Transparent Real Estate Companies in Morocco: Comprehensive Tax Guide by iHub

In Morocco, the real estate sector is a cornerstone of the economy. For investors and families managing their assets, the chosen legal structure is crucial. Among the options, transparent real estate companies stand out due to a specific tax regime that helps avoid double taxation. iHub sheds light on this advantageous mechanism.

What is a Transparent Real Estate Company in Morocco?

Transparent real estate companies are legal entities that, despite their own existence, are not subject to Corporate Income Tax (IS). Under Article 3-III of the General Tax Code (CGI), their income is directly taxed at the Personal Income Tax (IR) level of their associates. This mechanism, known as "fiscal transparency," is designed to facilitate the management of family real estate assets and prevent profits from being taxed first at the company level (IS) and then a second time when distributed to associates (IR).

Legally, the company holds the real estate assets. Tax-wise, associates are considered to directly own these assets, proportionally to their shares. This significantly simplifies the tax approach to real estate income and capital gains.

Eligibility Criteria for Transparent Real Estate Companies

Article 3-III of the CGI precisely defines the companies that can benefit from this regime. There are two main categories:

1. Companies Owning a Housing Unit

This regime applies to companies whose assets consist of a housing unit (house, apartment) or land intended for this purpose. The conditions are as follows:

• The housing unit must be occupied entirely or for the most part by the company's members or some of them.
• The company must comply with all required tax declaration obligations.

This also includes land intended for the construction of a housing unit under the same future occupancy conditions.

2. Companies with a Sole Object of Acquisition or Construction

These are companies whose corporate purpose is exclusively the acquisition or construction of collective buildings (or real estate complexes) with the aim of dividing them among their members. The specific conditions are:

• The company's articles of association must explicitly state this sole object. For any statutory amendments, it is advisable to consult experts.
• The articles of association must guarantee each member the free disposal of their fraction.
• Members must be named specifically in the articles of association.
• Each fraction must correspond to one or more distinct residential or professional units capable of separate use.

Compliance with these conditions is paramount. In case of non-compliance, the company will automatically be subject to corporate tax (IS) under general law. For legal entity creation or support in ensuring your company's compliance, iHub is your trusted partner.

Other Companies Benefiting from Fiscal Transparency

Beyond real estate companies, other legal forms can also benefit from a fiscal transparency regime, provided they are composed only of natural persons:

• General Partnerships (SNC).
• Limited Partnerships (SCS), for general partners.
• De facto companies.
• Certain Joint Ventures (Partnerships in participation) (maximum five natural person associates, subject to legislative changes).

It is important to note that these companies can irrevocably opt for corporate tax (IS). Once this option is exercised, returning to fiscal transparency is no longer possible.

Tax Regime for Transparent Real Estate Companies

Exclusion from corporate tax does not mean a complete absence of taxation. Income and profits are taxed at the associates' level:

• Property Income: Rental income, for example, is declared by each associate in their personal income tax (IR) declaration, proportional to their shares.
• Sale of Shares and Property Gain: When an associate sells their shares in a transparent real estate company, this sale is fiscally treated as a sale of real estate. The profit realized is subject to the Tax on Real Estate Profits (TPI) at a rate of 20%, with a minimum of 3% of the sale price. The conditions for determining property gain (Articles 61 et seq. of the CGI) apply, including the revaluation of the acquisition price, expenses, and investment costs. Abatements for duration of ownership may also apply, and an exemption is possible if the property constitutes the associate's principal residence for more than 6 years.

Advantages of Fiscal Transparency

This regime offers significant benefits for asset management:

• Absence of Double Taxation: This is the major advantage; profits are taxed only once at the associates' level.
• Flexibility in Asset Management: Ideal for organizing the ownership and transmission of real estate assets within a family.
• Property Profit Abatements: Associates can benefit from abatements related to the duration of ownership when selling shares.
• Deduction of Property Losses: Expenses related to the property (loan interest, renovation work) can be offset against the associates' property income.

Obligations and Option for Corporate Tax (IS)

Although excluded from corporate tax, these companies are not exempt from all obligations:

• Bookkeeping: They must maintain regular accounts. iHub offers accounting services to ensure the compliance of your operations.
• Tax Declarations: Submit required tax declarations (declaration of property income per associate).
• Other Taxes: Comply with professional tax and housing tax obligations, where applicable.

A transparent real estate company can irrevocably opt for corporate tax (IS). This strategic decision can be advantageous if the company aims to capitalize its profits or benefit from a proportional corporate tax rate (e.g., 20% for profits under 100 million MAD).

Loss of Transparency Status

It is crucial to maintain compliance with the eligibility conditions. If a company ceases to meet the criteria of Article 3-III of the CGI, it loses its transparency status and becomes subject to corporate tax (IS) from that date. This reclassification entails all tax consequences of the corporate tax regime. To avoid these pitfalls and secure your situation, legal advice and regular support are essential.

Conclusion

Transparent real estate companies represent a major tax opportunity for asset management in Morocco, particularly for families. By avoiding double taxation and offering great flexibility, they allow for optimizing the ownership and transmission of real estate assets. However, a thorough understanding of the conditions and obligations is essential. iHub, your expert partner, supports you in navigating this complex regulatory framework and maximizing the benefits of this regime.