When a Moroccan company pays a foreign company for services, the invoice should not be treated as a standard supplier invoice without first considering the Moroccan tax implications.
Depending on the nature of the service, the circumstances in which it is provided and the country of residence of the beneficiary, the payment may be subject to withholding tax in Morocco.
This issue frequently arises for Moroccan subsidiaries of international groups paying management fees, technical assistance fees, consulting fees, royalties or other remuneration to their parent company or another foreign group entity.
Moroccan tax legislation provides for withholding tax on certain gross income paid, made available or credited to non-resident individuals or companies.Here are the main points to consider before paying an invoice to a foreign service provider.
Withholding tax is a mechanism whereby a Moroccan company making certain payments to a non-resident beneficiary withholds part of the amount corresponding to the tax due in Morocco and remits it to the Moroccan tax authorities.
The Moroccan company therefore acts as the withholding agent.
Article 160 of the Moroccan General Tax Code provides for withholding tax on certain gross income referred to in Article 15 when paid to non-resident individuals or companies.
Not every foreign invoice is automatically subject to withholding tax.
The actual nature of the payment must first be analysed.Article 15 of the Moroccan General Tax Code covers several categories of income paid to non-residents. These include, among others, certain royalties relating to copyrights, licences, patents and trademarks, remuneration for the provision of scientific or technical information, and certain studies performed in Morocco or abroad.In practice, particular attention should be paid to:
The correct classification of the payment is therefore essential.
Under Moroccan domestic tax law, the withholding tax rate applicable to the relevant gross income received by non-resident individuals or companies is generally:
10% of the gross amount excluding VAT.
However, a 10% withholding tax should not automatically be applied to every international payment.
Before determining the applicable rate, the existence of a Double Tax Treaty between Morocco and the beneficiary's country of tax residence should also be checked.
Double Tax Treaties are designed, among other purposes, to prevent or reduce situations of double taxation.
Depending on the nature of the income and the relevant treaty, the tax treatment under the treaty may differ from that provided under Moroccan domestic tax law.
The analysis should therefore generally follow these steps:
1. Identify the exact nature of the service
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2. Determine its treatment under the Moroccan General Tax Code
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3. Identify the beneficiary's country of tax residence
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4. Check whether a Double Tax Treaty applies
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5. Review the relevant provision of the treaty
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6. Determine the applicable rate and compliance requirementsIt is therefore not advisable to determine the withholding tax treatment solely based on the wording appearing on the invoice.
Consider a Moroccan subsidiary receiving an invoice of MAD 100,000 from its foreign parent company for services that fall within the scope of Moroccan withholding tax.
If, after reviewing Moroccan domestic tax law and the applicable Double Tax Treaty, the applicable rate is 10%, the withholding tax would amount to:
MAD 100,000 × 10% = MAD 10,000
The payment should then be processed taking into account this withholding tax and the related reporting obligations.
This is a simplified example. In practice, the nature of the services, the applicable tax treaty and the contractual provisions should be reviewed before determining the final tax treatment.
This point is often overlooked when negotiating international agreements.
A contract may provide that the foreign service provider must receive a specified net amount regardless of taxes applicable in Morocco.
A gross-up clause may therefore result in the Moroccan company economically bearing the cost of the withholding tax.
The actual cost of a foreign service may consequently be higher than the amount initially negotiated.
For this reason, the tax treatment should ideally be reviewed before the agreement is signed, rather than when the invoice becomes due for payment.
Management fees are common within international groups.A foreign parent company may charge its Moroccan subsidiary for services such as:
Several tax and regulatory issues may need to be considered simultaneously:
Withholding tax + Tax deductibility + Transfer pricing + VAT + Foreign exchange regulations
Withholding tax is therefore only one part of the analysis.
The Moroccan company should also be able to demonstrate that the services were actually provided and that the amount charged is appropriate.
When services are invoiced by a related company, two separate but complementary analyses may be required.
The first is to determine whether the payment is subject to withholding tax in Morocco.
The second is to determine whether the amount charged complies with applicable transfer pricing rules.
For example, services invoiced by a foreign parent company may require an assessment of:
An invoice may therefore be correctly subject to withholding tax while still presenting a transfer pricing risk.
Yes. The tax analysis of services purchased from abroad does not end with withholding tax.
Depending on the nature of the transaction and the applicable place-of-supply rules, the Moroccan VAT implications may also need to be reviewed.It is therefore important to distinguish between:
withholding tax applicable to the foreign service provider's incomeandthe Moroccan VAT treatment of the service.
These are separate tax considerations.
Paying an invoice to a foreign supplier or another foreign group company also requires compliance with Moroccan foreign exchange regulations.
The bank may request supporting documentation demonstrating the nature and substance of the transaction.
Depending on the transaction, the supporting file may include:
For recurring intercompany transactions, it is therefore advisable to organise the supporting documentation from the beginning of the relationship.
The main difficulties do not necessarily arise from the withholding tax rate itself, but from an incorrect classification or incomplete analysis of the transaction.
Common areas of concern include:
For international groups, implementing an internal review procedure for foreign invoices can significantly reduce these risks.
Before making a significant international payment, the company should be able to answer a number of questions:
This review is particularly important for Moroccan subsidiaries of foreign groups.
INDICAC assists Moroccan companies and international groups with the tax analysis of their cross-border transactions.Our assistance includes:
Before making the payment, reviewing the agreement, invoice and applicable Double Tax Treaty can help determine the appropriate tax treatment and secure the cross-border transaction.
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