Withholding tax on gross income paid to non-resident persons

Definition

What this covers

Under the heading « gross income » the code designates a closed list of sums paid, made available or credited to the account of non-resident persons art. 15 CGI :

• royalties for copyright, including films, and for licences of patents, designs and models, plans, secret formulae and processes, and trade marks ;
• payments for scientific or technical information and for study work « carried out in Morocco or abroad », for technical assistance or for staff made available to businesses in Morocco ;
• payments for artistic or sporting activities « and other similar payments », equipment hire charges, and interest on loans and fixed-income investments, other than those covered by articles 6 (I-C-3°) and 45 ;
• road transport of persons or goods from Morocco to abroad, « for the part of the price corresponding to the distance travelled in Morocco », commissions and fees, and « services of any kind used in Morocco or supplied by non-resident persons ».

For income tax purposes they fall within professional income « where those works and services are not connected with the activity of an establishment in Morocco » of the non-resident art. 30-3°.

Scope

Who is affected

• Non-resident individuals and companies receiving one of the items of income listed in article 15, where it is not connected with an establishment in Morocco.
• Payers established in Morocco : the withholding falls on taxpayers « paying or acting in the payment » art. 160-I — broad wording, which also covers intermediaries.
• The client business or body in Morocco where the non-resident is paid by another non-resident : the tax is owed by that client art. 160-II.

The test is neither the place of performance nor nationality, but the non-residence of the recipient combined with the nature of the income.

Applicable rules

Who withholds, at what rate, and what the levy settles

The withholding « must be made on behalf of the Treasury, by taxpayers paying or acting in the payment of the said income, to non-resident individuals or companies » art. 160-I. The rate is the same under both taxes, but does not come from the same provision : for individuals, 10 % « on the amount, exclusive of value added tax, of the gross income listed in article 15 » art. 73-II-B-1° ; for non-resident companies, the same rate as corporate income tax withheld at source art. 19-IV-B.

The final character of the levy, however, does not carry across : the last paragraph of article 73 places this levy among those that « are in full discharge of income tax », and article 25 excludes from global income any income subject to a rate in full discharge — a characterisation that does not extend to corporate income tax.

It « must be paid over in the month following that of the payments », to the collection officer for the place to which the paying business is attached art. 174-III. The payer must also produce, with its return, a statement showing « the nature and amount of payments liable to or exempt from the tax », the withholdings and the recipients art. 154.

Tax treaties, and what the code does not provide for

The code acknowledges treaties without implementing them : liable to tax are persons « whether or not their tax domicile is in Morocco, who […] receive income the right to tax which is allocated to Morocco under conventions for the avoidance of double taxation » art. 23-I-3°.

Beyond that, the code provides no treaty procedure — no exemption or reduced rate at source, no prior formality with the payer, no certificate of tax residence, an expression absent from the code, and no mutual agreement procedure. On arbitration it is not silent : it prohibits it — « disputes concerning the application of tax law may not be submitted to arbitration » art. 244. As for refunds, the article that provides for them covers the withholdings under articles 156, 157-I, 159-II, 160 bis and 160 quater and those of financial intermediaries art. 241 bis : the withholding under article 160 is not among them.

What remains is the general route : a claim to the Director General of Taxes, within six months of the expiry of the prescribed time limits or of the month of collection art. 235. The code sets the administration no time limit to reply ; it sets a threshold of silence : « failing a reply from the latter within a period of three (3) months […] the procedure is continued in accordance with the provisions of article 243 ».

Deadlines and limitation periods

The timeline

1. On each payment

   The withholding is made by the person paying or acting in the payment art. 160-I, then paid over in the following month to the collection officer for the place to which the paying business is attached art. 174-III.

2. With the payer's return

   Return of the payments made to non-residents, produced with its corporate results or global income return art. 154.

3. 6 months

   Period for a claim, from the expiry of the prescribed time limits or from the month of collection art. 235.

4. 3 months of silence, then 30 days

   Failing a reply within three months, the procedure is continued in accordance with article 243 — the code sets no processing time — and the competent court may be seised within thirty days art. 235 and 243.

5. Until 31 December of the 4^th year

   The power to make good is exercised against the person required to make or pay over the withholding, running from the year in which the sums should have been paid to the Treasury art. 232-II.

These periods are suspended neither by distance nor by ignorance : for a recipient established abroad, the six months are the principal risk.

Documents and supporting evidence

What the file contains

• The contractual documents : contract, purchase order or agreement characterising the income for the purposes of article 15.
• Invoicing and payment records : invoices showing the amount exclusive of VAT, the base of the levy art. 73-II-B-1° and 19-IV-B, and evidence of the payments.
• Evidence of the withholding : records from the payer establishing the amount withheld and its payment over to the Treasury.
• The absence of connection with an establishment in Morocco : documents establishing that the works and services are not connected with a Moroccan establishment of the recipient art. 30-3°.
• Evidence of the recipient's residence : documents from their own administration where a treaty is relied on — the code provides for none.

The list is indicative ; the exact composition depends on the circumstances.

Points to watch

What can derail a file