Last month we looked at personal taxation in Cyprus, our largest investment country in 2006. This month we probe the regime in Morocco which, because it is outside the EU, has far greater freedom to set its own taxation structure to encourage investors from overseas.

Because of its French colonial heritage, however, the tax system is complex and open to misunderstanding. As always, it is recommended you consult a Moroccan Tax specialist for the definitive answers.

The legal structure for property is similar to that in France and Spain: the papers are created and signed by a Notary. Tenure is freehold.

There is no VAT or sales tax on the sale or purchase of houses, whether new or existing, though there is a 1% tax on sales of land which is to cover the Notary's fee.

Tax on Rental Income

An owner who lets their property, whether short or long term, is required to pay tax on 60% of the rent received. This can be at a zero (exempt) rate for the first three years, then 22% thereafter (22% in Tangier, though 44% elsewhere in Morocco).
So for an apartment in Tangier attracting a rental of £10,000 per year, the tax payable in the fourth and subsequent years would be 22% of £6,000 (i.e. 60% of £10,000) amounting to £1,320.

Annual Property Tax

Owners are exempt for the first five years of the property's existence, but in the sixth and subsequent years they are required to pay a charge calculated on the annual rental value of the property. If the property is held as an investment only (rather than as a permanent or holiday home), then Property Rental Tax is payable instead, at a rate of 13.5% of the annual rental value.

Garbage Collection Tax

As with Annual Property Tax, there is an exemption for the first 5 years of ownership followed by an annual charge of 10% of annual rental value.

Capital Gains Tax

Whilst the exemptions for 3 or 5 years (discussed above) are designed to encourage people to invest in Morocco, the tax charge does rise quite steeply after the initial period of exemption. To discourage the inevitable selling which might take place when the taxes kick in, the Capital Gains Tax known as Taxe sur les Profits Immobiliers (TPI) is levied at 20% of the gain for the first five years subject to a minimum of 3% of the selling price.

This charge reduces to 10% of any gain above 1 million Dirhams (approximately £60,000) during years 6-10 and then disappears altogether after you have owned the property for 10 years. There is a double taxation treaty with the UK which means that any TPI paid in Morocco will be offset against the UK CGT which will be payable if you are UK resident.

Inheritance Tax

There is no Inheritance Tax to pay if you leave the property to family member(s) in a formal will in Morocco.

Whilst this is all reasonably straightforward, and reported to the best of our knowledge and belief, it is always essential to consult a tax specialist who knows the local laws and practices before making any investment.

Accurate objective information... it's one of your most powerful weapons!

www.viceroyinvest.com

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