EXECUTIVE EDUCATION CENTER TAXATION OF INVESTMENT April 3-4, 2007 Host: Hamid ERRIDA Holder of National Diploma in Chartered Accountant

Tax Manager to Cabinet Garrig ues MOROCCO October 15, 2008 INTRODUCTION ts on al ltratee u e r t cal F ca e orm ed ure ots g DEC iv Cod Imp the su From t re 1,984 1986 1987 1990 2004 2005 2006 2007 200? Train Fiscal Reform October 15, 2008 PROGRAM TAX ON CORPORATIONS INCOME TAX VALUE ADDED TAX REGISTRATION RIGHTS ENT TAX CITY TAX TAX aedileship IS October 15, 2008 IR VAT OF Patent TU-TE STRUCTURE Persons Subject / Scope s Taxable Tax Calculation Payment of Tax Incentive PAT you're in the heart egis uterine born ed isc SSIE Vreme eradi E s es Gen jo do Ano: EI sed 'neck axis r dr Fi Pot Soc E arly ev Ge rm ity of pR e rm a re eic T leu 'Im the ef STI Free Shippin R efo scal oo' Im Ro LV Lr Lr L Lf o fi s R and D Dr Prof knew m

October 15, 2008 TAX ON COMPANIES October 15, 2008 Corporation Tax I. Persons subject The tax applies sue Societies: At any corporation, public or private, engaged in exploitation or in operations to lucrative. associations and organizations related to focal non-resident compa nies For the special funds

October 15, 2008 Corporation Tax I. Persons subject Exclusions: Companies of individuals, except option transparent real estate comp anies The Economic Interest Grouping October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Determined from the accounting result which is applied non-accounting adjustment s taking into account the different tax rules in accounting rules Result Accountant Income Tax October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Corrections positive or negative reinstatements Result accounting adjustments or deductions Result tax-accounting-Products Tax loss carryforwards+ Expenses not deductible-taxable unrecognized Products October 15, 2008 Corporation Tax II. Base Taxable Income Tax =

Terms of deductibility of expenses incurred Being in the interest of the operati on or be linked to the management of the company; Being found in accounting and be supported by documentary evidence. Result in a decrease in net assets of the company. Have actually been incurred during the year. Being accepted by the Inte rnal Revenue Code.

October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Terms of deductibility provisions Be accounted for to face: deductible expense clearly specified that finds its origin in the exercise October 15, 2008 Corporation Tax II. Base Taxable Income Tax =

Expenses not deductible gifts that have a value greater than 100 dirhams, or who do not bear the name, initials or trademark of the company. The gifts and donat ions in cash or in kind granted to institutions other than those provided by the Internal Revenue Code. October 15, 2008 Corporation Tax II. Base Taxable Income Tax =

Expenses not deductible for tax on companies and adjustments thereto. Fines, pen alties and surcharges of any kind for breach of laws or regulations. The proport ion of the depreciation of cars depending on the amount above the annual rate of 20% on the threshold of 300,000 DH TTC. The same limitation applies to vehicles purchased or leased for rent for a period exceeding three months. October 15, 2008 Corporation Tax II. Base Taxable Income Tax = A condition and two limitations to the deductibility of interest on current acco unts in payment of associated Condition: social capital must be fully paid. Limitations: •

the total amount deductible interest-bearing is limited by the amount of capital the rate of interest deductible may not exceed a rate set annually by decree of the Minister of Finance, according to the average interest rate on bonds Treasu ry to six (6) months of the previous year. ex. Rate applicable in 2006: 2.61%.

• October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Other expenses not deductible Are deductible from taxable income up to 50% of their amount, procurement expend itures, other external charges and other operating expenses and depreciation cha rges relating to capital expenditures, the amount charged is equal or greater th an ten thousand (10,000) dirhams and whose regulation is not justified by non-ne gotiable check endorsable, negotiable, magnetic means of payment, bank transfer or by electronic means. October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Unrecognised taxable products The unrealized gains related to currency translation adjustments, liabilities ar e taxable. They are evaluated on the basis of the latest exchange and reintegrat ed into the taxable income. October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Deductible expenses unaccounted The unrealized exchange gains reinstated last year are deducted from taxable inc ome of the year to avoid double taxation. October 15, 2008 Corporation Tax II. Base Taxable Income Tax =

Allowances on capital gains from sale Tangible or intangible, except for bare la nd. Abatement = 25% if 2 <d <= 4 = 50% abatement if d> 4 years. Total relief com mitment to reinvest. d = time elapsed between the date of acquisition of each item removed from the a sset or transferred and that of his retirement or transfer its October 15, 2008 Corporation Tax II. Base Taxable Income Tax =

Other Non-Taxable tax rebates on non-deductible. The reversals of provisions in their constitution reinstated. The products of interest in companies subject to tax. October 15, 2008 Corporation Tax II. Base Taxable Income Tax = Allocation of previous deficits The fiscal deficit in any year may be deducted from the profits of subsequent ye ars until the fourth year following the fiscal deficit. Deficits related to depr eciation may be deducted regularly recorded without time limit. October 15, 2008 Corporation Tax GROSS INCOME TAX == ACCOUNTING RESULTS + Reinstatement from outside the non-accounting ___ DEDUCTIONS October 15, 2008 Corporation Tax INCOME TAX NET INCOME TAX == GROSS ___ tax losses carried forward October 15, 2008 Corporation Tax III. Calculation & Payment of Tax Rate x IS = Net Income tax rate normal IS: 35% 39.6% for credit institutions and insurance companies.

Minimum Fee The amount of tax due may be lower in each year, regardless of the taxable incom e of the company concerned, a minimum contribution. October 15, 2008 Corporation Tax III. Calculation & Payment of Tax The basis for calculating the minimum contribution shall be the net amount of th e following products: October 15, 2008 Turnover and other operating income Income from equity securities and other inve stments Foreign exchange gains including currency translation liabilities Accrue d interest and other financial products Other non-current operating subsidies an d / or balance

Corporation Tax III. Calculation & Payment of Tax The minimum contribution rate General Rate: 0.5% Special Rate: 0.25% Minimum cha rge: 1,500 dirhams. October 15, 2008 Corporation Tax III. Calculation & Payment of Tax Installments The company is required to be paid in four installments of the exercise, everyon e is equal to 25% of the amount of hypothetical or actual tax due for the last f inancial year. Payments of these amounts is made before the expiry of the 3rd, 6 th, 9th and 12th month following the date of opening of the current financial ye ar. October 15, 2008 Corporation Tax III. Calculation & Payment of Tax TAX DUE = Sup (IS, CM) - Installments paid. October 15, 2008 Corporation Tax III. Calculation & Payment of Tax SPECIFIC RATE IS 8% flat rate on the net amount of turnkey contracts for non-resident companies. 10% on gross revenues earned by nonresidents. 10% on dividends (exempt if the be neficiary is subject to the SI). 8.75% after five years to exempt the Free Zone. 10% option for offshore banks.

October 15, 2008 INCOME TAX October 15, 2008 Income Tax I. Income Professionals Earned income is subject to income tax by three schemes: - - Plan Actual Plan Net Profit Net Profit Simplified Plan Lump What arrangements apply: depends on the volume of sales activity and exercised. Certain activities are excluded from the package. The fiscal year = calendar year. For corporations, the tax is on behalf of the s enior partner. October 15, 2008

Income Tax II. Farm Income Profits from agricultural operations are exempt from all direct taxes until December 31, 2010. October 15, 2008 Income Tax III. Wage income Structure of Wages: taxable items? items exempt?

Plan interest on housing loans Retirement Insurance Plan allowance internship gr oss monthly exempt up to 31c DH 6000 until December 2010. October 15, 2008 Income Tax IV. Revenue & Profit Owners Proprietary Income Exemption for 3 years from the date of the permit to live = Taxable Rental Incom e - 40% rebate

Land Profits

= Taxable capital gain property in discounted purchase price. Fixed rate: 20%, m inimum 3% of the sales proceeds. October 15, 2008 Income Tax V. Income & Capital Gains Furniture Securities income from movable capital Profits Exempt Threshold: sale proceeds = DH 24.000/Année civil

October 15, 2008 Income Tax Monthly net income taxable Scale Up 2000 2001 2 500 2 501 3 750 3 751 5 000 5 00 1 10 000 Beyond Scale 10,000 Annual Net Income taxed up to 24 001-30 001 45 001-

60 001 and Beyond 24 000 30 000 45 000 60 000 120 000 120 000 Rates 0% 15% 25% 35% 40% 42% Amount to deduct 0300550925 1175 1375

Rate 0 15% 25% 35% 40% 42% Amount to deduct 0 3600 6600 11 100 14 100 16 500 October 15, 2008 Value added tax October 15, 2008 Value added tax I. Scope

VAT taxes consumption is collected by the state and it is, in principle, all bus iness operations performed in Morocco, as well as import operations. An operatio n is performed in Morocco: For product sales when delivery is made in Morocco. For services: when the servi ce is operated or used in Morocco. October 15, 2008 Value added tax I. Scope

VAT taxes consumption Certain transactions are taxable and exempt or other outside scope of VAT. VAT is paid and borne by the final consumer The company acts as a collector of V AT

October 15, 2008 Value added tax I. Scope Possibility to extend the scope Some companies that have operations exempt from VAT may opt for the liability to tax. These are mainly exporting companies and smaller providers and small manuf acturers who achieve annual turnover or less 180,000.00 DH.

October 15, 2008 Value added tax II. Taxable Principle event The event is the event which gives rise to the taxpayer's debt to the Treasury. Two regimes are distinguished: The plan of redemption in which the VAT charged is reported only when actually collected, The flow regime in which the taxpay er is obliged to account for VAT as soon as it is charged or when it is collecte d in advance. October 15, 2008 Value added tax II. = Taxable turnover. The case of real estate: The taxable turnover is equal to the purchase price of the item minus the cost of land by reference to updated coefficients set for the calculation of land use. October 15, 2008 Value added tax III. Declaration & Payment

Notions With deductibility: transactions that qualify for deduction allows the company s ubject to recover input VAT. Without the right to deduct: the company supports t he subject input VAT and the cost component considered. VAT deductible: VAT may be deducted from taxable businesses that deal with deductibility.

October 15, 2008 Value added tax III. Declaration & Payment

Rate Standard rate: 20% DISCOUNT: 14% 10% 7% 0% October 15, 2008 Value added tax III. Statement & Payment Deduction of VAT 'tax on the value added that the different components of the pr ice of a transaction, tax is deductible from the value added tax applicable to t his transaction. " Art.101

October 15, 2008 Value added tax III. Statement & Payment Proportional deduction: CA [(exempt + taxable) with deductibility] Author ____ __ __ ___ ___ __ ___ __ __ ___ ___ __ ___ __ __ ___ ___ __ ___ __ __ ___ __ _ __ ___ __ __ ___ ___ __ ___ __ __ ___ _ CA [(+ exon taxable.) With dr. DED] + VAT Casan dr.à d. + CA-overs October 15, 2008 Value added tax III. Statement & Payment Reporting systems: Monthly Statement CA> DH = 1,000,000 Quarterly Statement Suppliers nonresident S tart activity. If CA <1000000 October 15, 2008 Value added tax III. Statement & Payment Reimbursement of VAT: The refund of VAT credit is possible in some special cases: - AC exempt, with de ductibility (eg exporters) - AC suspension arrangement - retirement. October 15, 2008 Value added tax III. Statement & Payment Adjustment of VAT deductible: Disposal of fixed assets. Variation of the deductible proportion. Receiving a cr edit provider. Loss or willful destruction of the stock.

October 15, 2008 REGISTRATION LAW October 15, 2008

Registration Fees I. Persons subject

Formalities of registration Registration is a formality that can give some time to the acts and conventions. The formality of registration upon payment of regis tration fees. October 15, 2008 Registration Fees I. Persons subject Sample Transactions: Transactions in capital: 0.5% Land acquisition: The acquisi tion of 5% built premises: 2.5% Acquisition of goodwill: 5% Acquisition of share s: 2.5% October 15, 2008 LOCAL TAXATION October 15, 2008 Patente - T.U. - T.E. I. Tax patent Persons subject Any person or company, Moroccan or foreign, exercising a profession in Morocco, an industry or trade. Unless that person or company is exempt by express provisi on. The tax fee patent occupation. October 15, 2008 Patente - T.U. - T.E. I. Tax patent Taxable The normal gross rental value and current premises, sites and facilities used fo r the exercise of professions taxed. She is determined, either through leases an d deeds of lease, either by way of comparison, either by way of direct assessmen t. For plants, industrial plants, and service providers, the rental value may be less than 3% of the cost of land, buildings, fixtures, equipment and tooling. October 15, 2008 Patente - T.U. - T.E. I. Tax patent Rate of tax patents The tax rate varies between 5% and 30% depending on the classification given to

the activity of the taxable entity. Merits of the tax of tithes and add surcharg es, the respective numbers of ten and twelve, for a total additional 22% of the principal. October 15, 2008 Patente - T.U. - T.E. EXAMPLE Patente Company A operates an industrial plant (class 2 of Table B) where it uses the fo llowing equipment which it owns: Land, cost 1,500,000 5,000,000 Construction dh dh Fixed Gear 3 million dh Arrangement fixed equipment mobile equipment 400 000 600 000 dh dh

October 15, 2008 Determining the rental value: 10,500,000 x 3% = 315,000 dh Principal amount of t ax patents 315,000 X 10% = 31 500 dh Decima and surcharges 31,500 X 22% = 6930 T otal = 38 dh 430 dh Patente - T.U. - T.E. II. Urban Tax Persons subject Any person or company in respect of immovable property sional activity or any form of exploitation within the eral areas. Unless that person or company is exempt by tablishments producing goods or services, the tax also equipment integral part of these institutions. October 15, 2008 Patente - T.U. - T.E. II. Urban Tax Taxable The tax is assessed on the rental value of property as determined by comparison or direct assessment by the Committee on Census. The rental value is obtained by applying the cost justified by the taxpayer or,€otherwise considered by the dir ectors by way of comparison, the rate of 3% for land, buildings and fixtures, ma chinery and equipment. October 15, 2008 Patente - T.U. - T.E. II. Urban Tax Tax rate applicable to professionals: 13.5% October 15, 2008 Patente - T.U. - T.E. allocated to their profes urban perimeter or periph express provision. For es applies to machinery and

III. Tax aedileship Scope The charge of municipal administration is determined annually on buildings, buil dings of all kinds as well as machinery and equipment located in the districts o f the city tax enforcement. October 15, 2008 Patente - T.U. - T.E. III. Tax aedileship Taxable The charge of municipal administration is sitting on the rental value as a basis for calculating the urban tax without exemption. October 15, 2008 Patente - T.U. - T.E. III. Tax aedileship Tax rate perimeters of urban centers and delimited - 6% of that value for properties loca ted in peripheral areas of urban communes. - 10% of the rental value for properties located in October 15, 2008 Patente - T.U. - T.E. EXAMPLE GMT - TE Land: 10 million Construction: Equipment 40000000: 30000000 Determination of ren tal values - land 10 million X 3% = 300 000 dh - construction and equipment tax 70 million X 3% = 2.1 million dh - Total = 2.4 million dh Application cap 50 Mdh 2,400,000 X 50,000,000 / 80,000,000 = 1,500,000 Amount of dh (after five-year e xemption for UT): city tax 1,500,000 13.5% X dh = 202,500 tax aedileship 1,500,0 00 X 10% = 150 000 dh

October 15, 2008 INCENTIVES October 15, 2008 INCENTIVES 1 - COMMON LAW Declining balance investment allowance exemption of 36 months minimum contributi

on credit minimum contribution October 15, 2008 INCENTIVES 1 - COMMON LAW VAT Purchase of property tax exemption / 24 months suspension Plan

October 15, 2008 INCENTIVES 1 - COMMON LAW Five-year exemption of the patent: Exemption from tax on patents for a period of five years from the commencement o f the activity concerned. The exemption also applies for the same duration, terr ain, buildings of every kind, additions of buildings, machinery, materials and t ools acquired during the operation, directly or through leasing. October 15, 2008 INCENTIVES 1 - COMMON LAW Five-year exemption from the T.U: New construction, additions to buildings and machinery and equipment forming par t of the establishments producing goods or services are exempt from tax for a pe riod of five years following the completion or installation. October 15, 2008 INCENTIVES 2 - PROMOTION OF EXPORT Exemption of sales to the export of products or services : 100% the first five years and then 50%. October 15, 2008 INCENTIVES 3 - AREA OF CRAFTS 50% exemption of the first five years. October 15, 2008 INCENTIVES 4 - EDUCATION SECTOR 50% exemption of the first five years. October 15, 2008 INCENTIVES 5 - TOURIST INDUSTRY Exemption of turnover in foreign duly repatriated 100% the

first five years and then 50%. October 15, 2008 INCENTIVES 6 - PROPERTY SECTOR Social Housing Area covered <= 100 m2 VIT or Transfer price <= DH 200 000 IS / IR: VAT Exemption: exon. with the right to deduct / refund. D .E.: Exemption of land. Initial Land / Investment Projects: 0%, 2.5%. October 15, 2008 INCENTIVES 7 Provinces of Tangier, Asilah and Fahs Bani Makada IS: Permanent reduction of 50%. IS: five-year reduction of 50%. Patente & City t ax: exemption 15 years October 15, 2008 INCENTIVES 8 - FREE ZONES

IS: Exemption 5 years and 8.75% 20 years. Dividends: nonresident exempt & 7,5% / Resident Registration fee: 0% on capital and land. Patente & City tax: exemptio n 15 years Continuation of benefits in case of change: 20 years. October 15, 2008 INTERNATIONAL TAXATION October 15, 2008 INTERNATIONAL TAXATION Tax Treaties Objectives: Avoid double taxation encourage economic exchanges Prevent tax evasion through t he exchange of information. October 15, 2008 INTERNATIONAL TAXATION Tax Treaties Specific arrangements for taxation Charges Interest Dividends Capital Gains October 15, 2008 INTERNATIONAL TAXATION Tax Treaties: Reduced taxation of dividends Country Germany Poland Russia Spain Sweden Switzerland United Arab Emirates Bulg

aria South Korea Bahrain Rate 5% 0% 7% 7% 7% 5% 5% 5% 5% CONDITIONS The beneficiary holds at least 25% of the capital of the distributing company. Any participation of Swedish origin in the capital of a company establ ished in Morocco. The recipient holds at least 25% of the capital of the distrib uting company. The recipient holds at least 25% of the capital of the distributi ng company. The equity investment exceeds U.S. $ 500,000. The recipient holds at least 25% of the capital of the distributing company. The recipient owns 10% st ake in the distributing company. The equity investment exceeds USD 500,000 The b eneficiary holds at least 10% of the capital of the distributing company. October 15, 2008 QUESTIONS - DISCUSSION October 15, 2008