In brief: Associations in Morocco are subject to corporate tax (IS) on their for-profit activities but exempt on non-profit operations consistent with their bylaws. The DGI evaluates the disinterested character, competitive position, and operating conditions to determine taxability.
Are associations subject to Corporate Tax (IS)?
In Morocco, the associative sector is extensive and continuously growing. Thousands of associations operate in diverse fields such as education, health, culture, sports, and social development. However, the question of their corporate tax (IS) regime remains poorly understood by many association leaders. This article provides an in-depth analysis of the taxation of associations in Morocco, drawing on the legal framework of the 1958 Dahir, the General Tax Code, and Circular 717.
The Legal Framework for Associations in Morocco: The 1958 Dahir
The right to form associations in Morocco is governed by Dahir No. 1-58-376 of November 15, 1958, as amended and supplemented by Law No. 75-00 of 2002. This founding text defines an association as “an agreement by which two or more persons permanently pool their knowledge or activities for a purpose other than sharing profits.” It is this notion of non-profit distribution that constitutes the central criterion of Moroccan association law.
However, tax law takes a distinct approach. It is not the legal status of the entity that determines its liability for corporate tax, but rather the nature of its activities. Consequently, an association may be legally non-profit while still being fiscally liable for corporate tax on certain operations.
Are Associations Liable for Corporate Tax (IS)?
At first glance, the answer to this question is clearly stated in Article 2 of the General Tax Code. This article stipulates that:
” I- The following are mandatorily subject to corporate tax:
1-…
2- …
3- associations and legally equivalent bodies;”
Furthermore, the third paragraph of Article 2 stipulates that all bodies subject to Corporate Tax (IS) (including associations) are “referred to as ‘companies’ in this code”. This means that the mere fact that a provision is worded for a “company” is not sufficient grounds to claim it does not apply to associations.
It is therefore legitimate to ask: under what conditions are these associations liable for this tax?
What Is the Tax Base for Non-Profit Associations?
Non-profit activities consistent with the corporate purpose are not subject to Corporate Tax (IS).
A non-profit association may in principle carry out two types of operations (from a financial standpoint):
- First, operations recognized as consistent with their corporate purpose as defined in their bylaws;
- Second, operations generating profits from the management or operation of an establishment engaged in sales or services.
Example: A cultural association may house a restaurant or a paid gym at its premises.
As a result, an association may receive from these operations:
- Either membership fees paid by members, donations, or grants;
- Or profits, earnings, or revenue related to the for-profit establishments they manage.
In accordance with Article 6 (I- A -1) of the General Tax Code, associations are subject to Corporate Tax (IS) on:
- profits or revenue derived from the management or operation of sales or service establishments (rental of real estate, operation of shops, cafes, restaurants, bars, granting of loans, etc.).
The absence of a profit motive implies, according to the analysis in Circular 717, that no profits are generated for the members.
However, the absence of a profit motive in an association does not imply the absence of surpluses relating to activities consistent with the corporate purpose. Thus, an association may generate a surplus from its members’ fees over the expenses it incurs to fulfil its purpose. One could assume, however, that these surpluses will be used for the future development of the association’s activities.
As a result, Circular 717 indicates that, given the non-profit nature of associations, the activities they carry out benefit from a Corporate Tax (IS) exemption when:
- First, these activities are consistent with the corporate purpose;
- Second, they do not have the character of a commercial establishment;
- Third, they do not have a profit motive.
However, There Are Exceptions to This Exemption
Circular 717 provides several criteria that may lead to a reassessment of the exemption.
Assessment of the Association’s Self-Interested / Disinterested Character
Before confirming that an association benefits from an exemption on its activities, a tax specialist should examine whether its management is truly disinterested. This assessment involves asking the following questions:
- First, is the association managed on a voluntary basis by its members, or do they receive remuneration?
- Second, does the association directly or indirectly distribute its surpluses?
- Third, can the association’s assets be allocated to members or their relatives?
Ultimately, if the answer to one or more of these questions is affirmative, the association loses its disinterested character. As a result, Corporate Tax (IS) applies under the same conditions as a commercial activity.
Assessment of the Association’s Competitive Position
It is then necessary to examine the association’s position in relation to competition from the commercial sector. Thus:
- When the association does not carry out activities that compete with the commercial sector, Corporate Tax (IS) does not apply to those activities;
- However, when it competes with commercial activities, it becomes taxable.
Assessment of Whether Conditions Are Comparable to Those of a Business
For this purpose, the operating conditions are evaluated based on the following criteria:
First, the product:
If the product offered by the association is similar or comparable to what a commercial company offers, it becomes liable for Corporate Tax (IS). A non-profit association should cover activities that meet needs not served by the market.
Second, the target audience:
Associations must offer their products or services to a specific population (e.g., unemployed persons, disabled persons, elderly persons, etc.).
Third, the price:
The rates charged by a non-profit association correspond in principle to a contribution by the beneficiary toward the cost. These rates must under no circumstances be comparable to the prices offered by commercial companies.
Fourth, advertising:
If the advertising carried out by the association is similar to that of a commercial company, in principle it should be taxable.
In conclusion of this section, Corporate Tax (IS) applies where the association conducts its activities using methods similar to those of commercial enterprises.
Associations and Other Bodies - Specific Exemptions
Certain bodies benefit from an express exemption provided by law (e.g., Fondation Hassan II de lutte contre le cancer, agricultural water users’ associations, cooperatives, etc.).
In this case, the exemption does not depend on the criteria mentioned above. The assessment of the situation will depend on the exemption conditions expressly provided by the text governing the exemption.
Associations recognized as serving the public interest by decree may also benefit from specific tax advantages, notably the ability to receive donations that are deductible from corporate tax for the donors. However, this recognition imposes enhanced obligations in terms of governance and financial transparency.
VAT Obligations for Associations
Regarding value added tax (VAT), associations are treated fiscally as final consumers for their non-profit activities. This means they bear VAT on their purchases without being able to recover it.
However, when an association carries out for-profit activities subject to corporate tax, it also becomes liable for VAT on those operations. In that case, it must register with the tax administration, charge VAT on its invoices, and file periodic VAT returns. The applicable rate depends on the nature of the activity carried out (20% standard rate, or reduced rates of 14%, 10%, or 7% depending on the case).
Tax Treatment of Grants and Donations
Grants received by associations in connection with their corporate purpose are not subject to corporate tax. The same applies to membership fees and donations received. These receipts are considered the association’s own resources linked to its non-profit purpose.
Conversely, operating grants received in the context of a for-profit activity constitute taxable income under corporate tax. It is therefore essential for associations to clearly distinguish in their accounting between resources allocated to activities consistent with the corporate purpose and those related to for-profit activities.
Accounting and Reporting Obligations for Associations
Maintaining Proper Accounting Records
Article 32 of the 1958 Dahir requires declared associations to present their annual accounts to their members at the general assembly. Beyond this legal obligation, associations that carry out for-profit activities must maintain accounting records in compliance with the chart of accounts for associations and foundations adopted in Morocco.
These accounting records must make it possible to distinguish between operations related to the associative purpose and those falling under commercial activities. This accounting separation is essential to justify the exemption on non-profit activities and to correctly determine the tax base on for-profit activities.
Mandatory Tax Filings
Associations subject to corporate tax on their for-profit activities must comply with the same reporting obligations as commercial companies, including the filing of the tax return, payment of provisional instalments, and the declaration of remuneration paid to third parties. Failure to comply with these obligations exposes the association to surcharges and penalties provided for in the General Tax Code. For further details, see our guide on taxation in Morocco.
Common Mistakes and the Role of the Chartered Accountant
Frequent Mistakes Made by Associations
Several mistakes frequently occur in the tax management of associations in Morocco:
- Assuming that non-profit status alone is sufficient to exempt the association from all taxes, without analysing the nature of the activities carried out;
- Failing to maintain separate accounting records for for-profit and non-profit activities;
- Omitting tax filings when the association generates taxable income;
- Indirectly distributing surpluses to members (benefits in kind, excessive remuneration) without considering the tax consequences;
- Failing to charge VAT on commercial services when the association is liable for it.
The Role of the Chartered Accountant
Given the complexity of the tax regime for associations, engaging a chartered accountant is essential. This professional assists the association in setting up compliant accounting, analysing whether its activities are for-profit or non-profit, preparing tax filings, and securing its exemptions.
At Upsilon Consulting, member of the OEC, our chartered accounting firm in Casablanca led by Salaheddine Yatim, Chartered Accountant, supports associations in managing their tax and accounting obligations. We help association leaders identify tax risks, optimise their management, and comply with the requirements of the General Tax Code.
Frequently Asked Questions
Are associations in Morocco subject to corporate tax (IS)?
Associations are generally exempt from IS on their non-profit activities. However, if an association carries out commercial or profit-making activities, those activities become subject to corporate tax under the same rules as any commercial entity, even if the association itself is non-profit.
What tax obligations do Moroccan associations have?
Depending on their activities, associations may be liable for IS on commercial income, VAT on taxable services, professional tax, and employer payroll taxes. They must file annual tax returns and maintain separate accounting for their non-profit and commercial activities.
How can an association in Morocco protect its tax-exempt status?
To maintain tax exemption, an association must ensure its activities are genuinely non-profit, avoid distributing surpluses to members (directly or indirectly), keep rigorous accounting records, and clearly separate any commercial activities from its core mission. Engaging a chartered accountant is highly recommended.
See Also
Public Establishments: What Corporate Tax (IS) Regime Applies?
Tax Regime for Cooperatives in Morocco (IS)
