Interest paid to Moroccans living abroad : exclusion from withholding tax and scrutiny of the origin of deposits

Definition

What this is about

Interest on loans and other fixed-income investments paid to non-residents is among the gross income subject to withholding tax — but the heading reserves « the exclusion of those listed in article 6 (I-C-3°) and in article 45 » art. 15-VII CGI. Article 45 is the seat of that exclusion : gross income is defined there as income received by « individuals and legal entities not subject to corporate income tax and not having their tax domicile or registered office in Morocco, excluding interest on loans and other fixed-income investments » relating to the four categories that follow.

Excluded is interest relating to :

• Loans to the State : granted to the State or guaranteed by it art. 45-a.
• Deposits in foreign currency or in convertible dirhams : without any condition as to origin art. 45-b.
• Dirham deposits of evidenced foreign origin : foreign currency transfers made directly from abroad ; duly evidenced transfers from foreign currency or convertible dirham accounts opened in Morocco ; transfers between approved credit institutions « supported by a certificate attesting their foreign currency origin issued by the sending institution » ; local sales of foreign banknotes to approved credit institutions, evidenced by an exchange slip and occurring « within a maximum period of thirty (30) days from the date of entry into Morocco of the individual concerned » art. 45-c.
• Long-term foreign currency loans : granted for a term of ten years or more art. 45-d.

Two clarifications close the article, and they are decisive. Capitalised interest on the deposits referred to in b) and c) is likewise excluded. But « this exclusion does not apply to interest on sums redeposited following withdrawals made from the aforementioned dirham deposits » : a withdrawal followed by a new deposit breaks the chain of origin.

Scope

Who is concerned

• Individuals without a tax domicile in Morocco art. 23-II and legal entities not subject to corporate income tax and not having their registered office in Morocco art. 45, holding interest-bearing accounts with Moroccan institutions.
• Moroccans living abroad who fund accounts in foreign currency, in convertible dirhams or in dirhams from abroad.
• Persons whose status has changed — arrival or departure — while the accounts remained open.
• Credit institutions and similar bodies, bound by the return required under article 154.

The exclusion attaches to the deposits and their origin, not to the holder's nationality nor to the commercial name of the account : it rests on the traceability of the funds contributed.

Applicable rules

What the exclusion requires to be proved, and for how long

For deposits in foreign currency and in convertible dirhams, the exclusion applies by virtue of the nature of the account. For dirham deposits, it is conditional and requires proof of origin for which the code designates the supporting documents : the certificate of foreign currency origin from the sending institution for transfers between approved institutions, and the exchange slip for sales of banknotes, within the thirty-day period following entry into Morocco art. 45-c.

Then comes the provision that is almost never read : « Where the dirham deposits referred to in article 45 relate to a period exceeding the period laid down in article 232-II, the administration's right to audit the origin of those deposits extends to that period » art. 233 CGI.

Its reach must be stated precisely : article 233 does not extend the right to reassess, it extends the right to audit the origin beyond the ordinary reassessment period, with no limit other than the age of the deposits. The same article maintains the limit on reassessment : where the paying party has not operated or paid over the withholding due, « the right to make good may not be exercised beyond 31 December of the fourth year following that in the course of which the sums due should have been paid to the Treasury ». The audit reaches back, the recovery remains bounded.

On the paying institution's side, the return of remuneration paid to non-residents states « the nature and amount of payments liable to or exempt from tax » art. 154. Failure to file, late filing, or an incomplete or inconsistent return exposes credit institutions to a surcharge of 15% of the tax corresponding to the interest concerned « that would have been due in the absence of exemption » art. 203. The regime is a declared one, not a silent one.

A point rarely flagged on savings plans

The order relating to the equity savings plan, annexed to the code, lists the events causing the plan to close ; it expressly includes the « transfer of the plan holder's tax domicile outside Morocco » order no. 1252-12, art. 12. The order relating to the housing savings plan, also annexed, contains no equivalent provision : it lists conditions whose breach entails closure, and transfer of tax domicile is not among them.

Deadlines and limitation

The timetable

1. 30 days after entry into Morocco

   Maximum period within which the sale of foreign banknotes to an approved credit institution, evidenced by an exchange slip, must take place for the resulting dirham deposit to qualify for the exclusion art. 45-c.

2. With the institution's return

   Return of remuneration paid to non-residents, stating payments that are liable and exempt art. 154.

3. Until 31 December of the 4^th year

   Reassessment period against the person responsible for operating or paying over the withholding, counted from the year in which the sums should have been paid to the Treasury art. 232-II.

4. Beyond that, with no fixed end

   The right to audit the origin of dirham deposits extends to the period to which they relate, where that period exceeds the previous one art. 233.

5. 6 months, then 3 months of silence

   Claim period where the tax charged to the taxpayer is contested ; the code sets no time limit for a reply but a threshold : « failing a reply from the administration within a period of three (3) months […] the procedure is pursued in accordance with the provisions of article 243 » art. 235.

The imbalance is deliberate : the origin of a deposit must be evidenced long after the administration has lost the right to reassess the interest of a given year.

Documents and supporting evidence

The elements of the file

• The exact nature of the accounts : account opening agreements and designations distinguishing deposits in foreign currency, in convertible dirhams and in dirhams.
• Evidence of the origin of dirham deposits : foreign currency transfers made directly from abroad, or originating from foreign currency or convertible dirham accounts opened in Morocco art. 45-c.
• The certificate of foreign currency origin : issued by the sending institution for transfers between approved institutions art. 45-c.
• The exchange slips : drawn up by approved credit institutions for sales of banknotes, with the details enabling the thirty-day period to be assessed.
• The history of movements : statements showing withdrawals and redeposits, on which the exclusion rule for redeposited sums depends.
• The holder's status : documents establishing non-residence over the periods concerned art. 23-II.

This list is indicative ; the exact composition depends on the situation.

Points requiring care

What can cause a file to fail