A permanent establishment in Morocco exists as soon as a foreign company carries on an activity there in a sufficiently lasting or organised manner. Moroccan law, or the applicable tax treaty, then grants Morocco the right to tax the corresponding profits. Article 5 of the General Tax Code (CGI) lays down the principle. Companies, whether or not they have a registered office in Morocco, are taxable on the income and profits relating to their activity and profit-making transactions in Morocco, even occasionally. The question is therefore not “do we have a Moroccan company?” but “do we have a taxable presence in Morocco?”. This guide first sets out the qualification criteria and the consequences for corporate income tax (CIT), VAT and withholding tax. It then compares the permanent establishment with the branch and the subsidiary, and reviews the situations encountered in Tangier.
In brief. A non-resident company is taxable in Morocco as soon as it carries on an activity or performs profit-making transactions there (Art. 5 CGI). Its establishments in Morocco are persons liable to CIT (Art. 2-I-5°). Where a tax treaty applies, the treaty concept of permanent establishment delimits what Morocco may tax: fixed place of business, construction site beyond a duration set by each treaty, dependent agent. Without a permanent establishment, services rendered to a Moroccan client bear a withholding tax of 10% on gross income (Art. 4, 15 and 19-IV-B). With a permanent establishment, the entity is taxed like a Moroccan company on the attributable result. It keeps accounts, files its returns and manages its VAT, with a tax representative (Art. 115) if it remains non-resident.
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What is a permanent establishment under Moroccan tax law?
The CGI does not define the permanent establishment through a list of criteria as the OECD Model does. Instead, it proceeds in two steps. First, Article 5-I sets out the territoriality of CIT. Taxable are the income, profits and revenue relating to assets held, activities carried on and profit-making transactions performed in Morocco. So are those for which a treaty for the avoidance of double taxation grants Morocco the right to tax. Second, Article 2-I-5° lists among the persons compulsorily liable to CIT “the establishments of non-resident companies or of groupings of such companies”. Article 2-III treats them as “companies” for the purposes of the code.
The same Article 5 governs non-resident companies operating in Morocco without an establishment there. They are taxable on the gross income listed in Article 15 that they receive for work performed or services rendered. This applies when they act on behalf of their own branches or establishments in Morocco, or on behalf of independent persons domiciled or operating in Morocco. This taxation takes the form of a withholding tax. However, the branch or establishment may perform the work or services in Morocco without involvement of the foreign head office. In that case, the remuneration is included in the taxable result of that establishment, which is taxed like a company under Moroccan law.
The dividing line is therefore clear. An organised presence in Morocco means taxation on net profit, like a Moroccan company. Operating from abroad without an establishment means withholding tax on the gross amount. The whole point of the qualification exercise is to determine on which side a given transaction falls.
What are the qualification criteria under tax treaties?
Morocco has concluded a wide network of tax treaties, most of which are modelled on Article 5 of the OECD Model. Where a treaty applies, its definition of the permanent establishment delimits Morocco’s right to tax. Keep three families of criteria in mind. Remember, however, that each treaty sets its own thresholds. Only a reading of the text signed with the company’s State of residence allows a conclusion to be drawn.
The three tests used in treaties
The fixed place of business. This may be a place of management, a branch, an office, a factory, a workshop or any other fixed place through which the enterprise carries on all or part of its business. Fixity is assessed geographically (a specific location) and over time (a certain degree of permanence). An office made available at a client’s premises or a permanent maintenance workshop may suffice, without any local legal structure.
The building or assembly site. Under the OECD Model, a building site or a construction, installation or assembly project constitutes a permanent establishment only if it lasts longer than a given threshold. This threshold varies from one treaty to another. Never reason on the basis of a “standard” duration: the relevant duration is the one written into the applicable treaty.
The dependent agent. Even without a fixed place of business, an enterprise has a permanent establishment if a person acts on its behalf in Morocco and habitually concludes contracts there in its name. The same applies if that person plays the principal role leading to their conclusion. Using an independent agent acting in the ordinary course of its business does not create a permanent establishment. Nor do preparatory or auxiliary activities (storage, display, collection of information), as long as they genuinely remain ancillary.
Our article on double taxation treaties applicable to free zones in Morocco details how the CGI and tax treaties fit together.
What are the tax consequences of a permanent establishment?
CIT on attributable profits. The establishment is taxed like a company under Moroccan law on the taxable result of its activity in Morocco, at the rates of Article 19. The standard rate is 20%. It rises to 35% where net profit reaches MAD 100 million, but companies operating in industrial acceleration zones are excluded. The rate is 40% for credit institutions and insurance companies. The attributable result is determined as if the establishment were a separate enterprise dealing at arm’s length with its head office. This requires its own accounts and documentation of flows consistent with transfer pricing in Moroccan free zones.
Accounting and reporting obligations. Declaration of existence (Art. 148), accounts compliant with Moroccan standards, filing of the taxable result return within three months of year-end (Art. 20), four instalment payments (Art. 170), declaration of salaries and wages before 1 March (Art. 79) and monthly CNSS declaration if the establishment employs staff.
VAT and withholding tax
VAT. Transactions performed in Morocco are subject to Moroccan VAT, with monthly or quarterly returns depending on turnover (Art. 108). Where the company remains non-resident, Article 115 requires it to accredit with the tax administration a representative domiciled in Morocco. This representative undertakes to comply with the obligations of taxable persons and to pay the VAT due. Failing this, the Moroccan client declares and pays the VAT due. It self-assesses it if it is a taxable person, or withholds it at source if it operates outside the scope of VAT. Our article on VAT in Moroccan free zones covers transactions with industrial acceleration zones.
Withholding tax. In the absence of a permanent establishment, the gross income of Article 15 bears a withholding tax of 10% excluding VAT (Art. 4-III and 19-IV-B), applied by the Moroccan payer. This income includes royalties, technical assistance, secondment of staff, studies, equipment rental, interest, commissions, fees and remuneration for services of any kind used in Morocco or supplied by non-residents. Tax treaties may reduce this rate or reserve taxation to the State of residence. The beneficiary’s tax residence must then be substantiated.
Summary of the tax consequences
| Situation | CGI basis | Method of taxation | Main obligations |
|---|---|---|---|
| Service rendered from abroad to a Moroccan client, without an establishment | Art. 5-I para. 2, 4-III, 15, 19-IV-B | Withholding tax of 10% on gross income excluding VAT (subject to treaties) | Withholding and payment by the Moroccan client; certificate of residence to benefit from the treaty |
| Work or services performed in Morocco by an establishment, without head office involvement | Art. 5-I para. 3, 2-I-5° | CIT on the taxable result of the establishment, like a Moroccan company | Declaration of existence, accounts, result return (Art. 20), instalments, VAT |
| Works, construction or assembly contract awarded to a non-resident company | Art. 16 and 19-III-A | Option for flat-rate taxation of 8% of the contract amount excluding VAT, in full discharge of withholding tax | Option at the declaration of existence or after each contract; annual turnover declaration |
| Permanent establishment recognised under a tax treaty | Art. 5-I (right to tax granted by the treaty) | CIT on the profits attributable to the establishment | Same obligations as a Moroccan company; documentation of head office–establishment relations |
What is the difference between a permanent establishment, a branch and a subsidiary?
The subsidiary is a company under Moroccan law (SARL or SA) with legal personality, whose capital is held by the foreign company. A branch, for its part, is a secondary establishment registered with the trade register, without separate legal personality. The permanent establishment, by contrast, is a purely tax concept. It may exist without any registration (construction site, de facto office, dependent agent), and a registered branch almost always constitutes a permanent establishment. Our guide on the SA, SARL or branch legal structure in Moroccan free zones details the legal aspects.
| Criterion | Permanent establishment (de facto) | Branch | Subsidiary (SARL / SA) |
|---|---|---|---|
| Legal personality | None | None (extension of the parent company) | Yes, Moroccan company |
| Trade register registration | Not necessarily | Yes | Yes |
| Person liable to CIT | Yes (Art. 2-I-5°) | Yes (Art. 2-I-5°) | Yes (Art. 2-I-1°) |
| Tax base | Profits attributable to the activity in Morocco | Taxable result of the branch | Taxable result of the company |
| Liability of the foreign company | Unlimited | Unlimited | Limited to contributions |
| Access to the IAZ regime (Law 19-94) | No, unless authorised to set up in the zone | Subject to authorisation by the local commission | Subject to authorisation by the local commission |
| Flows with the head office or parent | Profit allocation, transfer pricing | Profit allocation, transfer pricing | Intra-group invoicing, dividends (11.25% withholding tax subject to treaties) |
| Reclassification risk | High if undeclared | Low (declared structure) | Low, unless functions performed by the parent in Morocco |
Three practical cases encountered in Tangier
Case 1: a foreign contractor on a site at Tanger Automotive City. A European equipment supplier sends its technicians to install and commission a production line at a manufacturer located in Tanger Automotive City. First question, the duration. If the assembly project exceeds the threshold set by the treaty between Morocco and the contractor’s State, a permanent establishment exists. The profit from the project is then taxable in Morocco. Second question, the method of taxation. As the awardee of an assembly contract, the contractor may opt for flat-rate taxation of 8% of the contract amount excluding VAT (Art. 16 and 19-III-A), in full discharge of withholding tax. It may also be taxed on the actual result of the establishment. If the contract is “turnkey”, the flat-rate base includes the cost of incorporated materials and installed equipment, even where invoiced separately or cleared through customs by the project owner. The option is exercised at the declaration of existence or after the conclusion of each contract.
Intra-group invoicing and travelling representatives
Case 2: a parent company invoicing its Tanger Free Zone subsidiary. The parent provides technical assistance, secondment of managers, process licences and management services to its Tanger Free Zone subsidiary. This remuneration falls under Article 15. It therefore bears the 10% withholding tax in principle, unless the treaty provides more favourable terms. The permanent establishment risk arises when the parent’s managers work permanently on the subsidiary’s premises. It also arises when they take decisions there on behalf of the parent or negotiate contracts with Moroccan clients. The subsidiary then becomes a fixed place of business at the parent’s disposal, or its employees become dependent agents. Written service contracts, transfer pricing documentation and a precise definition of the functions performed in Morocco are the prevention tools. The financial flows also fall under foreign exchange controls in Moroccan free zones.
Case 3: a travelling sales representative. A foreign company employs a sales representative based in Tangier. He visits the region’s factories, negotiates terms and forwards orders to the head office, which invoices from abroad. He may habitually conclude the contracts, or negotiate their essential elements so that the head office merely ratifies them. In that case, he constitutes a dependent agent and therefore a permanent establishment. The profits attributable to the sales he generates are then taxable in Morocco. If his role is limited to prospecting and reporting information, the activity may remain preparatory. The administration examines the office used, the signing of purchase orders and the power to grant discounts.
How to avoid an unintended permanent establishment?
Creating a permanent establishment is not a fault, it is a consequence. The problem arises when it is neither identified, nor declared, nor documented, and a tax audit reveals it several financial years late. Five reflexes limit this risk. First, map physical presences in Morocco: seconded employees, recurring assignments, premises, stored equipment, cumulative duration of projects site by site. Second, read the applicable treaty before setting the duration of an assembly or supervision contract, and track extensions. Third, frame the powers of the persons present in Morocco: no signing or negotiation of essential elements, genuine validation at the head office. Fourth, formalise intra-group services through contracts consistent with the functions performed. Fifth, if the presence becomes lasting, choose the appropriate structure before it is taxed de facto. Our guide for the foreign investor in Tangier details the set-up options.
Permanent establishment and Tangier’s industrial acceleration zones
Tangier’s industrial fabric (Tanger Free Zone, Tanger Automotive City, Tanger Tech – Mohammed VI City, the Tanger Med port platform) concentrates permanent establishment situations. Factories located in industrial acceleration zones constantly call on foreign suppliers of equipment, engineering, maintenance and management. They are often themselves subsidiaries of international groups. According to the Office des Changes, the automotive industry has been Morocco’s leading export sector since 2025. This intensity generates long projects, staff secondments and significant intra-group flows.
Three points deserve attention. First, the IAZ tax regime (full CIT exemption for the first five financial years from the start of operations, then taxation according to the company’s situation, Art. 6-II-B-8° CGI) benefits the company authorised by the local commission. It does not benefit the foreign supplier working there. A de facto permanent establishment of a foreign contractor on a TAC site is therefore taxed under ordinary law. Second, the specific foreign exchange regime of IAZ companies (Law 19-94) facilitates the settlement of foreign suppliers. However, it does not exempt the Moroccan client from withholding tax on Article 15 income. Finally, Tanger Med Zones, a subsidiary of TMSA, develops and manages TFZ, TAC, Tetouan Shore and Tetouan Park. The authorisation to operate in the zone (decision of the local commission within 30 days, Art. 12 of Law 19-94) is the normal route for turning a de facto presence into a structured set-up. The firm, based in Tanger Free Zone, works on all three aspects.
What are the common mistakes made by foreign companies?
Reasoning solely in terms of legal structure. “We have no company in Morocco” does not mean “we have no permanent establishment”: the qualification is factual.
Ignoring withholding tax on the client side. The Moroccan client who pays a non-resident without withholding exposes itself to a reassessment. The contractor must therefore anticipate this withholding in its price and check whether the treaty allows it to be reduced.
Artificially splitting a project. Splitting an assembly contract into short contracts or between group companies to stay below the treaty threshold is a practice the administration neutralises.
Forgetting VAT. The absence of a tax representative (Art. 115) shifts the reporting burden to the Moroccan client and creates risks on both sides.
Not documenting head office–establishment relations. Without a justified profit allocation, the administration reconstructs the attributable result itself.
Confusing the subsidiary’s IAZ regime with the supplier’s regime. The zone’s benefits do not extend to foreign contractors working there.
Need advice on this topic? Cabinet Dami & Associés, chartered accountants with offices in Tangier and Casablanca, will reply within 24 hours.
How Cabinet Dami supports foreign companies
Cabinet Dami & Associés, a chartered accountant registered with the Ordre des Experts-Comptables and based in Tanger Free Zone, carries out permanent establishment risk analysis: mapping of presences, reading of the applicable treaty, qualification of flows. We also structure the set-up (branch or subsidiary, IAZ authorisation, declaration of existence, VAT tax representative). In addition, we keep the establishment’s accounts and returns and secure transfer pricing documentation. As a free zone accountant in Tangier, the firm acts both for the foreign contractor and for the Moroccan factory that receives it, through its tax and social advisory service.
FAQ — Permanent establishment in Morocco
Can a foreign company with no office in Morocco have a permanent establishment?
Yes. A construction site exceeding the duration set by the applicable treaty is enough to characterise a permanent establishment, without premises or registration. So is a dependent agent who habitually concludes contracts in Morocco.
What is the withholding tax rate on services invoiced by a non-resident?
10% of the gross amount excluding VAT of the income listed in Article 15 of the CGI (Art. 19-IV-B), subject to more favourable provisions of tax treaties and to proof of the beneficiary’s residence.
What is the 8% flat-rate taxation?
An option open to non-resident companies awarded works, construction or assembly contracts (Art. 16 CGI): CIT is calculated at 8% of the contract amount excluding VAT (Art. 19-III-A) and this payment is in full discharge of withholding tax.
Must a permanent establishment keep accounts in Morocco?
Yes. The establishment of a non-resident company is a person liable to CIT (Art. 2-I-5°) and is taxed like a company under Moroccan law: accounts, result return within three months of year-end, instalments, VAT and social obligations if it employs staff.
Does a subsidiary in an industrial acceleration zone protect its parent company from permanent establishment risk?
No. The subsidiary is a separate taxpayer. If the parent itself performs functions in Morocco (permanent managers, negotiation of contracts), it may have its own permanent establishment, taxed under ordinary law.
Conclusion
A permanent establishment in Morocco is decided on the facts: physical presence, duration, powers of the persons on site, nature of the flows. The CGI taxes any activity carried on in Morocco (Art. 5) and treats the establishments of non-resident companies as Moroccan companies (Art. 2). It also subjects services rendered from abroad to withholding tax (Art. 4, 15 and 19-IV-B), while tax treaties delimit this scope. For a foreign group active in Tangier, anticipation always costs less than reclassification. An analysis before the first project or the first secondment allows an informed choice between withholding tax, flat-rate taxation, branch or subsidiary.
Official sources: General Tax Code, Articles 2, 4, 5, 15, 16, 19, 20, 79, 108, 115, 148 and 170 (Directorate General of Taxes); OECD Model Tax Convention, Article 5; Law No. 19-94 on industrial acceleration zones; Office des Changes.
The information in this article is provided for guidance only and may change as laws and regulations evolve. For an analysis tailored to your situation, contact Cabinet Dami & Associés — Tanger Free Zone: +212 539-39-81-18.
