Banking and Currency
Foreign Currency Control
The Moroccan government has made the Moroccan Dirham (MD) convertible for an increasing number of transactions over the last few years. As of February 1993, the MD was made convertible for all current transactions and for some capital transactions, notably, capital repatriation by foreign investors. Foreign exchange is routinely available through commercial banks for such transactions upon presentation of documents. The Central Bank sets the exchange rate for the MD against a basket of currencies of its principal trading partners. The rate against the basket has been steady since a 9 percent devaluation in May 1990, with changes in the rate of individual currencies reflecting changes in cross-rates. In a further move, the Ministry of Finance recently decided that private enterprises are allowed to access international financial markets directly.
International financial transactions are subject to the control of the Moroccan Exchange Office, which retains the authority to act in a balance of payments or liquidity crisis.
The liberalization of the exchange control has removed all barriers for international trade transactions, foreign investments, income transfer, foreign technical assistance and tourism. Remittances of capital and related income to non-residence are guaranteed. No limitations are imposed on the time or amount of profit remitted. Loans, however, must be authorized by the Office of Exchange. Another important decision gives the banks the possibility to freely conduct investment operations in international capital market sites and, also, to engage in hard currency accounts or in any other amount of capital deposited by foreign entities.
The Moroccan banking system is similar to that of France, but not quite as sophisticated. It is composed of a Central Bank and about fifteen other commercial banks that provide a comprehensive range of services. Financing is available from quasi-state and from private institutions.
The banking industry is highly regulated. Central Bank regulations deal with minimum capital requirements, liquidity, solvency and legal lending limit ratios. In 1991, credit ceilings were substituted with indirect monitoring by way of changes in reserve requirements and controlled access to the Central Bank rediscount window. The legal lending limit of 7 percent of net capital funds is regarded by the profession as constraining. This situation has been mitigated by the recent five-fold increase in the legal lending limit for credit guaranteed by OECD-based banks.
The Banking Law of April, 1967 dealing with banking and credit practices was replaced by a law of July, 1993. Among other things, the new Banking Law also covers finance companies and other credit institutions and defines in detail the kinds of transactions that can be undertaken by credit institutions. The law also creates a national council of surveys and cash, as well as a committee on credit institutions.
Commercial Banking Services
There is no clear-cut distinction between commercial and merchant banks. By and large, all commercial banks provide commercial and saving services, with merchant banking as an accessory service. The four largest commercial banks are: Credit Populair du Maroc (or Banque Populaire), Banque Commerciale du Maroc, Banque Marocaine du Commerce Exterieur and Wafabank.
Moroccan banks offer a broad range of regular banking services, including depository services and trade and credit services. Several banks now offer electronic banking services for corporate clients and a wide array of consumer banking facilities such as credit cards, ATMs and telephone banking services. Most banks are linked to the SWIFT global payment system, enabling them to quickly execute foreign currency and convertible MD transactions to non-residents, including transactions involving the repatriation of earnings of foreign companies. Moroccan banks, however, are still not in the position of offering a complete spectrum of modern services in terms of foreign exchange, money and capital markets and corporate finance activities. In order to ameliorate this situation, the Moroccan monetary authorities are working on regulatory changes which would promote additional modernization of the industry.
An offshore bank is a legal entity or individual regardless of nationality whose headquarters are based in an offshore financial location and whose activities consist of dealing in convertible foreign currency deposits and undertaking with these same currencies any credits, exchange or financial activity. Currently, there are two offshore banks in the Tangier Free Trade Zone. Offshore banks are not obliged to repatriate any income or foreign revenues and have total exchange freedom with regard to their transactions with non-resident entities. These banks have free access to investment activities in Morocco and to capital participation operations in local corporations. They are exempt from registration fees, VAT, patent and urban tax as well as all import duties and taxes and TPA on distributed dividends.
Special Purpose Banking
A number of financial institutions, mainly those that are government-controlled, have been established to serve special purposes, including providing finance to the agricultural industry, to hotels and other property and to investment considered as contributing to the economic development of Morocco. Notwithstanding the special purposes allocated to those institutions, they are increasingly involved in ordinary activities of commercial banks.
Other Financial Institutions
The few companies dealing with leasing are usually owned by larger institutions in the industry. Venture capital is hardly used for financing, and there are no specialized venture capital companies in Morocco. With regard to investment institutions, there are over twenty insurance companies in the country governed by special regulations.
Morocco has a relatively comprehensive regulatory and legislative system for the protection of intellectual property. Intellectual property rights, however, must be registered in both Casablanca and Tangier in order to be protected in Morocco.
Morocco is a member of the World Intellectual Property Organization (WIPO) and party to a number of other international agreements and conventions dedicated to the protection of intellectual property, including the Bern Copyright, Paris Industrial Property and Universal Copyright conventions, the Brussels Satellite Convention, and the Madrid, Nice and the Hague Agreements for the Protection of Intellectual Property.
Morocco was considering enactment of a new law on industrial property protection in a bid to stop unlicensed use of international brands or makes by local companies. Although Morocco is under various obligations due to its membership to GATT since 1994, the new Commerce Law of May 13, 1996 did not include any provisions strengthening intellectual property rights.
Any individual or legal entity may file an application for a patent with the Moroccan Patent Office in Casablanca. The Patent Office examines applications with regard to form only and not with regard to novelty or merit. The particulars of the application are published in the Official Gazette. No opposition procedure is provided, and patents issued are valid for twenty years. Universal novelty of the invention is required by law to grant a patent, and working of patents issued is required by law to maintain the patent. Patents rights may be freely transferred to third parties, however, the transfer must be registered with the Patent Office in order to be effective against third parties.
The international classification of goods is followed in Morocco. Trademark applications are examined by the Trademark Office only with regard to form. Registered trademarks in the preceding year are published in a special trademark supplement of the Official Gazette. No opposition procedure is provided. A registered trademark is valid for twenty years from the date of registration renewable for additional twenty years periods.
Transfer of trademark rights must be registered with the Trademark Office within three months in order to be valid against third parties. Infringement of a registered trademark may be punishable under either the penal or civil laws of Morocco.
Moroccan law provides copyright protection for the literary or artistic expression of an idea, and there are no registration requirements to invoke such protection.
A copyright confers upon the author two principal rights: a property right and an ethical right. The property right gives the author the exclusive right to exploit the copyrighted work for pecuniary gain. This right extends throughout the author's lifetime, and, thereafter, it is transferred to the benefit of the author's heirs for a period of fifty years.
The ethical right protects an author's non-pecuniary interest in the literary or artistic work, which includes the protection of authorship and integrity. This right is perpetual, inalienable and remains with the author until death, and thereafter, with the author's heirs. Authors may sell all or part of their property rights, or the right to perform or reproduce the work, without forfeiting their ethical rights.
The Moroccan taxation system consists of direct and indirect taxes. Indirect taxes provide a greater source of tax revenue than the direct taxes. The system is statutory-based and has been recently updated in part with effect from 1/1/1996 by the Investment Charter (Law No. 18/95). There is virtually no case law on taxation, and tax-issues hardly come before the courts. In general, the tax authorities do not issue advance rulings on taxation matters.
Taxation of Companies
Moroccan corporations are subject to a unitary tax system. The corporate tax (impet sur les societes or IS) rate has been reduced to 35 percent in 1996. Corporations are taxed under a special tax regime, which covers limited liability companies, limited partnerships by shares, general and limited partnerships in which at least one partner is a corporate entity, civil companies, branches of foreign corporations, public sector companies having profit-oriented activity and joint ventures having business-oriented activity. General partnerships and limited partnerships in which all partners are individuals may elect to be taxed under the corporate tax regime. The same applies to joint ventures in which all parties are individuals.
Foreign corporations are subject to taxation on income arising in Morocco if they have or are deemed to have a permanent establishment in Morocco. Taxation of corporations is the same irrespective of ownership, and foreign owned corporations are essentially regarded as Moroccan corporations insofar as they are incorporated in Morocco.
The corporate tax regime is based upon territoriality. Net profits earned by foreign subsidiaries and establishments of Moroccan companies are not taxable until profits are actually repatriated and distributed to shareholders.
Taxable income is based on receipts and accruals from products delivered, services rendered and work carried out and accepted by customers. Interest, royalties, income and service fees are subject to corporate income tax at the rate of 36 percent. Dividends received by corporate shareholders from taxable entities incorporated in Morocco are not taxable. This exemption does not apply, however, to foreign investment income, which is taxed after deducting foreign withholding taxes.
Morocco exempts certain types of income from corporate taxation. The first is income derived from agriculture which is exempt until the year 2020. The second concerns income of companies set up in the Western Sahara. There are also specific tax incentives exempting some companies from corporate tax for specified periods. In addition, Moroccan corporations can distribute tax free dividend of common- stock pro rata to all common-stock shareholders.
All expenses incurred for the purpose of the business are normally deductible, including salaries and wages, depreciation, rent and representation expenses. Only 75 percent of the amount paid for purchases of raw materials and products, start-up expenses, donations and other general expenses equal to or exceeding MD 10,000 are deductible, unless the payment is made by a non-assignable crossed check, bank transfer or bill of exchange. Except for the corporate tax (IS), taxes are deductible.
Expenses incurred outside Morocco by a foreign company having permanent activity in Morocco require adequate justification and documentation before they may be deducted. Losses may be carried forward and deducted from taxable profit for a period of four years.
A minimum amount of corporate tax is payable by companies other than foreign companies (cotisation minimale or CM), irrespective of the company's profits or losses. The CM is based on turnover, income from interest, subsidies, bonuses or donations received. The CM is levied at a rate of 0.5 percent of income, and is not payable by companies during their first thirty-six months of operation.
Morocco imposes a registration fee at a fixed rate of 0.50 percent on the forming or increasing of company capital. This rate is reduced to 0.25 percent for deeds of partnership or capital increase of investment banks and companies the main purpose of which is either stocks and shares management or application for other companies on joint account.
Subsidiaries of Foreign Companies
Subsidiaries set up in Morocco by foreign companies are treated as local companies, independent of their foreign parent-company for legal and taxation purposes. Inter-company transactions must be on an arm's length basis. Expenses must be incurred in the furthering of the subsidiary's objectives and not those of its parent-company.
Dividends paid to non-resident shareholders are subject to a 15 percent withholding tax. Interest, royalties and service or management fees paid to non-residents are subject to a 10 percent withholding tax. These rates may be reduced or waived under prevention of double taxation treaties.
National Solidarity Levy
Companies subject to corporate tax must pay a levy called National Solidarity Levy (PSN). The base used to asses this levy is equal to the base chosen for the assessment of corporate tax, and it is calculated by applying a 10 percent rate to the amount of the corporate tax. If a company is fully exempt from corporate tax, PSN has to be paid in an amount of 25 percent to a theoretical corporate tax. The PSN cannot be less than MD 1,500 for a yearly turnover of less than MD 1,000,000 and not less than MD 3,000 for a turnover of more than MD 1,000,000.
Capital Gains Tax
Morocco instituted a tax on the proceeds from stocks and company's shares and comparable income (TPT), distributed by companies based in Morocco and paying taxes on corporations. The tax of 15 percent is collected at the source and applies to:
* Capital interest;
* Profit percentages;
* Special allowances or the payment of fees and other compensations allotted to members of the board of directors (except for the fraction of these compensations considered as salary and subject to personal income tax -IGR);
* Sums levied on profits to repay capital produced to stockholders or to buy over stocks;
* Beneficiary/founder's shares;
* Surpluses from winding up augmented by reserves built up over at least ten years ago;
* Profits made in Morocco by establishments whose home office is located abroad, as these profits are made available to such companies abroad.
Taxation of Individuals
Individuals, regardless of nationality or activity, who have their habitual residence in Morocco are subject to a personal income tax (impet general sur le revenue or IGR) on their worldwide income on a progressive scale between 13 and 44 percent. Individuals not having their habitual residence in Morocco are subject to tax only on Moroccan-source income. Habitual residence status is established by reference to one of the following: (1) place of permanent abode; (2) center of economic interest; and (3) duration of stay in the country exceeding 183 days within any period of 365 days. The issue of double taxation is partially addressed by tax treaties or unilateral relief in the form of tax credit.
Generally speaking, there are no concessions for foreign nationals working in Morocco, but the cost of home travel is exempt from tax every two years, and a substantial reduction in tax on pensions received from other countries is granted. In addition to employment income, tax is levied on professional and business activities, investments and rent.
All compensation paid to employees is taxable, including salaries and wages, allowances, pensions, annuities, reimbursement of taxes and all benefits derived from employment. Taxable benefits include the furnishing of an automobile for the employee's private use, housing benefits and profit sharing or retirement plans paid by foreign companies.
An individual taxpayer can deduct from taxable income any necessary traveling and entertainment expenses, provided they are incurred in the performance of that individual's duties, and are justified by the nature of the profession.
Value Added Tax
The Value Added Tax (VAT) is a non-cumulative tax levied at each stage of the production and distribution cycle. Thus, suppliers of goods and services must add VAT to their net prices. Where the purchaser is also liable for VAT, input VAT may be offset against output VAT. The standard VAT rate is 19 percent and applies to all suppliers of goods and services, except those taxed at other rates or those who are exempt. A reduced rate of 7 percent applies to specific items such as banking and credit services, leasing, gas, water and electricity. A reduced rate of 14 percent applies to building and construction activities and to the transport and the hotel industries.
Two types of exemptions from VAT are provided. The first is an exemption with credit, equivalent to the zero tax concept, which applies to exports, agricultural material and equipment and fishing equipment. The second is an exemption without credit, i.e., the seller receives no credit for input VAT paid. This exemption applies to basic foodstuffs, newspapers and international transport services.
A business tax, or patente, is levied on individuals and enterprises that habitually carry out business in Morocco. The tax consists of a tax on the rental value of business premises (rented or owned) and a fixed amount depending on the size and nature of the business. The tax rates range from 5 percent to 30 percent and pro rata reimbursements are granted for businesses which commence or cease activities during the tax year.
The Patent Tax is to be paid by individuals involved in commercial activities who are not exempted by special decree (dahir). The tax includes a proportional tax which averages 10 percent of the rental value of industrial establishments and a variable tax which depends on the number and kind of pieces of equipment owned by the business entity.
Stamp Duty/Notarial Tax
Corporate stocks, founder's shares and bonds issued by companies are free from both stamp duty and formalities. A notarial tax is imposed based on the capital stock, in the amount of 1 percent for stock up to MD 5,000, 0.5 percent from MD 5,000 to 10,000 and 0.2 percent for over MD 10.000.
Urban Property Tax and Municipal Tax
Owners of real estate are subject to urban property tax on the rental value of the property. The same applies to owners of machines and appliances that are integral parts of the establishment producing goods or services. The general urban property tax rate is 13.5 percent of the rental value. It is 3 percent for lots and 4 percent for structures and fittings as well as for machines and appliances.
The tenants of rented property are subject to a municipal tax on the value of the property. The rate is 10 percent of the normal rental value of the buildings located within the urban areas and 6 percent of the normal value on peripheral zones of urban communes.
Tax on Interest
Tax is imposed on individual or corporate residents in respect of interest earned on bonds and other loan securities, fixed and current account deposits, loans and advances, and various loans conducted through banks or financial institutions.
All goods and services may be imported; Goods deemed to have a negative impact on national production, however, may require an import license. Most products imported are subject to import duties, the rates of which vary between 2.5 percent and 10 percent for equipment, materials, spare parts and accessories. Some materials and products, however, are exempted, especially those imported under the investment charter, imported under customs economic systems and those using renewable energies. Value added tax is also payable on goods imported into Morocco.
Import Tax Levy
The Import Tax Levy (PFI) is imposed on imported commodities at a fixed rate of 15 percent. It is reduced or eliminated, however, as follows:
* A rate of 12.5 percent for pharmaceuticals or raw materials used in the manufacturing of pharmaceuticals;
* Exemption for the import of material subject to customs duties;
* Exemption for enterprises which engage in research activities involving mineral substances;
* Exemption for materials using renewable energies;
* Exemption for fertilizer products;
* Exemption for certain antibiotic medical products.
There is also a para-fiscal tax of 0.25 percent that applies to imported commodities.
Treaties for the Prevention of Double Taxation
Since a Moroccan resident is taxed on worldwide income, the Moroccan tax system provides relief from foreign taxes paid on such worldwide income by means of a foreign tax credit. This foreign tax credit cannot exceed the Moroccan tax otherwise payable in respect of the foreign-source income.
The Moroccan government is eager to encourage foreign investment. This is reflected by the territoriality principle for taxation applicable to corporations mentioned above. In addition, Morocco has concluded about seventeen treaties for the prevention of double taxation, mainly with developed countries. Morocco's list of treaty-partners include Belgium, Canada, France, Germany, Italy, Luxembourg, the Netherlands, Norway, Romania, Spain, Sweden, Tunisia, the United Kingdom and the United States.
Most of the tax treaties are based on the OECD model and do not contain specific anti-abuse provisions. Reduced withholding tax rates vary from one treaty to another, and in the case of the treaty with Sweden, the rate is zero. Of special interest is the treaty with France which offers advantages involving self-employed foreigners and payments for technical assistance and contracts (e.g., imported supplies).
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