Invest in Morocco
By Zineb Idrissia Hamzi
Posted: 14th October 2015 08:17
The process of modernisation of the legal framework for investment in Morocco has been accelerated over the last 20 years and is increasingly adhering to international requirements and standards.
The legislator has adopted a new Commercial Code, to secure business transactions and to reassure local or foreign investors, local or foreign, and conducted the complete overhaul of the Companies Law.
These measures were accompanied by the overhaul of the judicial system by creating specialised commercial courts but also by promoting arbitration, offering an alternative to traditional justice, which could constitute a source of apprehension for foreign investors.
In parallel, some specific incentives, and support structures have been put in place to accompany investors.
This article will focus on these issues which could be relevant for foreign investors when considering realising an investment in Morocco
Overview of the legal context
The legal framework for investment in Morocco is based on the Investment Charter (framework law of 8 November 1995) and its supporting instruments and implementing regulations. The Charter sets out the main lines of government action to encourage and support investments in Morocco. It replaced all sectoral texts (specific) that existed, except those related to sectors such as agriculture, or tax system which is subject to specific legislation. The Charter does not discriminate between foreign and domestic investors. It guarantees, in terms of exchange regulations, the transfer of investment income (profits, dividends and capital), and proceeds from the sale or liquidation, without limitation on amount or duration.
The objective of the Charter is to contribute to the promotion of investment in improving the environment and conditions for investment, including investment incentives.
Internationally, bilateral agreements on promotion and reciprocal protection of investments are in force with countries in Europe, such as Austria, Bulgaria, France, Great Britain, Hungary, Italy, Poland, Romania, Sweden, and Switzerland; with countries in Africa, Asia and the Middle East, such as China, India, Indonesia, Iran, Jordan, Kuwait, Lebanon, Libya, Mauritania, Oman, Sudan, Syria, and Turkey; and with countries of the Americas, such as Argentina and USA. Such agreements have also been signed in the framework of regional arrangements, such as UMA, OPEC and the Arab League.
In parallel, Morocco has signed various multilateral agreements on trade and investment, such as the Washington Convention on the Settlement of Investment Disputes (ICSID) and the Convention establishing the Multilateral Investment Guarantee Agency (MIGA).
Morocco has also signed more than sixty double taxation agreements, 50 of which being currently in force.
Foreign investment and ownership restrictions
In a general way, and since the abrogation of the Dahir for the Moroccanisation of the economy (7 May 1973), which prohibited foreign investors from performing some activities, considered as strategic, by the Dahir promulgating the Law N° 1-93-46 of 22 rebia I 1414 (10 September 1993), there is no more limitation that could prevent foreign investors from exercising activities in Morocco.
Some areas remain, exceptionally, restricted to foreign investment on a socio-economic basis. For instance, foreign investors cannot own agricultural land, but may be granted long-term leases for the development of farm activities.
In the audio-visual sector, a Moroccan national must serve among the members of the board.
Some other activities, as exploitation of natural resources are subject to authorisation. Law No. 11-03 Relating to Protection and Improvement of the Environment provides that the utilising of natural resources must be authorised by the Ministry of Energy, Mines, Water and the Environment by a concession permit, especially if these projects are liable to entail damage to the environment. A mining exploration permit is valid for three years and should be renewed once for up to four years, whereas the hydrocarbon exploration permit lasts for 25 years and may be extended by an additional 10 years.
Preferential tax incentives provided to foreign investors
In the same way as domestic investors, foreign investors can enjoy many incentives, which include: -The reduction of customs duty rates between 2.5 and 10% maximum for capital goods, materials and tools, and the exemption from tax levy on imports of such goods; exemption or refund of the value added tax (VAT) on capital goods, materials and tools; registration fees reduced to 4% on land acquisition for construction of business premises; and applying a maximum rate of 1% to the contributions, in case of constitution or increase of capital of companies. These companies could be exempt from this latest tax when they are installed in off shore zones or benefit from the Casablanca Finance City special status.
Exporting companies are exempt from corporation tax (IS) and general income tax (IGR) for a period of five years, followed by a reduction by 50% of those taxes beyond this period. For exporting services businesses, including hotel establishments, exemption and reduction apply only turnover in foreign exchange. Companies locating in the prefectures or provinces covered by decree and craft enterprises benefit from a 50% reduction from IS or IGR for a period of five years.
The major investments (over 200 million DH) are also exempt from import duty and VAT on capital goods, materials and tools imported.
According to the provisions of Article 7-1 of the Finance Law 1998-1999 modified by the Finance Law 25-00 and 55-00, if the foreign investor invests more than 200 million MAD, it may benefit from the exoneration of value added taxes and import duty.
This exemption may be granted to spare parts and accessories imported at the same time as capital goods, machinery and equipment to which they are destined.
According to the Article 3 of the Law n° 18-95 on the Charter of Investment, capital goods and equipment, and the spare parts and accessories, considered as necessary to the promotion and the development of the investment, could be subject to a duty right at a minimum rate of 2.5% ad valorem, or a maximum rate of 10% ad valorem.
Foreign exchange issues:
The Exchange Office Circular No. 1589 of 15 September 1992 introduced the convertibility system for foreign investments. Foreign investments involve foreigners investing in Morocco, as well as Moroccan citizens investing abroad.
This system allows the free convertibility of the foreign investments made in Morocco, namely:
- Carrying out investment transactions in Morocco;
- Transferring the income produced by these investments;
- and transferring the proceeds resulting from the liquidation or the sale of these investments.
Most transactions do not require the prior approval of the Exchange Office. However, investment transactions realised by transfer of currencies to the Bank Al Maghrib or with a foreign account convertible in dirhams are subject to statistical reporting to the Exchange Office, in accordance with the first annex of this circular. The transfer of foreign investment income as well as the liquidation or sale proceeds must also be reported to the Exchange Office, in accordance with annexes II and III.
However, to benefit from the convertibility system, investment transactions that are made by transfer of currencies to Bank Al Maghrib (The Moroccan National Bank) are subject to statistical reporting to the Foreign Exchange Office, according to the first annex to the Circular above mentioned.
Foreign investors are required, within six months from the date of completion of the investment process, to send to the Foreign Exchange Office (Investments’ Subdivision) directly or through their bank, trustee, notary, or lawyer, a report showing:
- The identity, nationality and place of residence of the investor;
- Its activity or industry;
- The amount of the investment;
- The form of investment.
For investments worth more than 200 million MAD, foreign investors could be entitled to benefit from a financial contribution granted by the State, subject to the conclusion of an Investment Agreement, which must be signed with Moroccan Government.
The investment incentives that may be applicable are the Fonds de Promotion de L’Investissement (“FPI”), and Fonds “Hassan II” and taxation measures, as specified above.
Fonds de Promotion de l’Investissement (FPI):
In order to receive the financial benefits provided by the FPI, the Project may fulfil the following criteria:
- Investments higher than 200 million MAD;
- Creation at least 250 permanent employments: according to the Article 1 of the Decree n°2-00-895 permanent employment means the recruitment of an employee for a period of 24 month at least.
- Installation in a priority area (Province or Prefectures determined by Decree);
- Transfer of technology: it means any acquisition or a rental of license patent, licensing or technical processes recently established to help strengthen the competitiveness and scientific and technical research.
- Protection of environment: it means any operations improvement of environmental protection regardless actions to close down the nuisances related to the activity.
- Land: 20% of the costs are provided by the State.
- Facilities: 5% of the costs are provided by the State.
- Training: 20% of the costs are provided by the State.
- The account n°3.1.04.04 “Fonds Hassan II” was established by the Dahir n°2-00-129 dated 16 March 2000, in order to promote economic and social development.
- The “Fonds Hassan II” is also regulated by the Dahir n° 1-02-02 dated 19 January 2002 and the Decree n°2-02-93 dated 12 March 2002.
- The Investment Agreement must be signed with the State.
- Investment higher than 5 million MAD (excluding import duty and taxes).
- Investment in capital goods higher than 2.5 million MAD (excluding import duty and taxes).
- Investment project promoting investment and employment.
- Buildings: 30% of the costs are provided by the State on the basis of a unit cost of 2000MAD/m²HT.
- Equipment: 10% of the costs are provided by the State (excluding import duty and taxes).
The issue of governing law is particularly significant in the case of an international contract. Article 13 of the Dahir of August 1913, relating to the civil status of foreigners in Morocco, distinguishes two situations:
- if the parties have indicated the applicable law in the contract, (even a foreign law) it will be binding on the parties and even to third parties; and
- if the parties have not chosen the law applicable to their contract, the Moroccan jurisdiction may well define the law to be applied, by reference to the law of the jurisdiction where the contract was concluded, the law of the place of contract performance, the language of the contract, the nationality of the parties to the contract or their domicile.
According to Moroccan law, submission to a foreign jurisdiction and waiver of immunity are effective and enforceable. International arbitration contractual provisions and awards are, also recognised by local courts.
According to the Law No. 08-05, dated 30 November 2007, abrogating and replacing chapter VIII of title V of the Civil Procedure Code, international arbitral awards are recognised in Morocco through an exequatur on the express condition that they do not conflict with national and international public policy. They are declared enforced by the president of the Commercial Court or by the president of the Commercial Court of the seat of arbitration located abroad.
The existence of an arbitration award is established by the production of the authentic arbitration agreement or copies of these documents satisfying the conditions required for their authenticity. If these documents are not written in Arabic, they must be translated by a certified translator. The order refusing recognition or enforcement can be appealed.
Morocco is a member of ICSID.
In the event of one the following disputes, the parties cannot conclude any agreement to refer the matter to arbitration:
- on gifts and bequests of food, clothing and housing;
- on matters concerning the condition and capacity of persons; and
- on matters of public policy including:
- disputes concerning acts or property subject to the regime of public law;
- disputes involving the application of the Tax Law;
- litigation involving laws governing the taxation of prices, during forced, foreign exchange and foreign trade; and
- disputes over the nullity and dissolution of companies.
Résidence Granada Tel: +212 522 39 39 06 / 31
96A Boulevard Al Massira Al Khadra Fax: +212 522 39 39 13 / 16
Zineb Idrissia Hamzi is the managing partner of hamzi law firm, a Morocco based business law firm, founded in July 1999.
Since then, the firm has developed an extensive experience assisting local and foreign investors, with European predominance, and offering a high level-expertise on consultancy or contentious matters, touching on all business and commercial issues.
As Moroccan correspondent to many foreign law firms, and as expert referenced by international organisations, the firm has become a natural one-stop-shop for companies seeking to invest in Morocco which appreciate the capabilty of its teams to provide advice, in an international environment, and to speak many foreign languages (English, Spanish, German) along with French and Arabic.