Withholding tax rate on dividends: What will change in 2024 - Upsilon Consulting (2024)

Withholding tax rate on dividends: What changes in 2024

The draft finance law for 2024 in Morocco (LDF 2024) did not introduce any change in the rates of withholding tax on dividends in Morocco.

That said, since the 2023 LDF a set of reforms to thetax systemhave affected withholding tax on dividends in Morocco.Indeed, the promulgation of certain measures is likely to completely disrupt the taxation system that we have known for a long time.

Indeed, in 2023, the Moroccan tax landscape had undergone significant changes, particularly with regard to withholding tax on dividends.This tax measure is of paramount importance to investors and businesses, as it directly influences the profitability of stock investments and the management of corporate profits.TheLDF2023introduced a progressive reduction in withholding tax on dividends.

In this article, at the start of 2024, we look in detail at the implications of these changes.This is an opportunity to recall the status of the rates which will be applicable in 2024.

Intended for an audience of investors, business leaders, and financial professionals, this guide is intended to be a reference tool for navigating the Moroccan tax framework.

Understanding Withholding Tax on Dividends

Withholding tax on dividends is a tax mechanism where part of the profits distributed by a company to its shareholders is withheld and paid to the State even before the latter receive their share.This levy aims to simplify the collection of tax on income from movable capital, thus ensuring a fair and effective tax contribution.

Dividends, representing the share of a company’s profits allocated to its shareholders, differ from traditional remuneration.In fact, they are considered as income from movable capital and not as a salary or remuneration for services rendered.This distinction is crucial to understanding their tax treatment and their impact on the investment strategy of individuals and corporate entities.

Withholding tax on dividends in Morocco, as in many other countries, is therefore a tax tool allowing more direct and immediate management of tax obligations linked to profits from shares and shares.

Progressive decrease of the withholding tax rate on dividends – Common law regime

In 2022, the rate of corporate income tax withheld on dividends in Morocco is set at 15%. This rate is applicable to all income from shares and similar income.

The PLF 2023 proposes to gradually reduce the rate of withholding tax on dividends and similar income.

Indeed, this rate will be gradually reduced to 10% (instead of 15% currently). The new tax rates are as follows

Amount of gross proceeds Rate currently in force Proposal PLF 2023

Income from profits made in respect of financial years opened before January 1, 2023, remains subject to the 15% rate.

The income from shares and similar income distributed is considered to have been earned in the earliest fiscal years.

The objective of this provision is to mitigate the impact of the increase in corporate tax rates for certain companies.

Specific regime relating to OPCIs

OPCIs currently benefit :

Firstly, of the total exemption from corporate tax;
Secondly, taxation with a 60% deduction of their dividends for investor shareholders;
Thirdly, the deferment of payment of the corporation tax or the income tax on the net capital gain or the property profit realized following the contribution of buildings to these organizations;
Finally, the application of a 50% tax reduction on the subsequent sale of the securities received as consideration for the said contribution.

This tax incentive has been put in place to support OPCIs during their initial launch phase.

From January 2023, the PLF 2023 proposes :

• First, the abolition of the 60% allowance applied to dividends distributed by OPCIs ;
• Secondly, the abolition of the 50% tax reduction on the capital gain realized following the contribution of real estate assets to the OPCI.

These measures are applicable to the profits distributed by the OPCIs from the financial years opened as from January 1, 2023.

Dividends paid by companies located in the CFC and the ZAI

In 2022, companies located in (1) the Casablanca Finance City zone and (2) the Industrial Acceleration Zones will benefit from a permanent exemption from withholding tax on dividends. This exemption concerns legal entity shareholders and also concerns dividends from Moroccan sources.

From 2023, the PLF 2023 proposes the abolition of this permanent exemption. Thus, the PLF 2023 proposes to limit the application of the permanent exemption from withholding tax to foreign source dividends distributed to non-residents.

These measures are applicable to dividends and other similar income from participations distributed from fiscal years beginning on or after January 1, 2023.

What professionals think about the reduction in the withholding tax rate on dividends in 2024

According to Mr. Abdelhakim Soudi, Chartered Accountant, “These changes reflect the desire of the Moroccan tax authorities to stimulate investment in shares and encourage the distribution of profits in the form of dividends.» He added that “By reducing the tax burden on income from movable capital, Morocco is positioning itself as a destination of choice for investors seeking to optimize their returns.»

Specific regime relating to OPCIs

OPCIs currently benefit from:

• Firstly, total exemption from corporate tax;
• Secondly, taxation with a reduction of 60% of their dividends for investor shareholders;
• Thirdly, the suspension of payment of IS or IR in respect of the net capital gain or land profit realized following the contribution of buildings to these organizations;
• Finally, the application of a 50% tax reduction, upon the subsequent transfer of the securities received in return for said contribution.

This tax incentive was put in place to support OPCIs during their first launch phase.

From 2023, the PLF 2023 proposes:

• First, the removal of the 60% reduction applied to dividends distributed by OPCIs;
• Secondly, the elimination of the 50% reduction in tax for the capital gain realized following the contribution of real estate to the OPCI.

These measures are applicable to profits distributed by OPCIs from financial years beginning on or after January 1, 2023.

Dividends paid by companies located in the CFC and the ZAI

In 2022, companies established (1) in the Casablanca Finance City zone and (2) in industrial acceleration zones benefited from a permanent exemption from withholding tax on dividends.This exemption concerns shareholders who are legal entities and also concerns dividends from Moroccan sources.

From 2023, the PLF 2023 proposes the elimination of this permanent exemption.Thus, The PLF 2023 proposes to limit the application of the permanent exemption from withholding tax to dividends from foreign sources, distributed to non-residents.

These measures are applicable to dividends and other similar participation income distributed, originating from financial years beginning on or after January 1, 2023.

Application of withholding tax rates on dividends per year

A thorough understanding of the application of withholding tax rates across different financial years is essential for investors and businesses.This section aims to clarify how these rates are applied based on the year of profit realization.

Enforcement Mechanism

• Dividends from Previous Years: Dividends from profits made before January 1, 2023 remain subject to the withholding tax rate of 15%.
• Dividends from Subsequent Financial Years: For profits made from January 1, 2023, the new rates, gradually reduced from 13.75% in 2023 to 10% in 2026, are applicable.

Illustrative Example

Take the example of a company that distributes dividends in 2024. If these dividends come from profits made in 2023, they will be subject to a rate of 13.75%.On the other hand, if part of the dividends comes from profits prior to 2023, this portion will remain subject to the rate of 15%.

Implications for Tax Planning

This gradation of rates according to the year of profits requires careful tax planning on the part of companies.The precise determination of exercises

The information from which distributed dividends come is crucial to correctly apply the withholding tax rate on dividends.This approach guarantees tax compliance and optimizes dividend distribution strategies.

Business Advice

Companies must therefore take into account the source of profits when distributing dividends.It is recommended to consult tax experts to ensure that all tax implications are properly considered and that decisions made are in line with current regulations.

In summary, in-depth knowledge of the new rules for applying withholding tax rates on dividends is essential for efficient and compliant tax management.It allows companies to better plan their dividend distributions and investors to understand the tax impact of their investments.

Upsilon consulting – An accounting firm at your service

In the complex and constantly evolving context of dividend taxation in Morocco, the role of a chartered accountant becomes essential.Upsilon Consulting, as a renowned accounting firm, plays a crucial role in guiding businesses and investors through the twists and turns of these tax changes.The expertise and advice of Upsilon Consulting are essential to ensure optimal tax management that complies with new regulations.

Contact Upsilon Consulting

Tailor-made advice

Upsilon Consulting provides personalized support to help its clients understand the implications of the new dividend withholding tax rates and strategically plan their investments and dividend distributions.Their expertise helps identify the best opportunities while minimizing tax risks.

Tax optimization

The firm is committed to offering tax optimization solutions, taking into account the specificities of each company or investor.Whether for a small local business or a large international investor, Upsilon Consulting develops tailor-made strategies to maximize the tax advantages available within the legal framework.

Compliance and Clarity

Additionally, Upsilon Consulting plays a vital role in ensuring tax compliance for its clients.Their advice helps navigate the Moroccan regulatory framework with confidence, providing clarity on the most complex aspects of tax law.

In short, Upsilon Consulting positions itself as a strategic partner for companies and investors seeking to make the most of the Moroccan tax system, particularly with regard to withholding tax on dividends.