2021 Tax incentives for real estate investment trusts (REITs)

The Moroccan Finance Act 2017 has introduced a derogatory tax regime regarding real estate contributions in kind to REITs. Indeed, this specific taxation mode expressly derogates from articles 8 and 33-II of the Moroccan Tax Code which define the notions of taxable income. This regime is temporary applicable to contributions made until December 31, 2022. Previously, this regime was applicable to contributions made until December 31, 2020. However, the 2021 Finance Act has provided for an additional two-year period for the application of the transitional measure to encourage real estate contributions to REITs. Thus, the article 247-XXVI of the Moroccan Tax Code provides that taxpayers who proceed to the contribution of real estate registered in their fixed assets to a REIT are not taxed on the net capital gain realized as a result of the said contribution, subject to the following conditions:

1. Filing of a specific declaration at the tax administration within 60 days;
2. Evaluation of the contribution by a certified public accountant;
3. Commitment in the contribution deed to pay the tax on the capital gain at the time of sale of the REIT’s securities;
4. The contribution must be made before December 31, 2022 (Finance Act 2021).

If these conditions are satisfied, the company having made the contribution, benefits at the time of the total or partial disposal of the REIT shares, from a 50% reduction in corporate tax on the capital gain realized following the contribution of real estate to the REIT. This leads to the computation of the tax at the time of the recognition of the capital gain on the contribution, and its payment at the time of the total or partial transfer of REIT shares. Furthermore, in accordance with the provisions of article 6-I (A and C) of the MTC, the REIT benefit from:

• The total and permanent exemption from corporate income tax for activities carried out and authorized by law n°70.14 regulating REITs.
• Permanent exemption from withholding tax on dividends received by REITs as well as on interests paid to REITs.

The benefit of the above-mentioned exemptions was subject to the respect of certain conditions provided by article 7-XI of the MTC, namely:

1. To evaluate the elements contributed to these organizations by a certified public accountant;
2. To keep the real estate contributed to the said REITs for a period of 10 years minimum as from the date of the said contribution;
3. To distribute :
   • 100% of the dividends and income from equity securities;
   • 100% of the income from fixed-income investments;
   • At least 60% of the capital gain realized on the sale of securities;
   • At least 85% of the result of the fiscal year relating to the rental of buildings constructed for professional use. The 2021 finance act has completed these provisions by specifying that REITs which distribute at least 85% of the result of the financial year relating to the rental of buildings constructed for residential use are also eligible for the above-mentioned exemptions.

Legal references:

• The articles 6-I (A et C), 7-XI et 247-XXVI of Moroccan Tax Code (MTC)
• The law 70-14 relating to OPCI