Doing business with Morocco - the rules worth knowing

Adv. Christophe Bachelet Credit: DLA Piper

Normalization with Morocco has brought business opportunities for Israelis but few in Israel know how to get things done there. "Globes" talks to the experts.

The normalization of diplomatic relations with the Kingdom of Morocco and the aviation agreement that allows direct flights, which will take just five hours, bring business opportunities for Israelis, who previously saw Morocco as mainly an exotic tourist destination. Few in Israel are familiar with the culture of getting things done in Morocco, or are acquainted with the country's economy and the way that the legal system works in the North African kingdom.

Morocco's economy is diverse, with the leading sectors being the automotive industry, aviation, agriculture, tourism and hotels, healthcare and high-tech. In recent years, there has been a clear trend in developing a 'liberal' economy, in the field of renewable energy. Before normalization of relations between the countries, the volume of annual trade between Israel and Morocco was $35 million.

The legal system in Morocco, which is headed by King Mohammed VI, and has a population that is 98% Muslim, has been shaped by two strong but sometimes contradictory forces: on the one hand the French civil code, which is considered rigid and encourages enforcement, with its rules and regulations; and on the other hand the informal and traditional methods of the North African tribes, who operate according to local norms and Islamic sharia law, and which apply laws based on local customs.

The legal system in Morocco functions today as the only arm of the authorities that is not subject directly to the King's authority and it is defined in the State's constitution as an independent entity, separate from the House of Representatives and the Government, with the King as guarantor.

One of the less effective legal systems in the region

The legal system in Morocco includes three types of courts - district, general, and special. There are 837 district courts throughout the kingdom, which hear minor criminal offenses and financial disputes up to $110. The general courts are divided into three types: there are 71 first instance courts, which hear criminal and civil law cases and are empowered to hear civil, commercial and real estate cases as a first instance court; there are 26 courts of appeal throughout the country, and a special court in the commercial capital Casablanca handling most of the commercial disputes in the country. In addition, there is the High Court of Justice, which is the equivalent of Israel's High Court of Justice.

In the corruption index in 2010 drawn up by Transparency International, Morocco's legal system was ranked as one of the least effective in the region. A report by Global Integrity gave Morocco's legal authorities the very low mark of 56 out of 100.

According to the rankings of Doing Business in 2020, which ranks and compares 190 countries and examines the ease of doing business and the country's regulations, Morocco was ranked in 43rd place out of 190, in the index for ease of setting up a new business, with an overall mark of 93 out of 100. According to the study which was conducted, it requires just nine days to open a new business in Morocco, and the cost is relatively low. For the sake of comparison, Israel was ranked 28th in this index.

Regarding all matters related to enforcing contracts, Morocco was also ranked in the top half: 60th out of 190. Israel in contrast is only ranked 85th. In addition, one of the most outstanding differences between Israel and Morocco is the average amount of time required to settle contractual disputes: while in Morocco it takes an average of 510 days, the average number of days required in Israel is almost double - 1,000 days from commencing the procedures, through to settling the dispute.

"In order to open a company in Morocco, no local partner is needed"

In terms of the quality of legal procedures, Morocco is significantly better than average compared with the other countries in the Middle East and North Africa (with a mark of 9.5 out of 18 for Morocco, compared with a mark of just 6.6 for other countries in the region, although still lower than the OECD average of 11.7). The Moroccan government is campaigning against money laundering and has set up a financial intelligence unit responsible for the war against money laundering.

Adv. Christophe Bachelet is Country Managing Partner of the DLA Piper Global Law Firm in Casablanca. The firm has also been operating in Israel since 2012, through Advs. Jeremy Lustman and Naomi Maryles.

Adv. Bachelet told "Globes" that in recent years, Morocco has amended investment laws to make it easier to do business and to improve investment conditions, among other things by streamlining regulation.

He said, "In addition to the political stability in the country, free trade zones have been set up, such as in Tangier and the Casablanca Finance City, which have allowed them to become the most prominent gateways to Africa. Investors can enjoy loans and financing guarantees, and the special tax handling granted by the country's authorities. There are a number of tax exempt zones in the kingdom, offering commercial incentives."

"The most important thing from the point of view of investors is that in order to open a company in Morocco, you don't need a local partner. This gives the flexibility to begin the business yourself," says Adv. Bachelet. Another advantage, which facilitates procedures, is that the process of returning money to foreign investors is not subject to pre-approval by the supervisor of foreign trade: dividends, profits which are received in Moroccan branches of foreign companies, revenue from leasing, interest on shareholders loans and income from sales of shares and assets, or liquidating Moroccan companies.

"In every sector there are dedicated legal frameworks regarding projects for direct foreign investment. There are however certain agricultural lands that can only be owned by Moroccan citizens."

Are there special benefits or tax incentives for foreign investors?

"During the first five years after founding a company in the country there are tax benefits. After that, if the company is part of a free trade zone, there are other tax benefits. The third type of benefits is designed for all the companies that have made investment agreements with the state for investing more than 100 million dirham, for which there are special deductions and options for tax savings, in return for the commitment such as employment of local human resources."

Is it the practice in Morocco to take commercial disputes to arbitration or mediation?

"With foreign investors, it is popular to make use of the Courts for Arbitration Matters, of which the most prevalent is the ICC. Referral to The London Court of International Arbitration (LCIA) is often used for construction issues. With the increase in investments in the Middle East and North Africa, use has also been made of the International Arbitration Center in Dubai. The field of mediation is beginning to develop but it is still very rare."

The vaccination rollout is only starting out there

Adv. Bachelet adds that the major advantage that Morocco offers foreign investors is its geographical location. Tangier, which is the largest container port in Africa, is 26 kilometers from Spain. In February 2021, the net flow of foreign direct investment (FDI) reached 1.6 million dirham. 20% of investments came from France in 2020, with investments worth 5.8 million dirham, North Africa invested 1.6 million dirham and Spain invested 1.5 million dirham.

"Moroccan businesspeople have very great expectations about building cooperation with Israelis. They are enthusiastic about this and waiting for the opening of the skies and direct flights to Israel."

Coronavirus has hit hard and the vaccination rollout is only getting going in Morocco. Adv. Bachelet says that there is currently a nighttime lockdown from 8 pm, which includes restaurants, stores and supermarkets. Movement between cities is restricted, the education system is partially open and office employees have to work from home. The vaccine rollout has started but is in its early stages, with only people over 70 being vaccinated, as well as the security forces, public workers and teachers. So far 4.5 million people have been vaccinated out of a population of 36 million.

Ziv Sharon & Co. law firm Partner Adv. Yoad Frenkel, who has served in the past as Supervisor of the International Tax Unit of the Israel Tax Authority, explains about tax collection in Morocco. He says that companies and factories need to be registered in the trade registry and companies must pay annual corporate tax on their activities in Morocco. Capital gains realized in Morocco are taxed as regular income and according to the type of taxpayer on which corporate tax is due, or income tax for individuals. Companies are also charged VAT for supplying products and services on which tax is owed, as well as on goods imported to Morocco.

"Morocco makes use of the classic method of corporate tax. Initially taxes are imposed on profits at the level of the company paying corporate tax, and they are taxed again when received by the individual shareholders. However, dividends or distribution of profits are not taxed when they are received by the company holding the company paying the tax (dividends between companies are exempt). The dividend paid to a foreign resident requires tax paid at source. The basis of the tax is territorial for active revenue and based worldwide overall regarding passive revenue."

Income tax must be paid by foreign residents for their income and capital gains produced in Morocco. People residing most of the time in Morocco must pay income tax on their total income from Moroccan and foreign sources. People are considered Moroccan residents if they have a permanent household there, their center of economic interest is there, or who live in Morocco for a period of above 183 days, in every period of 365 days.

Published by Globes, Israel business news - en.globes.co.il - on May 5, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Adv. Christophe Bachelet Credit: DLA Piper
Adv. Christophe Bachelet Credit: DLA Piper
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