Simple Tax Guide for Americans in Morocco
US Expat Taxes - Morocco
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Morocco for over 8 years. Our clients hail from all parts of the country - Casablanca and Rabat, Fez and Marrakech, Agadir and Tangiers.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Moroccan Tax System for the American Expatriates.
Morocco personal income tax rates are progressive to 38%.
L'Impôt sur le Revenu - Bareme d'imposition 2010 du Maroc
Income MAD Tax Rate
0 – 30,000 Nil
30,001 – 50,000 10%
50,001 – 60,000 20%
60,001 – 80,000 30%
80,001 – 180,000 34%
Over 180,000 38%
Individuals, regardless of nationality or activity, who have their habitual residence in Morocco, are subject to a personal income tax ('Impôt sur le Revenu' or IR) on their worldwide income on a progressive scale between 12% and 40%.
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) centre of economic interest
(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.
All compensation received by an individual is taxable, including salaries and wages, allowances, pension annuities, and all other employment benefits, investment income, property income and income derived from the carrying out of a business or profession.
Capital gains derived from the disposal of immovable property are generally subject to tax as part of the personal income of the individual, i.e. 20%.
Filing and payment: the tax return must be filed by 31 March of each year in the place where the taxpayer has his/her habitual residence or main business.
A range of rebates are available to Moroccan resident individual taxpayers. Employers must retain and pay any income tax due on the salaries paid to their employees the previous month within the first ten days of each month. Individuals who receive incomes from non-wage sources must file a tax declaration every year, on or before 31 March.
Net rental income is taxable under the general income tax (Impôt Général sur le Revenu - IGR) at progressive rates. A standard deduction of 40% of the gross rental income covers the income-generating expenses in lieu of itemised deductions.
Individuals earning capital gains from selling property are subject to tax on property profits. Profits on the sale of property are taxable at 20% of any profit but with a minimum tax of 3% of the sale price. The taxable gain is computed by deducting the following from the selling price:
- acquisition price and incidental costs
- transfer costs
- investment expenses
- interest payments
Capital gains from the sale of a property which has been the primary residence of the taxpayer are not subject to tax under some qualifications:
- the property has been the seller's primary residence for at least eight years
- the property has been the seller's primary residence for at least four years on the day of the sale, and the property area does not exceed 100 sq m and the profit does not exceed MAD250,000
- the profit made on one or more transfers by individuals within a calendar year whose total value does not exceed MAD60,000.
Property tax is assessed on the rental value of the property. The general property tax rate is 10% of the assessed rental value, as determined by the local tax authorities.
If the property is used as a primary residence, only 25% of the assessed rental property value is subject to tax. Properties occupied as a main or second residence are taxed at progressive rates as follows:
Tax Base, MAD Tax Rate
Up to 5,000 Nil
5,000 – 20,000 10%
20,000 – 40,000 20%
Over 40,000 30%
Morocco Corporate Tax
Morocco corporate tax rate is 30%, with a 37% rate applying to leasing companies and credit institutions.
Foreign contractors carrying out engineering, construction or assembly projects relating to industrial or technical installations may opt to be taxed at a rate of 8% calculated on the total contract price net of VAT and similar taxes. Company are always subjected to a legal minimum tax (cotisation minimale (CM)) of 1500 MAD or 0.5% of the annual turnover. The CM is based on turnover, income from interest, subsidies, bonuses or donations received. The CM is not payable by companies during their first 36 months of operation.
The definition of 'corporation' 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.
Companies are taxed on the difference between their trading income and expenditure. Business expenses incurred in the operation of the business are generally deductible unless specifically excluded. Expenses not permitted include fines, penalties, interest on shareholder loans where the stock is not fully paid up, and interest on shareholder loans in excess of the official annual interest rate.
Morocco operates a territorial tax system. Companies (both resident and nonresident) are generally subject to corporate tax only on income generated from activities carried on in Morocco. Foreign corporations are subject to taxation on income arising in Morocco if they have, or are deemed to have, a permanent establishment in Morocco. A company is resident in Morocco if it is incorporated there or its place of effective management is in Morocco.
The calendar year is normally the fiscal year although a company may opt for a different fiscal year. Accounts for income tax purposes must be filed within three months after the end of the relevant accounting period.
Morocco corporate tax is payable in four equal instalments, based on the prior year's assessment. The actual amount payable is adjusted in the three months following the end of the accounting period.
Foreign companies that have elected for the 8% default taxation must submit a declaration of their turnover before 1 April following each calendar year.
BRANCH REMITTANCE TAX
A 10% branch remittance tax is imposed on profits remitted to the head office. The Moroccan sourced income of Moroccan branches of foreign companies is subject to income tax at the ordinary corporate rate of tax. The taxable income is calculated as if the branch was a separate entity from the foreign company.
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% to 30% with exemption for the five first years of activity.
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.
All goods and services may be imported. Goods deemed to have a negative impact on national production, however, may require an import licence. Most products imported are subject to import duties, the rates of which vary between 2.5% and 10% 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.
DETERMINATION OF TAXABLE INCOME
Morocco instituted a tax on the proceeds from a company's stocks, shares and comparable income (TPT), distributed by companies based in Morocco and paying taxes on corporations. The tax of 10% is collected at the source and applies to:
- capital interest
- profit percentages
- special allowances or the payment of fees and other compensations alloted to members of the board of directors (except for the fraction of these compensations considered as salary and subject to personal income tax (IR))
- 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.
Tax losses may be carried forward for a period of four years from the end of the loss-making accounting period. However, the portion of a loss that relates to depreciation may be carried forward indefinitely. Losses may not be carried back.
Dividends received by corporate shareholders from taxable Moroccan-resident entities must be included in business profits of the recipient company but the dividends are 100% deductible in the computation of taxable income. As of January 2008, the participation exemption in Morocco is also applicable to dividend derived from foreign subsidiaries. The original participation exemption regime granted 100% allowance to a Moroccan recipient company of Moroccan source dividends.
Consolidated tax returns are not permitted. Each company must file its own tax return.
Interest paid on loans and other debts is deductible to the extent it relates to borrowings made for income producing purposes. Thin capitalisation rules apply to reduce the deduction available where the taxpayer is a foreign entity operating in Morocco, a foreign controlled Moroccan entity or a Moroccan resident with foreign business investments. In each of these cases, the tax deduction for interest may be reduced if the taxpayer's debt exceeds the levels permitted under the thin capitalisation provisions.
REPATRIATION OF PROFITS AND TRANSFER PRICING
In addition to paying interest and dividends, the payment of management fees, service fees and royalties are methods of repatriating profits to the non-resident associates, controllers and owners of Moroccan entities. In these circumstances, the payments made by the Moroccan resident to the non-resident associate must reflect the market value of the goods and/or services to the Moroccan company, that is, all payments be calculated with reference to arm's length market rates.
Where the Tax Office takes the view that the Moroccan company has paid an excessive amount for the goods and/or services, the Tax Office can disallow the deduction claimed by the Moroccan company, and substitute an alternative price. Other transactions between Moroccan taxable entities (or branches), and their related foreign entities or head offices are also subject to the transfer pricing rules. Where a Moroccan branch of a foreign company remits profits to its parent by way of management fees or service fees, the profits are not subject to withholding tax or branch profits tax.
FOREIGN TAX RELIEF
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.
Dividends paid to a non-resident are subject to a 10% withholding tax unless the rate is reduced under an applicable tax treaty. Interest on loans obtained from a non-resident is subject to a 10% withholding tax. Royalties paid to non-residents are subject to a 10% withholding tax unless the rate is reduced under an applicable tax treaty.
Morocco vat (Value Added Tax) Rate
The standard rate of VAT in Morocco is 20%. Reduced rates of 7%, 10% and 14% apply to certain transactions.
The standard VAT rate of 20% applies to all suppliers of goods and services, except those taxed at other rates or those who are exempt. A reduced rate of 10% applies to specific items such as banking and credit services, leasing, gas, water and electricity.
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.
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.
VAT Registration – All persons subject to VAT must make a declaration of existence within 30 days of the start of their operations in order to register for VAT purposes.
Filing and payment of Value Added Tax – VAT returns generally must be filed on a monthly basis.