct irregularities noted during the liquidation of the reimbursement of the cumulative tax provision above, even if the limitation period has expired. 4. REGISTRATION FEES A. Exemption of the “Fonds Afrique 50”: The Finance Law of 2014 exempts the ADB’s “Fonds Afrique 50” from registration fees. This fund shall be exempt from all national and local duties and taxes. B. Changes of the conditions for the entitlement of the benefits granted to the purchasers of housing for the middle class: Prior to the Finance Law of 2014, purchasers of housing for the middle class were exempt from rights registration, stamp duty and fees on land books under the following conditions:
- The per square metre sale price must not exceed Dh6000 (€533), VAT included;
- The covered area should be between 80 sq metres and 120 sq metres; and
- The housing must be intended for citizens whose monthly income net of tax does not exceed Dh20,000 (€1776) and the housing will be assigned as their main residence for four years from the date of conclusion of the contract of purchase. The Finance Law of 2014 changes the first two conditions by specifying that:
- The square-metre sale price must not exceed Dh6000 (€533), excluding VAT; and
- The covered area should be between 80 sq metres and 150 sq metres. 5. GOVERNMENT AMNESTY REGARDING CASH & FUNDS HELD ABROAD Recently the Moroccan government decided to grant amnesty to Moroccans who have illegal assets and cash abroad. It is an amnesty for exchange and tax offenses relating to possession of real or financial assets abroad by Moroccans resident in Morocco. The amnesty is part of measures taken by the government to provide funds to the state budget and strengthen foreign reserves. A. The persons concerned: Under the provisions of the Finance Act 2014, this contribution is granted for individuals of Moroccan nationality having resident status in Morocco and legal persons of Moroccan law which held, before January 1, 2014, property, assets and cash abroad in violation of foreign exchange regulations and tax legislation. B. Exchange offenses concerned: Offenses covered by this contribution are those related to the establishment of foreign assets in the form of:
- Real estate properties held in any form abroad;
- Financial assets, securities, other equity securities and receivables held abroad; and
- Liquid assets deposited in accounts of financial institutions, credit agencies or banks located abroad. C. Tax offenses concerned: Tax offenses covered by this contribution are those governed by the General Tax Code relating to a failure to file a tax return relating to income, products, profits and capital gains on real estate and movable assets as well as cash in foreign currencies held abroad. D. Conditions to be filled: The persons concerned may benefit from the non-application of penalties relating to exchange offences as well as tax offences referred to above under the following conditions:
- Deposit with a credit institution with the status of a bank, governed by Act No. 34-03 relating to the credit institutions and similar institutions, a declaration according to the model form prepared by the administration showing the nature of the assets held abroad;
- Repatriate cash in foreign currency as well as income and products and convert at least 25% of the foreign exchange liquidity into Moroccan dirhams, with the possibility to deposit the remaining part into foreign currency accounts or convertible dirham accounts that have been opened in a credit institution located in Morocco that has the status of a bank; and
- Proceed to the payment of a final withholding contribution. The discharge contribution rate is fixed at:
- 10% of the value of acquisition of the real estate in foreign countries or the value of subscription or acquisition of financial assets and securities and other securities capital or debt held abroad;
- 5% of the amount of the liquid assets in foreign currency repatriated to Morocco and deposited in accounts in foreign currency or in convertible dirhams; and
- 2% of foreign currency liquidity repatriated to Morocco and transferred on the foreign exchange market into dirhams. The payment of the contribution releases the person concerned from the payment of penalties relating to infringements of foreign exchange regulations. Similarly, payment of this contribution releases the concerned of the payment of PIT or CIT as well as fines, penalties and increases applicable in case of infringement to the obligations of declaration or payment of the tax concerned. The contribution will be assigned to support the social cohesion fund.