Several laws and decrees, which are regularly amended and completed, regulate the Moroccan real estate sector. Most of the laws are not codified.
The main sources of real estate legislation can be found in the following texts (non-exhaustive list):
The real estate sector experienced a disturbed year in 2022. A comparison of reports for the quarters of 2022 relating to the real estate asset price index (“IPAI”) published by Bank Al-Maghrib (the Moroccan central bank) and by the National Agency for Land Registration shows in particular that:
On a more positive note, the tourism sector has experienced exceptional and progressive growth since the opening of borders in February 2022. According to the Ministry of Tourism, the year 2022 ends with MAD84 billion of receipts and 10 million visitors.
The Ministry is optimistic about 2023, saying that it should exceed the ceiling of MAD100 billion of receipts. The ministry expects 2023 to exceed the performance of 12.9 million visitors recorded in 2019, a record year for tourism in Morocco.
Finally, real estate professionals express their regret and disappointment at the dramatic rise in the price of building materials due to rising inflation, as evidenced by the drop in building permit applications, as well as in bank loan applications for the acquisition of housing and, consequently, in sales.
The Moroccan real estate sector has not yet been impacted by blockchain technology, decentralised finance, proptech or other disruptive technologies.
Transactions via cryptocurrencies are prohibited in Morocco.
A new law (Law No 102-21) regulating industrial zones has been published. This law aims to organise and structure industrial zones (in terms of planning, development and management) and focus on real estate aspects as the terms and conditions for industrials to develop industrial lands located within industrial zones and the modalities whereby the authorities may recover the non-developed lands. A law regulating the profession of real estate broker is expected to be adopted in 2023.
The Moroccan legal framework applicable to property rights remains complex, mainly due to the variety of legal regimes governing lands and the co-existence of unregistered and registered property.
Categories of Moroccan land tenure can be summarised as follows.
Rights in rem (droit réels)
Law No 39-08 forming the Moroccan Real Property Code (Code des Droits Réels) lists Moroccan rights in rem as follows.
Besides the general rules of contract law related to sale and purchase agreements, the transfer of private registered property is governed by specific legislation, such as:
Furthermore, specific laws apply to the transfer of certain types of real estate (land belonging to the private state domain, collective lands, individual property of unregistered land (moulkiya), etc). There are no specific provisions that apply to the industrial, office or retail sectors.
Under Moroccan law, ownership of registered land is not transferred to the buyer until the notarised deed of sale – which must be signed before a notary public or equivalent – is registered with the Land Registry (Conservation foncière). The Moroccan constitution guarantees ownership, and the title for registered land is issued by the Land Registry, which ensures that the deeds are properly registered. The information contained in the Land Registry is publicly available and can be obtained for a nominal cost. Hence, title insurance is not a common practice in Morocco.
Restrictions in the functionality of government offices and in-person availability for document signing or notarisation caused by the COVID-19 pandemic resulted in new processes or procedures for the documentation and completion of real estate transactions.
Indeed, since September 2021, notarised deeds of sale and ancillary documents should be submitted electronically to the Land Registry by the notary public. Furthermore, the professional order of Moroccan notaries public has created its own electronic signature tool.
Buyers generally conduct the necessary due diligence reviews, which cover technical, commercial and legal matters.
With respect to legal matters, the review typically includes the following:
Specific attention must be paid to the drafting of force majeure clauses.
The following guarantees are imposed by statutory law on the seller, and may be extended or limited by the parties:
The warranties provided by the seller in a share deal include the usual representations and warranties relating to the company being sold (the existence of the company, share capital and ownership of the shares, corporate matters, the accuracy of the accounts, the company’s activity, financial standing, significant contracts entered into by the company, employment matters, litigation, tax matters, etc).
Investors should consider the following when considering the purchase of real estate in Morocco:
Moroccan environmental law is based on the “polluter pays” principle, which means that the person responsible for the pollution is liable for damages and must take appropriate measures to remedy the pollution. If pollution is discovered, the owner of the property has the burden of proving that the previous owner or a tenant caused the pollution, in order to avoid liability.
Before planning a construction project and applying for a building permit, zoning and planning regulations must be checked.
The plans and regulations for each local area are generally available to the public for a nominal fee from the local urban agency (agence urbaine), using a dedicated application form (note de renseignement) indicating applicable uses and restrictions regarding footfall, the maximum building height, etc.
No agreement with public authorities is required to facilitate a private development project. Nevertheless, in certain cases involving a specific real estate project (mainly to promote tourist, industrial and/or artisanal projects, as well as social housing), it is possible to request and obtain authorisation from the competent authorities to derogate from the applicable urban regulations.
Under Law No 7-81, the Moroccan state is entitled to expropriate land for reasons of public necessity or for temporary use (following a dedicated administrative and judicial procedure). In this case, compensation must be paid to the owner for the expropriated property. The compensation is based on the current and effective damage directly caused by the expropriation, according to the value of the property on the day of the decision pronouncing the expropriation.
The following taxes and fees are payable in an asset deal:
In a share deal, the following fees are due.
Apart for some industries including agriculture, fishing, audio-visual, banking and insurance, there are generally no limitations on foreign investors buying real estate (either directly or indirectly through the purchase of a company holding real estate assets).
Foreign individuals or companies whose share capital is held, at least in part, by foreign entities, were previously not permitted to purchase agricultural land in rural areas for agricultural purposes in accordance with the Dahir’s rules dated 23 April 1975. However, these businesses are now permitted to purchase agricultural lands intended for agricultural purposes, even if they are held by foreigners, under the provisions of Law No 62-19 dated 14 July 2021, promulgating special provisions relating to the acquisition of agricultural lands by joint stock companies (sociétés anonymes) or limited liability partnerships (sociétés en commandite par actions).
However, if a foreign investor plans to carry out a non-agricultural project on agricultural lands (such as an industrial or residential project), a specific temporary and final certificate of non-agricultural purpose must still be obtained from the administration, which will allow the foreign investor to acquire the land and carry out the planned project.
Real estate investors typically use a combination of equity (including internal financing by the shareholders) and/or bank loans to finance the acquisition of commercial real estate in Morocco.
The following securities are usually required by lenders:
It is also common to obtain personal securities, such as a guarantee from a company (usually a parent company) covering cost overruns, completion, interest and principal.
The enforcement of any security in Morocco that benefits a foreign lender would result in a transfer of the enforcement proceeds outside of Morocco. Such a transfer would generally require the foreign exchange office to grant a spot authorisation, as the Foreign Exchange General Instruction does not explicitly authorise this type of operation.
Concerning repayment under a loan agreement, the General Instruction pre-authorises foreign financing under certain circumstances that would allow a Moroccan borrower to repay a loan to a foreign lender.
The creation of the beneficiary’s administrative file with the Land Registry, known as a dossier special, which requires gathering corporate and administrative documentation in original, certified or apostilled format and occasionally involves exequatur proceedings, may also present challenges and delays.
The following registration obligations and Land Registry fees are applicable upon the registration of a mortgage.
A fixed duty (per property) of MAD100 also applies.
No stamp duties apply to credit or security agreements (subject to exceptions).
The enforcement of a security requires no specific fee.
In addition to corporate authorisations, a Moroccan entity must ensure that the following rules are complied with when granting any security.
Additionally, the creation of movable and immovable securities will require (as the case may be) the completion of registration formalities with the National Register of Securities over movable assets (registre national éléctronique des sûretés mobilières) or with the competent Land Registry.
The secured lenders should have no difficulties collecting on a mortgage as long as the following criteria are met:
It usually takes between six and 12 months to successfully enforce a mortgage.
According to Law No 39-08’s Section 169, the priority of debt ranks from the date of registration, with same-day registration receiving equal consideration, and retains its rank and validity without further formality, until the valid registration of its withdrawal (mainlevée).
In order to subordinate a mortgage already registered in favour of a new mortgage, a specific subordination or intercreditor agreement between the creditors concerned exchanging ranks is required. The rules of subordination among creditors and governing the enforcement rights will be set out in that agreement.
In principle, and provided that they did not cause the damage themselves, the holder of security over real estate cannot be held liable for environmental damage.
A security interest issued by a borrower is valid under Moroccan law even if the borrower becomes insolvent.
However, borrowers will not be authorised to proceed with the enforcement of any security interest for the duration of the borrower’s insolvency proceedings. Indeed, any creditor whose receivables are not privileged by law is prohibited from commencing or continuing any individual legal action against the debtor.
In addition, pursuant to Article 714 of the Commercial Code, if it is determined that awarding a security is detrimental to the borrower’s bankrupt estate, the insolvency court can void securities granted during the six-month period prior to the borrower’s declaration of insolvency.
Parties that had LIBOR-based foreign currency facilities should have ensured that LIBOR termination was adequately covered in their agreements, taking into account the expiry of the LIBOR index at the end of 2021. The best approach would have been to draft interest clauses providing for fallback options in case the reference rate could not be found (eg, alternative reference rates or interest adjustment clauses).
Law No 12-90 on urban planning sets out the general rules applicable to strategic planning and zoning.
Urban Development Master Plans (Schémas Directeurs d'Aménagement Urbain) and zoning plans are used to establish strategic plans and zoning schemes (plans de zonage). Each municipality prepares development plans (plans d'aménagement), which categorise the land into distinct use zones and assign a different building density ratio to each zone.
In practice, public law regulates a landowner’s ability to build a new building or refurbish an existing one through an administrative authorisation that must be obtained prior to beginning any construction work.
Overall responsibility for regulating the development and designated use of individual parcels of real estate lies largely with local authorities, including the urban agencies and the Regional Investment Centres (Centres Régionaux d’Investissement) responsible for issuing building permits.
The following authorisations and permits are necessary for the construction of a real estate project (the list is not exhaustive as the situation depends on each particular project).
By Order No 338-20 of 21 January 2020, a dematerialised procedure was set up for the submission and processing of applications for town planning authorisation, via the platform known as Rokhas (rokhas.ma/karazal).
As an administrative act, any decision taken by the authorities must be justified and may be appealed before the relevant authority (recours gracieux) and/or the administrative courts (recours contentieux). A lawsuit may also be filed by third parties with a specific interest that deserves protection before the administrative authority or before the court, by asking for the decision to be annulled.
There is generally no need to enter into agreements with local or government authorities or agencies, or utility suppliers, in order to facilitate a development project.
The following consequences could occur due to failure to comply with the applicable regulation related to construction and planning law:
In any event, the violating party may be liable to a fine ranging from MAD1,000 to MAD100,000.
Furthermore, anyone who continues to operate a project despite receiving a notification to close the construction site may be punished by imprisonment ranging from 15 days to three months.
Real estate assets may be purchased by either natural individuals or legal entities. Companies usually possess substantial or valuable assets, with the most popular corporate forms including:
Law No 70-14 dated 24 August 2016 introduced REITs known as Organisme de Placement Collectif Immobilier(OPCI) into the investment legal framework.
There are two different forms of OPCI:
Joint Stock Company (SA)
A joint stock company (SA) is a form of limited liability company where each shareholder’s liability is, in theory, restricted to the amount of its contributions to the company. A minimum of five shareholders is required for an SA. Unless otherwise provided in the company’s articles of association (which may provide for restrictions on the transfer of shares, such as a temporary lock-up or prior approval clause (agrément)), the shares in an SA are freely transferable.
Simplified Joint Stock Company (SAS)
A simplified joint stock company (SAS) is a flexible corporate form that is suitable for companies with high growth potential. An SAS’s shares are not permitted to be listed. One or more shareholders, who may be either individuals or legal entities, can form an SAS. The maximum amount of liability of each shareholder is their individual share contributions. The shares are freely transferable, unless otherwise set forth in the articles of association of the company. If the articles of association of the company include a lock-up clause, Moroccan law provides that this lock-up period cannot exceed ten years.
Limited Liability Company (SARL) and Sole Shareholder Limited Liability Company (SARLAU)
The Moroccan equivalent of a limited liability company is a SARL. It can be incorporated as a sole shareholder company and may have up to 50 shareholders. In that case, the firm is a sole shareholder limited liability company (SARLAU). The maximum amount of liability for each shareholder is their individual share contributions. The SARL is frequently utilised for smaller enterprises, particularly because of its simplified and less complex management structure.
Unlike a joint stock company, a SARL cannot be listed on a stock exchange and cannot issue preference shares and debt or equity securities that are convertible into shares.
Real Estate Civil Company (SCI)
A real estate civil company (SCI) is a civil company whose purpose is to hold real estate assets. Because it is a civil company, an SCI cannot have in principle a commercial or trading nature. The shareholders are indefinitely liable for the company debts, in proportion to the shares they hold in the share capital.
A joint stock company requires a minimum share capital of MAD300,000 or MAD3 million if its shares are traded on the Casablanca stock exchange. Contributions can be made in cash (numéraire) or in kind (en nature). Contributions in kind are subject to a specific appraisal procedure by an independent appraiser.
The minimum share capital requirement for an SAS is not specified by Moroccan legislation.
A limited liability company is not required to have a minimum share capital. Contributions must be provided in kind or in cash, it being specified that contributions in kind must undergo a certain appraisal process by an independent appraiser.
A minimum share capital of MAD1 is required for a real estate civil company. Contributions can be made in cash or in kind, or may consist of technical skills (apport en industrie).
An SA may have either (i) a board of directors (conseil d'administration), or (ii) a management board (directoire) and a supervisory board (conseil de surveillance). The CEO (directeur général) is responsible for the day-to-day management of the SA and has the broadest powers and authority to represent the company before third parties.
An SAS is mainly governed by the terms and conditions of its articles of association.
A SARL is managed by at least one manager, who must be an individual and who has the broadest power and authority to represent the company before third parties, except for matters legally restricted to shareholders.
An SCI is managed by at least one manager, who must be a shareholder of the company (if the articles of association of the company do not mention this point, all the shareholders have the powers and authority to manage the company).
An SA must appoint at least one statutory auditor (two if the company is listed), and is required to file its accounts annually. These accounts must be certified by the statutory auditors who file them with the tax authorities, to which are added the statutory auditors’ fees for the certification of the annual accounts. Then, these certified financial statements are closed by the board of directors and approved by the shareholders’ meeting before being filed with the trade registry (costs of MAD50).
In an SAS, there is no legal obligation to appoint statutory auditors unless the company’s annual turnover (excluding VAT) exceeds an amount set by decree (it being specified that this decree has not yet been promulgated). An SAS is also required to file its annual accounts, duly approved by its president, with the local tax authorities and the trade registry.
A SARL must appoint statutory auditors only if its annual turnover exceeds MAD50 million. A SARL’s annual accounts must also be filed, after being duly approved by its shareholder(s), with the local tax authorities and the trade registry.
There is no requirement to appoint a statutory auditor in an SCI, nor to file annual accounts.
In Morocco, several arrangements provide for a person, company or organisation to stay in a property for a limited period of time without having to buy it. The main types of arrangement are the lease agreement, the usufruct, the commodat (a free lease agreement for the use of the property) and, in relation to private state land, the authorisation to temporarily occupy publicly owned land.
Aside from the general rules governing leases, as laid down by the Dahir dated 12 August 1913, forming the Obligations and Contracts Code regulating the general rules of contract law (as amended from time to time), Moroccan legislation has enacted two specific laws governing commercial leases and professional and residential leases.
The Dahir No 1-13-111 dated 19 November 2013 promulgating Law No 67-12 governs contractual relations between tenants and landlords for residential or professional premises. The professional lease mostly applies to liberal professionals not practising any commercial, industrial or handicraft activities.
The commercial lease is regulated by the Dahir No 1-16-99 dated 18 July 2016, promulgating Law No 49-16, which sets out a complete list of situations in which it applies. A commercial lease must be granted by the landlord in accordance with Law No 49-16 for:
Pursuant to Law No 49-16, some premises may not be subject to a commercial lease arrangement, including:
The right of the tenant to renew the lease is one of the main features of a commercial lease. Hence, if the landlord decides to terminate the lease ahead of the agreed contractual term, the tenant is entitled to seek compensation (indemnité d’éviction), determined by taking into account the value of the considered business.
As a general principle, rents are freely negotiable between the landlord and the tenant.
Although permitted by law, variable rents are not common in leases for office premises, but are a common feature in retail leases for premium international brands (expressed as a percentage of the annual gross revenues of the tenant’s business, subject to a specified minimum fixed rent).
No material ongoing regulation of rents or lease terms resulted from the COVID-19 pandemic.
As the duration of commercial leases is not regulated by Moroccan Law, the parties are free to enter into a lease agreement for any amount of time. In practice, commercial leases are often entered into for an initial period of three to nine years.
The right for the tenant to freely assign its lease and to renew the lease is one of the main characteristics of a commercial lease, which implies that, in the event of non-renewal, the tenant is entitled to an eviction indemnity based on the value of its business, among other considerations. The tenant must have been occupying the premises for two consecutive years or have paid “key money” (pas-de-porte) in order to be entitled to such a right of renewal.
Where the duration of a lease is equal to or over ten years, it is likely that the tax administration (when registering the lease) will consider that the taxable basis of the registration duties is the one applying to long-term leases (bail emphytéotique), that is, 20 times the annual rent in accordance with Article 131 19° of the Moroccan Tax Code (MTC) (against a fixed fee of MAD200 for the registration of a “standard” lease agreement).
Work and Repairs
The parties are free to allocate the various types of work and repairs. However, in general, ordinary repairs and maintenance are borne by the tenant, and the landlord bears the cost of structural and major repairs, as well as repairs resulting from wear and tear, force majeure and construction defects.
Frequency of Rent Payments
The parties are free to negotiate the frequency of rent payments. Rent for commercial premises is usually payable monthly or quarterly in advance.
For now, there is no published information on the effectiveness of a force majeure provision for justifying the non-performance of a lease.
Since the situation resulting from the COVID-19 crisis is extremely unique, courts should tend to rely more on the principle of the good faith of the parties. In this context, some facilities have been set up by landlords (owners of major shopping centres), notably including the approval to exempt their tenants from paying rent for the period of their premises’ shutdown as mandated by the Moroccan authorities.
Under Moroccan law, force majeure legal provisions are not of a mandatory or public order nature, so it is possible to include contractual/tailor-made force majeure definitions when relevant. Hence, it is now quite common to address the unforeseen consequences of the COVID-19 pandemic in contractual arrangements.
Under the applicable regulations, the amount of the rent, the conditions of its revision and the rate of its increase or decrease can be freely determined by the tenant and the owner.
However, Law No 07-03 on the revision of the amount of rent for premises of commercial, industrial or handicraft use forbids increases in rent within the first three years from the date of concluding the lease agreement, or from the date of the last judicial or contractual review, and/or forbids parties from agreeing on an increase in excess of the rates set out by law (ie, 8% for residential leases and 10% for others, including commercial and professional leases).
If no agreement has been reached between the tenant and the landlord regarding the rent revision terms and the rate of increase, the parties may apply for judicial review based on the above-mentioned rates.
In practice, the parties usually agree a rent review clause that is based on the conditions imposed by Law No 07-03 (ie, an increase in rent of 8% or 10% every three years).
Law No 07-03 provides that a rent increase may only apply every three years following the signing of the lease agreement or the date of the previous judicial or contractual rent review, provided that any such increase is limited as follows:
VAT is payable on rent only in the following cases (otherwise it is out of scope of Moroccan VAT).
The landlord can opt to pay VAT (at 20%) on non-equipped business rentals. This option is made by a formal request and can be applied globally or partially to the taxpayer’s activities (ie, the option can be applied to a given real estate project, or to a single building/premises/apartment).
Pursuant to Moroccan law, there are no additional costs to be paid by the tenant at the beginning of the lease term, except a registration duty payable to the tax administration (set at MAD200). Although the MTC does not specifically state who is responsible for paying the registration fees, it is market practice for the tenant to bear this cost.
The tenant generally bears the maintenance and repair costs for common areas (ie, gardens, parking areas, stairways and elevators) by way of service charges, in proportion to the area of the premises occupied by each tenant compared to the total area of the property. In practice, the service charges are usually agreed as a lump sum.
Parties are free to determine which of them will pay the operating fees (eg, electricity, water, telecommunications and other utilities), but the utility costs are generally borne by the tenant according to its specific needs and usage.
A provision may be added in a lease whereby the tenant undertakes to take out insurance covering its professional civil liability, as well as damage caused to third parties or property as a result of its activities on the premises, or due to external events (fire, explosion, water damage, theft, etc). Although it is unusual, landlords may take out an insurance policy for the building itself.
As far as is known, tenants did not recover rent payments or other costs under business interruption insurance policies as a result of premises closures and clean-up costs incurred during the COVID-19 pandemic.
The parties generally provide that the leased premises are rented for a specific purpose, with any change being subject to the consent of the landlord. Moreover, the use of rented premises may be limited by legal or regulatory provisions, such as urban planning and zoning regulations.
Regarding commercial leases, a judge may grant permission to the tenant (even after a refusal by the landlord) to carry out one or more activities that are ancillary or related to the initial business activity, as long as they are not in conflict with the purpose, characteristics and location of the building, and they are not likely to affect its security.
Law No 49-16 governing commercial leases provides no specific provisions regarding works initiated by the tenant.
In any case, the parties are free to agree on the preferred work regime for the tenant, and it is generally provided that the tenant may not alter or improve the premises without the prior consent of the landlord, especially if the work is substantial and impacts the structure of the building.
Specific regulations apply to financial leases (credit bail), lease agreements for the use of agricultural land (bail à ferme), authorisations to temporarily occupy publicly owned land (autorisation d’occupation temporaire du domaine public), etc.
Habous properties, governed by a very specific legal regime, were subject to particular measures following the COVID-19 pandemic crisis, with habous tenants being exempted from paying their rent.
The Moroccan Commercial Code provides for the regime applicable to insolvency proceedings, but does not provide for a specific regime or scheme for the lease in the event the tenant is deemed to be insolvent. In the case of insolvency proceedings that do not lead to liquidation, it is customary for the court to appoint an administrator, who may decide to uphold the lease in force if it is deemed necessary for the tenant’s business operations.
To protect themselves against failure by the tenant to pay rent, landlords are provided with the following main forms of security:
A tenant does not have the right to remain in occupation of a property after a lease has expired or been terminated. Hence, if the premises is not vacated on the due date, a court order can be obtained by the landlord to recover possession of the premises. The lease agreement may also provide other penalty clauses if the property remains used without due cause after the expiry of the lease.
Pursuant to Law No 49-16 governing commercial leases, the tenant under a commercial lease cannot, in any circumstances, be deprived of the right to assign its leasehold interest – with or without its business (ie, separately).
The tenant and the assignee must, however, give notice to the landlord referring to the assignment. Until the notice date, this assignment is not binding on the landlord.
The tenant remains liable to the landlord with respect to all prior commitments.
According to Law No 49-16, a tenant is permitted to sublease any part of the leased premises, unless the lease agreement sets out otherwise. The tenant must notify the landlord about the sublease, and it only becomes effective against the landlord as of the date the notification is made.
Law No 49-16 governing commercial leases provides that the landlord may request a judicial termination of the lease if the lease contains a termination clause (clause résolutoire) and at least three months’ rent is still unpaid by the tenant, despite a 15-day formal prior notice being served.
There are also a number of instances in which the landlord has the ability to deny the right of the tenant to renew the lease without paying an eviction fee (indemnité d’éviction). These cases include notably unauthorised alterations to the premises, default of payment, sublease of the premises contrary to the terms of the lease, use of the premises in breach of the originally agreed use, etc.
It is market practice for the tenant to pay and bear the registration fee, even though the MTC states that the party to whom the lease is beneficial must pay the registration fee. However, the agreement can provide for a different situation. Such registration duty also applies to signatures of amendments and schedules.
As mentioned under 6.19 Right to Terminate a Lease, the landlord is entitled by Law No 49-16 to request from the court an early termination of the lease agreement and the eviction of the tenant in certain cases. However, in practice, this is a fairly time-consuming and challenging process.
Third parties are not entitled to seek the termination of a valid lease agreement. This being said, Law No 49-16 states that any public authority may terminate the lease if this is in the public interest, in which case the landlord is not required to pay an eviction compensation (indemnité d'éviction) to the tenant.
The parties may choose between two types of pricing mechanism for construction projects (which may sometimes be combined):
Different types of contractual arrangement can be adopted by the owner:
In any case, the assistance of a Moroccan architect is mandatory when applying for a building permit. This architect is responsible for preparing the conception plans and the building permit application file, monitoring the proper execution of the work and assisting the owner at the delivery of the work, as well as issuing the declaration of completion in order to obtain the certificate of conformity (certificat de conformité) or the occupancy permit (permis d’habiter).
Under a private construction agreement, the mechanisms typically used to manage construction risks are as follows (and are freely negotiated by the parties):
Delay provisions in the event that the agreed-upon milestones or completion dates are not met (unless the delay is due to force majeure or other unforeseen event, or is attributable to the owner) are generally used to avoid any schedule-related risk on construction projects. Delay penalties are often capped at a specific percentage of the contractor’s contract price.
Article 264 of the Moroccan Obligations and Contracts Code provides that the judge may always assess and then reduce the amount of contractual penalties.
Owners typically ask contractors for security to ensure timely completion and accurate performance of the work. A completion guarantee/performance bond as well as holdbacks (often replaced by a bank guarantee) are frequently provided by the contractor to the client (see 7.3 Management of Construction Risk). Also, it is standard practice for clients to ask for an advance payment bond, which is payable on first demand and ensures that any advance payments made by clients prior to the start of the work will be repaid.
Moroccan law does not offer specific provisions regarding the possibility for contractors and/or designers to place a lien or otherwise encumber an asset in the event of non-payment by the client. The client is the only one entitled to use the property as collateral, as the real estate is generally owned by the client.
In most cases, the construction contract specifies the conditions precedent that must be satisfied before the handover can take place. In practice, upon completion of the work, the parties will hold a provisional handover/acceptance (réception provisoire), even if there are some slight defects or snags still outstanding, which the contractor undertakes to repair during the warranty period (which is normally one year). Once the warranty period has expired, final handover/acceptance takes place (réception definitive).
In any case, upon completion of construction, the owner must obtain an occupancy permit (permis d’habiter) or, if the building is not intended for private accommodation, a certificate of conformity (certificat de conformité) certifying that the building as erected complies with the provisions of the building permit. This certificate is a prerequisite to the use of the erected building; using a building without such permit may give rise to fines and criminal liability.
Real estate sales and purchases generally do not require payment of VAT (ie, when a property is second hand rather than a new building).
Pursuant to Article 89-I-4° of the MTC, VAT is payable on real estate work, subdivision/allotment operations and real estate development transactions (the sale of plots in a real estate development project is subject to VAT at a rate of 20%).
The acquisition of large real estate portfolios has the same tax consequences as the purchase of a single real estate asset: if the transaction involves the direct purchase of real estate, it is subject to registration fees and property registration (see 2.10 Taxes Applicable to a Transaction).
However, in order to minimise the tax cost, it might be possible to acquire shares in a company that does not qualify as a real estate company (ie, that does not have gross assets composed of at least 50% real estate properties/other real estate companies). In that case, the transaction would be free of registration duties and no property registration fee would be payable (see 2.10 Taxes Applicable to a Transaction).
When renting out commercial or industrial premises, tenants are liable for two main local taxes: business tax and tax on municipal services.
Pursuant to Article 6-II-1° of Law No 47-06 on local taxation, all newly created professional activities benefit from a total exemption of business tax for the first five years after starting their activity. Business premises benefit from this exemption.
The taxable basis for business tax is the gross yearly rental value of all the assets available to the company (including assets purchased and rented).Newly incorporated companies benefit from a five-year business tax exemption, regardless of their legal purpose.
For hotel/housing activities, the taxable basis is determined by multiplying the construction/building cost with the following proportional rates:
Companies that do not own the premises they occupy must also include the amount of rent paid to the owner for all types of leases (real estate, leasing, etc) in the taxable basis.
The applicable rate is based on the nature of the activity and ranges from 10% to 30%, applicable on the annual rental value of assets used for the activity.
Tax on Municipal Services
The taxable basis for the tax on municipal services is determined with reference to the rules applicable to business tax. In principle, the municipal tax services taxable basis is identical to the business tax taxable basis (the taxable basis is reported in the same return for both taxes).
There is no exemption for the start of the activity regarding this tax (ie, it is payable as from the first year of activity).
The tax rate for the municipal services tax differs according to the geographical location of the activity, as follows:
Companies that do not use the properties they own are not liable for the business and municipal taxes on such properties; instead, the tenant is subject to the taxes relating to these properties.
The applicable regime is based on the distinction between companies and individuals.
According to the MTC, foreign investors owning property in Morocco are subject to corporate income tax on revenues deriving from that property (depending on the provisions of any double taxation treaty that may govern taxation, but generally capital gains on real estate are taxed in the country where the property is located).
The following rates of corporate income tax apply for 2023 (other rates will apply in 2024, 2025 and 2026 before reaching a flat rate of 20%), depending on the taxable income (ie, mainly the capital gain generated by the sale of a real estate property located in Morocco and made by a foreign investor):
The real estate rental income of individuals is subject to the following rates:
If a professional (either a company or an individual) pays a rental/real estate income (public or private legal entities or individuals), this professional is required to withhold the personal income tax on behalf of the real estate owner. The tax withheld is equal to 10% of the monthly gross rent payable if the yearly rent is lower than MAD120,000, otherwise the rate is 15%.
Capital gains on real estate properties are subject to personal income tax at the rate of 20% (a specific rate of 30% applies in limited cases). In the case of a capital loss, the minimum tax payable amounts to 3% of the sale price.
The following is exempt from personal income tax: capital gains made by anyone who, during the calendar year, transfers buildings with a total sale price up to MAD140,000.
Double Tax Treaties
Double tax treaties entered into by Morocco generally provide that income/capital gains from immovable property may be taxed in the contracting state in which the property is located.
Thus, the domestic treatment provided by the MTC is generally confirmed and the rental income received by a foreign investor (on a property located in Morocco) will be subject to (corporate) income tax in Morocco.
In the absence of a tax treaty, taxation will generally be applicable in Morocco and may generate a situation of double taxation.
Hence, in both cases (existence of a tax treaty or not), rental income and capital gain deriving from a property located in Morocco will generally be taxable in Morocco under standard conditions.
When legal entities such as companies subject to corporate income tax own real estate, they may benefit from amortisation, which is deducted within the cap of the authorised rates, pursuant to the practices of each profession, industry or branch of activity and guidelines published by the tax administration.
The recommended rates for the tax deduction of the taxable basis by the tax authorities are 4% for residential or commercial buildings, and 5% for permanently constructed industrial buildings.
Furthermore, the main new innovation in real estate ownership is the setting-up of Moroccan REITs (OPCIs), which enjoy the following tax incentives.
The OPCI may obtain a total exemption from corporate income tax (rental income, capital gain, dividend) if it meets the following conditions:
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