3 questions to Wacef Bentaibi and Julien Nouchi

What are the standard tax incentives available to investment projects in Morocco?

Since 2022, Morocco has revised its Investment Charter to enhance the attractiveness of the Kingdom and introduce new investment support mechanisms. This updated framework relies on two main pilars: the granting of public subsidies and tax advantages in the form of exemptions on CAPEX.

Any investor (Moroccan or foreign) whose investment project exceeds MAD 50 million may, subject to the signing of an investment agreement with the Moroccan Government, benefit from a full exemption from VAT (local and import) and customs duties for the implementation of its investment program.

In most investment projects—particularly those involving the development of public infrastructure, potable water production facilities, energy production, or large-scale industrial or tourism projects—the signing of an investment agreement is a prerequisite and a key element in the legal, financial, and tax structuring of the project.

In exchange for these fiscal and customs advantages granted by the State, the investor undertakes, through the agreement, to comply with certain obligations, particularly regarding job creation, capital expenditure (CAPEX), and project execution timelines. These exemptions are granted for a maximum period of 36 months from the date of signing the investment agreement.

It is therefore essential for the investor to take into account the duration of the exemption period when defining their investment program and scheduling the associated project works. Close coordination between the investor’s technical, financial, and legal teams is thus critical to ensure alignment between the preferential regime’s duration and the project development timeline.

What is the impact of the investment agreement on the overall management of a construction contract?

A clear understanding of the investment agreement’s mechanisms is essential for all parties to ensure its effective implementation for the benefit of the project owner. The mere signature of the agreement does not guarantee the actual application of the tax and customs exemptions. Specific administrative procedures must be carried out by the investor or project owner, or by duly authorized representatives.

These procedures include, for example, obtaining VAT exemption purchase certificates from the tax authorities (which require the contractor to issue pro forma invoices), or the validation by the Moroccan Investment and Export Development Agency (AMDIE) of the list of goods and equipment imported into Morocco under the project, in order to authorize customs to process their clearance without VAT or customs duties.

To this end, it is crucial that any power of attorney granted by the project owner to the contractor be clearly drafted to enable the contractor to complete the necessary procedures on behalf of the project owner and thus enforce the latter’s rights before the relevant tax and customs administrations.

Moreover, technical difficulties or external events (such as force majeure or administrative delays) may arise during the project and lead to execution delays. These could result in the investor failing to meet its obligations under the investment agreement and potentially losing eligibility for the related tax and customs exemptions.

Consequently, effective coordination between the parties is therefore critical to manage the exemption timelines. The investor must ensure that the project owner is able to monitor deadlines and is fully aware of the applicable rules regarding (i) the definition of the 36-month exemption period starting point, and (ii) the conditions for extending this period, whether or not a force majeure justification is required.

What is the main point of attention for a contractor whose client benefits from an investment agreement?

It is frequently observed that uninformed contractors mistakenly expect that the investment agreement’s benefits automatically extend to them, which can have serious consequences during project execution. In practice, contractors must invoice their services without VAT, while still incurring input costs subject to VAT.

Serious issues may arise if the contractor is unaware of the requirement to issue invoices to the project owner without VAT, because it usually counts on VAT paid by progressively by the owner to finance other costs. In the context of an investment agreement, the right to deduct VAT is transferred to the contractor, who may then request a refund of the VAT paid to its own subcontractors from the tax authorities. However, this mechanism requires the contractor to bear the VAT cost upfront, which can result in significant cash flow strain while waiting for reimbursement by the Treasury.

If the contractor’s cash flow is insufficiently structured, this financial pressure may lead to major difficulties in fulfilling contractual obligations, thereby hindering the overall progress of the project. It is therefore key to keep in mind that the VAT exemption is granted solely to the project owner (the investor) and cannot be transferred to the contractor.

Finally, in large-scale construction projects involving turnkey design, equipment, procurement and construction contracts, it is essential that all parties clearly define and understand their roles, responsibilities, and rights regarding the implementation of the investment agreement’s provisions.