Competitive regional hub

MOROCCO provides an excellent platform for reaching a wide range of international markets due to its geographic location and cultural ties

Business environment
According to a report issued by the World Bank and the International Finance Corporation (IFC), Morocco was the top market reformer in the Middle East and North Africa region in 2005-2007. Morocco serves as a competitive regional hub due to its attractive incentives for investment, which include a competitive cost of production, a strong and modern banking sector, transparent and vigorous IPR laws, a flexible labour law, and several Free Trade Agreements, including with the EU and the US. Its political, economic, geographical and financial proximity to the European Union contributes to the dynamism of the economy. Due to their geographical and cultural proximity to Europe, the ability of Moroccans to speak diverse languages like Arabic, French and Spanish and low labour costs make Morocco an attractive destination for foreign investors. The country also provides an excellent platform for reaching a wide range of international markets due to its geographic location and cultural ties.

Economic overview
Morocco’s economy is considered a relatively liberal economy governed by the law of supply and demand. Investors’ confidence in Morocco’s economic environment continues to grow. Morocco has the second-largest non-oil GDP, behind Egypt. Since the early 1980s, the Moroccan government has pursued an economic program toward accelerating economic growth with the support of the International Monetary Fund, the World Bank, and the Paris Club of creditors. The country’s currency is now fully convertible for current account transactions. Reforms in the financial sector have been implemented and state enterprises are being privatised. The government aims to liberalise and open the economy to foreign competition and diversify and develop other sectors, especially tourism.

Incentives
Morocco has set in place 16 regional investment centres that enable investors to register their companies within 48 hours, reducing bureaucracy and lowering the cost of starting a business. The Kingdom offers the same tax incentives to domestic and foreign investors. Companies can benefit from various tax exemptions and tax reductions as listed below.

> Permanent tax exemptions are available to certain entities like non-profit organisations and cooperatives

> Export companies are exempt from tax on profits related to their export turnover during the first five years following their first export transaction. These companies benefit from a reduced rate of 17.5 per cent in subsequent years

> Mining companies and companies established in the area around Tangier benefit from a reduced rate of 17.5 per cent

> Export companies established in Moroccan freezones are exempt from corporate income tax for the first 5 years of activity and are subject to a tax rate of 8.75 per cent for the following 20 years

> Companies holding a hydrocarbon exploration and production permit are exempt from corporate income tax for 10 years

> Companies located in special economic areas benefit from a reduced rate of 17.5 per cent

> Banks and holding companies located in offshore zones benefit from a reduction in corporate income tax for the first 15 years of operation

Business entity structures
Foreign investors can use any of the legal forms listed below to conduct business activity in Morocco. The most common legal forms of business entity are the public limited company and the private company with limited liability. Companies should register with the local trade registry, the tax and social authorities.

Limited Liability Companies (SARL)
In a Limited Liability Company (LLC) the liability of the shareholders is limited and shares are not freely transferable. The minimum capital requirement is 10,000 MAD. LLCs are subject to the common law as defined by the Moroccan Tax Code. A statutory auditor must be appointed if the turnover exceeds 50,000,000 MAD.

Public Limited Company (SA)
In a Public Limited Company the shares are freely transferable. A minimum of 5 shareholders and a minimum capital of 300,000 MAD is prescribed. In case of listed companies a capital of 3,000,000 MAD is required. A statutory auditor must be appointed.

Branches of Foreign Companies
A branch is subject to the same tax regulations as Moroccan companies and to the provisions of tax treaties when they exist.

Permanent Establishment (PE)
PE is the temporary tax representation of a foreign company in Morocco and is subject to the same regulation as the branch except for the local trade registration.

Coordination Centres
Foreign investors may set up coordination centres and engage in management services, liaison work and general administration only for the benefit of the company or the group.

Tax implications
The standard corporate tax rate is 30 per cent. Banks, financial institutions and insurance companies are subject to tax at a rate of 37 per cent. Resident and non-resident companies (including PEs) are generally taxed on a territorial basis. For non-resident companies without a registered office in Morocco, taxation on income depends on the availability of a double tax treaty (DTT). There is a special tax regime for foreign companies carrying out engineering construction or assembly work and work on industrial or technical installations. Such companies may opt to be taxed at a lump-sum rate of 8 per cent on the total contract price net of VAT.

Individual income tax
Individual income tax is levied at pro gressive rates that range from 0 per cent to 40 per cent. The 2010 tax bill has proposed a rate of 38 per cent as of January 2010. Tax returns are due before March 31st following the year the income is earned.

Other taxes
The other significant tax to be considered by the foreign investor is VAT. VAT is levied at a standard rate of 20 per cent and reduced rates vary according to product and service. Companies should also consider business licence duty applicable to all legal entities engaged in commercial or industrial activities. Stamp duties, customs and excise duties and other local taxes can also apply.

Double tax treaty
A Double Tax Treaty between the Sultanate of Oman and the Moroccan kingdom was signed in 2007 but has not yet been ratified.

Labour availability
With 30.5 per cent of Morocco’s population aged 14 or younger, job creation for the young is one of the government’s major priorities. The government is also focusing on training the workforce and imparting specialised skills. Urban areas are seeing a growth in available jobs particularly in the services and construction sectors. Business process outsourcing (BPO) and the telecom sector are also proving to be dynamic segments.

Exchange control
The repatriation of funds from Morocco is governed by exchange control regulations, implemented through the Foreign Exchange Office. Companies have a right to transfer funds from Morocco without prior authorisation from the Foreign Exchange Office. However, few formalities need to be completed with the Foreign Exchange Office and banks in charge of transfers operations.

Import regulations
Morocco is a member of the World Trade Organisation (WTO) and follows the Harmonised System (HS) of import classification. Traders are subject to exchange control formalities. Most goods may be imported into Morocco without restrictions.
The 1996 association agreement with the European Union came into effect in 2000, leading to a free trade area by 2012. A free trade agreement was also signed in June 2004 with the United States, which came into force on 1 January 2006. The Kingdom is also negotiating several trade agreements targeting regional integration.

Summary
As an emerging economy, Morocco provides opportunities to investors and exporters. Its location provides an excellent platform for reaching a wide range of international markets. Low labour costs and the availability of labour along with a policy of structural reforms makes Morocco a promising destination to foreign investors.

 

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