International Taxation of Interest in Morocco: Withholding Tax (WHT) and Tax Treaties

Summary of International Interest Taxation in Morocco

Interest paid to non-residents from Morocco is subject to a 10% withholding tax (WHT) under Article 15 of the Moroccan General Tax Code (CGI). Exemptions exist for foreign currency loans with a duration of ten years or more. Bilateral tax treaties can further reduce this rate. This guide details the current regime, conventional rates by country, rules from the General Instruction on Exchange Operations (IGOC), and a practical example.

The Moroccan Legal Framework: Article 15 of the CGI

The Moroccan General Tax Code distinguishes several tax regimes for interest, depending on the beneficiary's status and the nature of the operation.

Withholding Tax on Interest Paid to Non-Residents

Article 15 of the CGI stipulates a 10% withholding tax on interest of Moroccan source paid, made available, or credited to the accounts of non-resident individuals or legal entities. This withholding tax constitutes a final tax for the non-resident, unless otherwise provided by a tax treaty.

This 10% rate applies to all fixed-income investment products, including interest on loans, bonds, treasury bills, and term deposits.

General Regime for Residents

For beneficiaries residing in Morocco, the regime differs:

• A 20% WHT as an advance payment on interest received by legal entities subject to Corporate Income Tax (IS).
• A 30% WHT as income tax for resident individuals, with the option for global declaration.

Exemption for Long-Term Foreign Currency Loans

Article 6-I-C-3° of the CGI grants a total exemption from withholding tax on interest related to loans contracted in foreign currencies for a duration of ten years or more. This measure aims to encourage the use of long-term international financing to support productive investment in Morocco.

The cumulative conditions to benefit from this exemption are:

• The loan must be denominated in foreign currencies.
• The initial contract duration must be at least 10 years.
• The funds must be effectively repatriated to Morocco.
• The borrower must provide an attestation from the Exchange Office.

Treaty Rates: Country-by-Country Comparison

Bilateral tax treaties signed by Morocco can reduce the domestic WHT rate. Here are the main rates applicable to interest under current treaties:

Important: Taxpayers must always compare the domestic rate (10%) with the treaty rate and apply the most favorable one. If the treaty rate is equal to or higher than the domestic rate, the 10% rate of the CGI applies.

IGOC Rules: Framing Cross-Border Interest Flows

The General Instruction on Exchange Operations (IGOC) regulates the transfer of interest related to the following operations:

External Loans

Interest related to external loans contracted by Moroccan residents from non-resident lenders is freely transferable, subject to justification of the operation to the authorized intermediary bank. The transfer takes place after the applicable WHT has been applied.

Loans from Non-Resident Shareholders

Shareholders' current accounts funded by non-resident shareholders are subject to a specific regime. The related interest must comply with the maximum deductible interest rate set annually by order of the Minister of Finance based on the average interest rate of 6-month Treasury bills from the previous year (Art. 10-II-A-2° CGI).

The transfer of interest is subject to the production of a tax compliance certificate issued by the General Tax Directorate.

Structured External Financing

For structured financing operations (syndication, international bonds, sukuk), the IGOC provides specific procedures for prior declaration to the Exchange Office. Interest is transferable in the loan currency, at the exchange rate on the day of transfer.

Numerical Example: Interest Paid to a Spanish Bank

Consider a Moroccan company that pays interest to a Spanish bank as part of a 5-year euro loan.

Operation Data:

• Loan amount: 2,000,000 EUR
• Annual interest rate: 4.5%
• Gross annual interest: 90,000 EUR
• Duration: 5 years (not eligible for Art. 6-I-C-3° exemption)

Application of the Morocco-Spain Treaty Rate:

• Domestic rate (Art. 15 CGI): 10%
• Morocco-Spain treaty rate: 10%
• Applicable rate: 10%

Calculation:

• WHT = 90,000 EUR x 10% = 9,000 EUR
• Net amount transferred to the Spanish bank: 81,000 EUR

The Moroccan company must declare and pay the WHT of 9,000 EUR to the General Tax Directorate (DGI) within the month following the payment of interest. The Spanish bank can credit this withholding tax against its tax due in Spain under the double taxation convention.

Conditions for Applying the Treaty Rate

To benefit from the reduced rate provided by a tax treaty, the non-resident must meet several conditions. For assistance with these complex requirements, our experts in legal advisory and dispute resolution are available:

• Tax Residence Certificate: The beneficiary must provide a tax residence certificate issued by the tax administration of their country of residence, covering the year of interest payment.
• Beneficial Owner Status: The interest beneficiary must be the beneficial owner within the meaning of the treaty. Interposed structures without economic substance do not allow claiming the application of the treaty rate.
• Prior Declaration: The Moroccan debtor company must submit a declaration of remunerations paid to non-residents (model ADC040F) to the DGI.
• Claim Period: In case of initial application of the domestic rate, the non-resident has a limitation period to request a refund of overpaid tax, subject to the production of required supporting documents.
• Limitation on Benefits (LOB) Clause: Some recent treaties contain an LOB clause that restricts access to treaty benefits to residents meeting substance conditions.

Declarative Obligations and Calendar

The Moroccan company paying interest to a non-resident must:

• Apply the WHT at the time of payment, making available, or crediting to the account.
• Pay the WHT to the Treasury within the month following the payment of interest (Art. 160 CGI).
• Submit the annual declaration of remunerations paid to non-resident third parties before April 1st of the following year.

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