Royalties & Service Fees in Morocco: Article 15 CGI, OECD & Tax Treaties for Non-Residents – A Fiscal Guide

Moroccan CGI Article 15: Broad Scope for Withholding Tax

When a Moroccan company pays fees to a foreign service provider for software licenses, technical assistance, or strategic consulting, a crucial question arises: should a 10% withholding tax be applied at the source? And can a lower treaty rate apply?

The Moroccan General Tax Code (CGI) adopts an expansive approach. Article 15 stipulates a 10% withholding tax (WHT) on all remunerations paid to non-resident individuals or entities without a permanent establishment (PE) in Morocco, when these services are used in Morocco or rendered for the benefit of persons domiciled or established in Morocco.

This scope is broader than the OECD's definition of royalties. In practice, the Moroccan tax administration applies the 10% WHT to traditional royalties (licenses, patents, trademarks) as well as technical service fees, consulting fees, management fees, and any remuneration for services rendered by a non-resident.

Key Points of Article 15

• Standard Rate: 10% of the gross amount paid.
• Taxable Event: The payment, availability, or credit to an account.
• Declaration: Within the month following payment (electronic SIMPL form).
• Documentary Obligation: The Moroccan payer is legally responsible for the withholding.

The challenge for businesses is twofold: correctly applying the domestic WHT, then verifying if a bilateral tax treaty allows for a reduction or elimination of this withholding.

OECD Classification (Article 12): Royalty vs. Service Fee

Article 12 of the OECD Model Tax Convention defines royalties as payments for the use of, or the right to use:

• Copyrights of literary, artistic, or scientific works;
• Patents, trademarks, designs, models, plans;
• Secret formulas or processes (know-how);
• Information concerning industrial, commercial, or scientific experience.

Conversely, a standard service provision—even if technical or specialized—does not constitute a royalty if it does not involve the transfer of intellectual property rights or the communication of secret know-how.

Practical Distinction Criteria

The boundary between a royalty and a service fee hinges on several criteria:

• Transfer of Rights: If the payment remunerates access to an intellectual property right (license, patent), it's a royalty. If the provider performs work without transferring rights, it's a service.
• Know-how vs. Technical Assistance: Know-how implies communicating confidential, unpatented information that enables the beneficiary to reproduce the process independently. Technical assistance, however, involves applying skills on behalf of the client without knowledge transfer.
• Software License vs. SaaS: The purchase of a software license (right to use source code or a copy) is a royalty. A SaaS subscription (access to an online service without transferring software rights) is a service provision.

Summary Table: 6 Practical Tax Classification Cases

Here’s how different scenarios are typically classified:

Key Observation: Under Moroccan domestic law, the 10% WHT applies in all cases. The classification becomes critical for the effective tax rate only when a tax treaty is in place.

Impact of Bilateral Tax Treaties on Rates

Bilateral tax treaties signed by Morocco often provide ceiling rates for royalties (Article 12) that are frequently lower than the standard domestic rate:

Strategic Importance of Classification for Tax Optimization

If the payment is classified as a royalty, Article 12 of the treaty applies, and the capped treaty rate (e.g., 5% or 10%) takes precedence. The non-resident can then offset the WHT suffered in Morocco against their tax liability in their country of residence (tax credit).

If the payment is classified as a service provision, Article 7 (Business Profits) prevails. In this scenario, profits are taxable in Morocco only if the service provider has a permanent establishment there. In the absence of a PE, the treaty prohibits Morocco from levying the WHT. The non-resident can then claim a refund or exemption.

Practical Procedure to Secure Your Tax Treatment

• Analyze the Contract: Identify the exact nature of the service (transfer of rights, know-how, pure service).
• Verify the Treaty: Consult the applicable bilateral treaty and identify the relevant article (Art. 12 or Art. 7).
• Obtain Tax Residency Certificate: The non-resident must provide a tax residency certificate from their country.
• Apply the Correct Rate: Treaty rate if it's a royalty, exemption if it's a service without a PE.
• Document the File: Keep the contract, invoice, certificate, and declaration proof for any future tax audits.

The distinction between royalties and service fees is a major challenge for Moroccan companies operating internationally. While domestic law (Art. 15 CGI) applies a uniform 10% rate, tax treaties offer significant opportunities for reduction, provided the payment is correctly classified according to OECD criteria. Expert support helps optimize the tax burden while ensuring compliance. iHub supports Moroccan and international companies in managing their cross-border tax obligations, classifying international payments, and optimizing treaty benefits.