Tax Guide for US Expats Living and Working in Morocco
Who Is Liable For Income Taxes in Morocco
Residents of Morocco are subject to tax on their worldwide income. Individuals resident in Morocco must pay tax on their employment income, regardless of where the services are performed or the employer is located. Nonresidents are subject to tax on their Morocco-source income only.
Individuals are considered resident in Morocco if they meet any of the following conditions:
- They maintain their home in Morocco.
- They maintain the center of their activities (vital interests) in Morocco.
- They are present in Morocco for at least 183 days during a period of 365 days.
- They are deemed to be resident in Morocco under the terms of applicable tax treaty provisions.
Income subject to tax
Employment income. Taxable employment income includes total compensation after deductions for employees’ social security contributions. Compensation includes bonuses and the market value of fringe benefits, but the following types of income are exempt from income tax:
- Family allowances
- Workers’ compensation payments for industrial accidents or death
- Specific allowances for professional expenses if they are not excessive and are not covered by special reductions
- Retirement benefits and severance pay within the limits provided by the Labour Law
- Alimony payments received
- Supplementary pension received if the contributions are not deductible in determining taxable income
- Compensation for pregnancy leave
Self-employment and business income. Self-employed individuals are divided into two taxable categories, depending on the nature of their activities. They may be taxed on commercial and professional income or on agricultural income.
The tax base for self-employed individuals engaged in commercial or professional activities is computed in the same manner as the tax base for corporations. Taxable income equals the difference between gross income and expenses incurred for the performance of the activity during the calendar year.
Individuals may elect to use a fixed taxation system (taxation on a deemed-value basis) if annual turnover does not exceed the following amounts:
- MAD 1 million for food, handicraft products, fishing activities and commercial and manufacturing activities
- MAD 250,000 for service activities
Income derived from agricultural farms is exempt from income tax until the 2013 fiscal year.
Investment income. Dividends paid by Moroccan companies are subject to a 10% withholding tax. Dividends received from non-resident companies are subject to the provisions of applicable double tax treaties. Otherwise, they are subject to income tax in Morocco at a rate of 15%.
Interest paid by banks or companies to Moroccan resident individuals is subject to a 30% final withholding tax. The interest is not subject to any further income tax.
Interest, technical assistance fees, rental fees for equipment and royalties paid to nonresident individuals or foreign entities are subject to a 10% final withholding tax, subject to the provisions of applicable double tax treaties. Dividends paid to nonresidents are subject to a 10% final withholding tax.
Directors’ fees. If a director has managerial powers, directors’ fees are considered to be employment income and are taxed at the usual income tax rates described in
Rates. Directors’ fees derived by individuals who do not hold salaried positions with the company are subject to withholding tax at a rate of 30%, which is not a final tax, and is then reported in the annual tax return and taxed at the regular income tax rates, with deduction of the tax withheld.
Taxation of employer-provided stock options. Employees exercising stock options may benefit from the difference between the exercise price and the vesting price. Instead of constituting additional salary, the realized profit is composed of an exempt portion and capital gain that is not taxed until the transfer date.
This exemption is subject to the following conditions:
- The difference between the vesting price and exercise price may not exceed 10% of the share value at the date of vesting. Any excess will be considered salary, and will be subject to income tax.
- The sale of the shares may not occur within a three-year non-availability period measured from the exercise date.
Stock options, free shares or any other process to buy shares granted by Moroccan companies to their managers and employees, or granted by companies not resident in Morocco to managers and employees employed by Moroccan companies or branches of the nonresident companies, must be declared by the Moroccan entity in its annual salary return filed by 28 February of the year following the acquisition or distribution of the shares.
Capital gains. Gains derived from the sale of real property held by an individual are subject to the tax on real estate profits at a 20% rate. The minimum tax is 3% of the transfer price.
Capital gains derived by resident individuals from the sale of shares of resident companies are taxed at a rate of 15% for listed shares and 20% for unlisted shares. Capital gains derived from the sale of shares of nonresident companies are taxed at a rate of 20%. Capital gains derived from the transfer of an individual’s business assets, including real property, are taxed at the same rates as ordinary income.
Deductions
Deductible expenses. The following expenses are deductible:
- Professional expenses if they are not covered by the specific allowances, which are valued at a fixed rate of 20% of gross remuneration up to MAD 30,000. A different rate of deduction is permitted for certain occupations, for example, certain insurance company employees are entitled to a 45% deduction.
- Social security contributions.
- Pension contributions withheld from gross wages, although pension contributions paid abroad by foreign nonresident employees may be deducted only up to the amount corresponding to the contribution rate for other company employees.
- Contributions to employer-subscribed group medical insurance.
- Interest payments for the cost of the acquisition or construction of a building or the renovation of a taxpayer’s principal residence, if the employer withholds the payments directly from gross remuneration.
Personal deductions and allowances. The following tax credits are granted:
- MAD 360 for each dependent, up to a maximum of six
- 80% of the income tax due on foreign-source retirement pensions received in nonconvertible dirhams
Business deductions. In general, deductible expenses for commercial, professional and agricultural activities are similar. They include depreciation and general expenses incurred for business purposes, including personnel and social security expenses, certain taxes, rental and leasing expenses, and financial charges.
Depreciation of business assets is deductible if it is recorded annually in the accounts and relates to assets shown in the balance sheet. The rates of depreciation depend on the nature of the activity for which the assets are used. After net income for each category of income is aggregated, the following expenses are deductible:
- Interest payments, up to 10% of taxable income, on loans taken out by the taxpayer for the acquisition or construction of a principal home
- Gifts to charitable organizations known as public utility associations
- Contributions to a long-term retirement pension (more than 8 years) payable after 50 years of age, up to 6% of taxable global income
Rates. Tax liability is determined by multiplying total taxable income by the tax rate for the applicable bracket and then subtracting the deductible amount (see table below). This provides the same tax result as applying the progressive rates for each bracket to taxable income.
Relief for losses. In general, losses incurred in business and agricultural activities may be carried forward for four years to offset profits from the same category. Losses attributable to the depreciation of assets may be carried forward indefinitely.
B. Estate and gift taxes
Estate and gift tax rates range from 1% to 6%, depending on the nature of the assets and the relationship between the recipient and the deceased or the donor.
C. Social security
Social security contributions, which are withheld by the employer, are based on gross compensation paid, including fringe benefits and bonuses.
Employer contributions are paid, and employee contributions are withheld, monthly. The employer must pay 6.4% of gross monthly compensation for family allowances. For death pensions and for daily compensation for illness, disability and pregnancy leave, employers must contribute 8.60%, and employees 4.29%, of monthly compensation, up to MAD 6,000. In addition, the employer must pay 1.6% of gross monthly compensation as a contribution to the Moroccan office of staff training. Contributions on gross remuneration are payable for mandatory medical insurance. The contribution rates are 3.5% for employers and 2% for employees.
Double tax relief and tax treaties
A taxpayer may deduct the amount of foreign income tax paid from Moroccan income tax payable on the foreign-source income if the individual can document that the foreign tax was paid and if a double tax treaty is in force between Morocco and the country in which such foreign income tax was paid. However, this tax credit may not exceed the Moroccan income tax imposed on the income subject to foreign tax.
Morocco has entered into double tax treaties with the following countries.
Austria
Italy
Romania
Bahrain
Jordan
Russian
Belgium
Korea (South)
Bulgaria
Kuwait
Senegal
Canada
Latvia
Singapore*
China
Lebanon Spain
Croatia*
Luxembourg
Sweden
Czech Republic
Malaysia
Switzerland
Denmark
Malta
Tunisia
Egypt
Netherlands
Turkey
Finland*
Norway
Ukraine
France
Oman
United Arab Emirates
Germany
Pakistan
Greece
Poland
United Kingdom
Hungary
Portugal
United States
India
Qatar
* This treaty is pending.
Morocco has also entered into a tax treaty with the Arab Maghreb Union countries. The Arab Maghreb Union consists of Algeria, Libya, Mauritania, Morocco and Tunisia.
Morocco has also signed tax treaties that are not yet in force with Côte d’Ivoire, Iran, Ireland, Macedonia, Syria, Vietnam and Yemen.
The treaties generally provide the following relief:
- Commercial profits are taxable in the treaty country where a foreign firm performs its activities through a permanent establishment.
- Dividends, interest and royalties are taxable in the treaty country where the beneficiary is a resident. Dividends are also subject to withholding taxes in the treaty country where the payer is a resident. These taxes may be offset against the tax due in the country of the beneficiary’s residence.
- Employment income is taxable in the treaty country where the activity is performed, except for income from short-term assignments.
To learn more about the history, culture, economy and other information about Morcooco
We have been preparing US income tax returns for US Citizens and permanent residents living in Morocco for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Morocco and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US 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 tax fiscal year for US tax purposes). You must 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 forms 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.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Morocco.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email