VAT Territoriality in Morocco: Key Rules, 2024 Updates & Implications for Your Business

What are the VAT Territoriality Rules?

VAT territoriality establishes whether an operation is taxable in Morocco based on its place of execution. These rules are an essential pillar of the Moroccan tax system, allowing for the delineation of VAT's scope and preventing situations of double taxation or non-taxation. Article 88 of the General Tax Code (GTC) clearly states these directives: VAT is applicable in Morocco when the operation is carried out there. Thus, the place where the operation takes place is the determining criterion for the application of Moroccan VAT, regardless of the nationality or domicile of the parties involved. For any complex questions on the application of these rules, do not hesitate to seek specialized legal and litigation advice.

Basic Principle of VAT Territoriality

According to Article 88 of the GTC, an operation is deemed to be carried out in Morocco in two main situations:

• For sales of goods: When the delivery of the goods takes place in Morocco. The determining criterion is the physical handover of the goods to the buyer on national territory.
• For other operations (service provisions, assignment of rights, leases): When the provision, service rendered, right assigned, or object leased is exploited or used in Morocco. This criterion of exploitation or use is the cornerstone of VAT territoriality for all operations other than goods sales.

VAT Territoriality - Sales in Morocco

A sale is considered to be made in Morocco if the goods are delivered on Moroccan territory. This essential condition subjects the sale to Moroccan VAT. "Delivery" implies the actual transfer of enjoyment and possession of the goods to the buyer. It is important to note that various elements do not influence the determination of the place of delivery:

• The place where the sales contract was concluded.
• The place where payment is made.
• The location of the goods at the time of sale, if their final destination is Morocco.
• The currency used for settlement.
• The nationality of the sellers and buyers.

In short, a sale is deemed Moroccan as soon as the final receipt of the goods occurs on the territory of the Kingdom.

Legal and Fiscal Effects

In accordance with these principles, sales between operators established in Morocco are subject to VAT. Similarly, import purchases are subject to VAT as long as the final delivery takes place in Morocco. Conversely, exports, whose delivery takes place abroad, are generally exempt from VAT.

However, specific situations may arise:

• A Moroccan client taking possession of goods they import directly abroad.
• A seller who intends to export goods but gives possession of them on Moroccan territory.

In these cases, to determine the application of VAT, it is necessary to combine the territoriality rules with specific provisions for imports and exports. Thus, imports are subject to VAT (subject to special customs regimes), while the law expressly provides for the exemption of goods and services intended for export (Article 92 of the GTC). Rigorous accounting services are essential to track these operations and ensure the correct application of tax rules.

VAT Territoriality - Service Provisions

For service provisions, the guiding principle is the place of use and exploitation of the service. This criterion allows a service to be linked to Moroccan territory, regardless of the provider's location or the physical place where the service is rendered (e.g., the seller's head office). It is up to the provider to prove that the use or exploitation of the service occurs outside Morocco to benefit from an exemption.

Attachment Criteria for Service Provisions

When a Moroccan company performs services for a client located outside Morocco, several questions arise to determine the applicability of VAT:

• Is the client located outside Moroccan territory?
• Is the contract denominated in foreign currency?
• Is the subject of the service (e.g., a study) intended for exploitation or use outside Morocco?

If the answer to these three questions is affirmative, it is then a service export, generally exempt from VAT. If one of the conditions is not met, VAT remains due in Morocco.

Practical Examples of VAT Territoriality

• A Moroccan engineer conducting a study for a foreign company that plans to build a building in Morocco: taxable, because the exploitation of the service takes place on Moroccan territory.
• The services of a Moroccan call center for foreign clients (calls from foreign clients): non-taxable, because the use of the service occurs outside Morocco.
• A Moroccan consulting firm providing market studies exclusively exploited in a foreign country: non-taxable in Morocco, subject to providing necessary justifications.
• A Moroccan training company training personnel for an industrial project located in Morocco, commissioned by a foreign company: taxable, because the use is in Morocco.

Digital Dematerialized Services and VAT Territoriality

The 2024 Finance Law introduced a major amendment to Article 88 of the GTC, extending VAT territoriality to dematerialized remote service provisions. These services encompass any service rendered via a remote communication tool, including intangible goods and other immaterial assets. These include, but are not limited to:

• Online training (e-learning).
• Software provision (SaaS, online licenses).
• Digital content provision (streaming, downloads).
• Online advertising services.
• Cloud computing services.

New Territorial Attachment Criterion

Henceforth, dematerialized service provisions by a non-resident person without an establishment in Morocco are deemed to be carried out in Morocco if the client has their head office, establishment, or tax domicile in Morocco. This rule applies even if the client is physically abroad at the time of service provision or if the service is consumed digitally by said client from abroad. For companies operating in the digital sector, it is vital to understand these new rules. App, website, and AI agent development services, or other digital services, may be concerned.

International Transport and VAT Territoriality

International transport of goods and persons is subject to specific rules. In principle, these operations, as well as related services (repair, maintenance, chartering, leasing of transport means), are exempt from VAT with the right to deduction (Article 92-I-35° of the GTC). However, this exemption only concerns the international segment of the journey. Any transport carried out within Moroccan territory, even if it is part of an international journey, remains subject to Moroccan VAT.

Withholding Tax on Foreign Suppliers

When a foreign provider supplies a service used or exploited in Morocco, VAT is due in Morocco. If the non-resident provider has not accredited a tax representative domiciled in Morocco (Article 115 of the GTC), the Moroccan client is obliged to declare and pay the tax. Good management of accounting and tax processes, potentially through accounting services, is essential in this case.

Obligations of the Moroccan Company

The Moroccan client company has different obligations depending on its VAT status:

• If it is subject to VAT: It must declare the ex-tax amount of the service on its own VAT declaration, calculate the payable tax, and deduct it simultaneously (reverse charge mechanism). It must also attach the statement of non-resident taxpayers (Article 112-II).
• If its activity is outside the scope of VAT: It must withhold tax at source on each payment and remit it to the tax administration during the month following that of the payment (Article 117-III).

In all cases, the company must carefully keep all supporting documents for the service rendered and the payment. It is important to distinguish between two withholding tax regimes:

• For resident taxable providers: The 2024 Finance Law introduced a withholding tax on certain service provisions. This withholding is applied by certain clients (State, local authorities, public establishments, large companies, etc.) up to 75% or 100% of the tax, depending on the presentation of a tax regularity certificate.
• For non-resident providers: The withholding mechanism for residents does not apply. In the absence of an accredited tax representative, VAT is either 100% reverse-charged by the taxable client (Article 115) or withheld at source by the client whose activity is outside the scope (Article 117-III). Suppliers of digital services to non-taxable clients must register on the dedicated DGI electronic platform (Article 115 bis).

Free Zones and VAT Territoriality

Industrial acceleration zones (formerly export free zones) benefit from a special tax regime: product deliveries and service provisions made to these zones, as well as operations carried out within or between these zones, are exempt from VAT with the right to deduction (Article 92-I-36° of the GTC). However, sales of goods or services from a free zone to Moroccan territory (outside the free zone) are considered imports and are subject to VAT under ordinary law conditions.

Points of Attention for Free Zones

• Purchases of goods and services made locally by companies established in a free zone for their export activity may benefit from VAT exemption.
• Transactions between companies located within the same free zone are generally exempt.
• Reintroduction of goods from a free zone into the taxable territory (outside the free zone) triggers the application of import VAT.

Conclusion: Mastering VAT Territoriality

A thorough understanding of VAT territoriality rules is essential for any entity operating in Morocco or with Moroccan partners. The clear distinction between goods sales (based on the delivery criterion) and service provisions (based on use or exploitation) remains the foundation of this analysis. Recent legislative developments, including the integration of digital dematerialized services and the strengthening of withholding tax mechanisms, illustrate the continuous adaptation of the Moroccan tax framework to modern economic realities. To navigate effectively in this complex environment and ensure seamless compliance, relying on the expertise of professionals is a major asset for your accounting and tax management.