In brief: Deductible expenses for corporate tax (IS) in Morocco include operating, financial, and non-recurring charges that meet four conditions: business connection, proper documentation, correct fiscal year recording, and net asset reduction. The General Tax Code (CGI) caps or excludes certain items such as fines, excessive gifts, and cash payments above 50%.
The concept of deductible expenses is very important in determining the taxable income for Corporate Income Tax (IS). Indeed, as we explained in our article Corporate Income Tax in Morocco (IS), the IS tax base is determined by the excess of:
- Taxable income
- Over deductible expenses
As a reminder, under the provisions of Article 10 of the General Tax Code (CGI), deductible expenses include:
- First, operating expenses: in accounting, these consist of the current expenses necessary for the business activity. For example, purchase costs of materials, personnel expenses…
- Second, financial expenses which consist, among others, of loan interest, exchange losses…
- Finally, non-recurring expenses which are exceptional expenses incurred such as bad debt losses, various penalties…
In practice, the Moroccan General Tax Code limits, however, the deductibility of certain expenses (penalties, gifts, etc.). In this case, although the company has the right to deduct these expenses, it must proceed with their add-back. The add-back is carried out in the reconciliation table from accounting income to taxable income.
It is very important to properly identify deductible expenses (and non-deductible ones) at the time of filing. If they are identified during a tax audit, penalties and surcharges may apply.
Before analyzing deductible expenses in detail, it is necessary to explain the conditions for deductibility of an expense.
Deductible Expenses - What Are the Conditions for Deductibility
For an expense to be fiscally deductible, certain conditions must be met. These conditions relate both to its nature and the reason for which it was incurred. Indeed, these conditions arise from the law, but are only clearly explained in the circular (Circular Note CGI 717 Volume 1). These conditions are as follows:
- First, the expense must relate to the management of the company
The company must incur an expense in the interest of the taxable activity and for its needs. Therefore, any expense that the company incurs for the benefit of a shareholder is not a deductible expense.
Example: A personal trip of a shareholder with their family, for example, will not be deductible. However, a business trip to participate in a trade fair will be.
- Second, the company must record the expense in its accounting
An expense, even if it is real and related to the activity, loses its status as a deductible expense if the company fails to record it as an expense in the relevant fiscal year.
- Third, expenses must be of an effective nature and supported by a proper accounting document
It should be understood that two sub-conditions arise from this condition:
- Effectiveness of the expense: This means that even in the presence of an accounting document (invoice), the tax authorities have the right to challenge the effectiveness of the expense (cases of false invoices, expenses not directly related by nature to the activity, etc.)
- Justification of the expense: Even in the presence of a real and effective expense, the absence of an invoice or other convincing supporting document may be grounds for rejection
N.B.: The specific case of expense reports is covered in a separate article.
- Fourth, it must result in a decrease in the company’s net assets.
An expenditure that results in a new asset entering the balance sheet does not give rise to a deduction.
Thus, expenses having the effect of increasing the value of an asset are not deductible (improvement of an existing asset, for example). Furthermore, expenses that have the effect of extending the useful life of an asset are not deductible.
However, depreciation charges on fixed assets may be deducted under the standard conditions explained later in this article.
Special case: expenses from prior fiscal years
The deduction of an expense is conditional upon compliance with the principle of accrual accounting (matching principle).
Thus, expenses from prior fiscal years are not deductible. Under this principle, deductible expenses must affect the results of the fiscal year in which they were incurred. Therefore, it is mandatory to allocate to each fiscal year the expenses arising from operations or events that occurred during said fiscal year, regardless of the date of payment.
Determination of Taxable Income
Under the provisions of Article 8-I of the CGI, the taxable income of each fiscal year corresponds to the excess of revenue over expenses. This taxable income is determined by making the following adjustments to the accounting income:
- The company must add back non-deductible expenses (example: expenses unrelated to operations);
- It has the right to deduct extra-accounting items that are not taxable (example: dividends benefiting from a 100% allowance).
The company must make deductions/add-backs in the following cases:
- When revenue is fully or partially exempt, or subject to an allowance;
- When expenses are fully or partially non-deductible, or their deduction is capped;
- When they have been previously taxed (or deducted) or when their taxation (deduction) is deferred.
Example: The reversal of a provision made on a provision whose charge was previously added back is deducted in the reconciliation table (although recorded as income).
The taxable income, thus adjusted, constitutes the actual tax base. The adjustments are made in a table appended to the tax return called the “reconciliation table from accounting income to taxable income.”
Deductible expenses consist of the total operating expenses, financial expenses, or non-recurring expenses that have not been specifically designated as non-deductible.
Let us analyze each of these components of deductible expenses.
Deductible Expenses - Operating Expenses
Operating expenses deemed deductible are those that do not require adjustment (or resulting from adjustment). Under the provisions of Article 10 of the General Tax Code:
“Operating expenses consisting of:
A- purchases of goods resold as is and consumed purchases of materials and supplies;
B- other external expenses incurred or borne for the needs of operations, including:
(…)
C- taxes and duties payable by the company, including additional assessments issued during the fiscal year, with the exception of corporate income tax;
D- personnel and labor costs and related social charges, including housing assistance, representation allowances, and other benefits in cash or in kind granted to the company’s employees;
E- other operating expenses;
F- operating allocations.”
We note that the General Tax Code defines operating expenses as expenses falling under class 61 of the Moroccan chart of accounts. Therefore, only expenses that should be considered non-deductible are those that:
- Fail to meet one of the deductibility conditions mentioned above;
- Are non-deductible by virtue of an express provision of the law.
Let us now analyze each of these components provided for by the General Tax Code in light of the comments made by Circular 717.
A - Purchases of goods resold as is and consumed purchases of materials and supplies
In general, a company subject to Corporate Income Tax may fiscally deduct all purchases it makes in the course of its business. These include purchases of:
- merchandise when it carries out a trading activity;
- raw materials when it has a manufacturing activity;
- other supplies (water, electricity, office supplies, etc.);
- services, studies, subcontracting, etc.
Local purchases
The fiscally deductible amount corresponds to the purchase price, which means the invoiced price, all taxes included, excluding recoverable VAT.
However, companies that do not have the right to recover VAT may record it as a deductible expense. Thus, for example, a company subject to a VAT deduction pro-rata may benefit from the Corporate Income Tax deduction for non-recoverable VAT.
Imported purchases
In the case where the company imports merchandise, Circular 717 stipulates that the deductible expense consists of:
- Purchase price
- Customs duties relating to the goods acquired
- Ancillary approach costs such as freight, transit, insurance, etc.
It should be noted that, according to the same circular, the actual cost is calculated by converting the foreign currency value at the exchange rate on the date of filing the DUM (Single Goods Declaration). Subsequently, upon payment, the company may record an exchange gain or loss based on the difference at the exchange rate on the date of payment. Realized exchange losses or gains are respectively deductible or taxable.
The circular provides additional details regarding deduction in specific cases of subcontracting, real estate work, etc. See the Circular Note CGI 717 Volume 1.
Case of inventory variation
As indicated above, the company must comply with the accrual accounting principle.
Thus, when a company purchases merchandise or materials that remain in inventory at the end of the fiscal year, their value is not deductible. Indeed, only purchases corresponding to actual consumption (or resale) during the fiscal year are deductible.
From an accounting standpoint, this objective is achieved through the inventory variation mechanism.
The inventory variation corresponds to the difference between inventory at the beginning of the fiscal year and inventory at the end of the fiscal year. The annually deductible amount corresponds to the difference between the annual volume of purchases and said inventory variation.
Thus, previously purchased merchandise and materials that entered the operating cycle during the year are part of the deductible expenses (debit inventory variation). However, merchandise purchased during the year but forming part of the closing inventory will only be deductible in the fiscal year of their consumption or sale (credit inventory variation).
Note that this reasoning applies to all other inventory items (supplies, parts, packaging, etc.). The company must calculate the inventory variation at cost price, which also includes approach costs. Indeed, the principle that the accessory follows the principal applies here.
B - Other external expenses
The company has the right to deduct from its taxable income all external expenses. These are expenses recorded in accounts 613/614 of its income statement.
Thus, the law considers the following expenses as deductible:
- Rent and rental charges:
The company may deduct from its taxable income rents for business premises, land, and equipment. The same applies to premises allocated to staff housing (note: sometimes these correspond to benefits in kind subject to Income Tax). Nevertheless, only the annual charge is deductible.
It should be noted that prepaid rents and security deposits are not deductible and must be recorded as assets on the balance sheet. Sometimes, they become deductible when they result in a decrease in net assets (loss of deposit, consumption of advance payment, etc.).
Special case of passenger vehicles: The rental of passenger vehicles for a period exceeding 3 months is subject to a deduction limit (60,000 dirhams per vehicle per year). Obviously, their deduction is subject to the substantive and formal rules outlined above (particularly the connection to the business activity).
- Finance lease or leasing payments
Finance lease or leasing is defined as a rental contract with a purchase option (or commitment) at the end of the rental period. The lessee pays annual lease payments under this contract. At the end of the contract, the lessee may become the owner of the asset in exchange for paying a residual value.
Under the Moroccan chart of accounts, the annual contractual lease payment is recorded as an expense (unlike international accounting standards).
Finance lease payments are deductible without limitation from the taxable income and without conditions. The contract term, even if shorter than the useful life of the asset, does not constitute a limit on the deduction.
Upon completion of the acquisition, the residual value is deducted in the form of depreciation charges over the remaining useful life of the asset.
- Maintenance and repairs
The company may deduct from its taxable income any expenditure aimed at maintaining or restoring an asset to its normal condition.
Excluded from the right of deduction are repair expenses that have the effect of either:
- extending the useful life of an asset
- increasing its value
In both cases, these costs must be capitalized as assets and depreciated.
- Insurance premiums
When a company takes out an insurance contract for the needs of its operations, the premiums paid are deductible.
The right to deduction covers all types of insurance (multi-risk, civil liability, fire, transport equipment, workplace accidents, etc.).
However, certain specific contracts require an adjustment of the tax treatment. These include:
-
First, premiums paid under insurance contracts for the benefit of the company on the life of its senior management or key personnel are excluded from deductible expenses. In the event of death, the capital received by the company is taxable to the extent of the difference between the amount received and the premiums previously paid;
-
Second, insurance premiums paid under a life insurance contract for the benefit of a staff member are deductible. However, they must not be recorded as insurance premiums but as a salary supplement subject to Income Tax and contributions where applicable;
-
And finally, premiums/provisions for self-insurance. In this case, the company sets up a provision (whether or not allocated to an asset) instead of taking out insurance with an insurance company. These provisions cannot give rise to a tax deduction.
-
Remuneration of external personnel
Invoices paid by the company to temporary staffing agencies (or other companies) in exchange for the use of occasional, temporary, or seconded personnel are considered deductible expenses.
However, when this personnel belongs to the same group, it is customary for the tax authorities to request proof of the effective work performed by this personnel.
- Intermediary fees and professional fees
Remuneration paid by the company to non-salaried intermediaries is deductible (example: business referral commission, export agent commission, etc.).
The same applies to all fees paid to consulting firms such as:
- Fees of lawyers, chartered accountants, and other liberal professions;
- Filing and litigation fees
- Audit, management consulting, and other fees
- Any remuneration to similar external firms
Note: all these payments, when they involve firms in Morocco, must be the subject of a separate declaration (Declaration of remuneration paid to third parties).
- Royalties for patent licensing and others
Expenses incurred for acquiring the right to exploit an intangible asset necessary for operations are deductible. These include:
- Royalties for exploiting a patent or license;
- Technical assistance fees (transfer of know-how, manufacturing methods, technical advice, etc.);
- Purchases of studies, research, and documentation
It should be noted that when these expenses benefit several fiscal years, they must be capitalized as assets and then amortized.
- Transportation costs
Deductible expenses include expenses incurred for the transportation of goods, personnel, as well as travel expenses of company executives.
- Travel, business trips, and entertainment
Contrary to popular belief, the law and the circular consider travel and business trip expenses as deductible expenses.
These expenses include, in particular, travel costs, commuting expenses, and moving costs.
Like other expenses, deductibility must comply with the substantive and formal rules, namely:
-
Justify the travel by the nature or importance of the operations
-
Incur the expenses in the interest of the company.
-
Advertising expenses
All expenses incurred by the company to promote its products or brand are deductible expenses. This deduction covers all media: printed materials, television spots, radio, online advertising, etc.
These expenses extend to legal advertising expenses required under legal texts (general meetings, capital transactions, etc.)
These expenses also extend to participation in national and international trade fairs as well as all exhibition costs.
As per the general rule, expenses benefiting several fiscal years must be spread and cannot be deducted in a single fiscal year.
Special case of promotional gifts:
In accordance with the provisions of Article 10 (I-B-1) of the CGI, promotional gifts with a maximum unit value of one hundred (100) dirhams bearing either the company name, the name or logo of the company, or the brand of products it manufactures or trades are deductible.
This limitation does not apply in the specific case of free medical samples delivered during the fiscal year by pharmaceutical laboratory companies to their clients.
- Postal and telecommunications expenses
Deductible expenses include expenses for the purchase of postage stamps, telecommunications costs, internet connection fees, and similar charges. This deduction is automatic provided that these expenses are incurred in the interest of the taxable activity.
- Contributions and donations
Contributions and donations that the company grants to certain institutions are deductible expenses.
These donations are deductible without limitation when they are granted to institutions named in Article 10(I-B-2). These institutions include, for example, public endowments (habous), the National Mutual Aid, associations recognized as being of public utility, etc.
Furthermore, companies may also deduct from their taxable income donations to social welfare programs. In this case, deductions are limited to an amount of two per thousand (2/1000) of the donor’s turnover, excluding VAT.
- Banking services
Commissions and fees paid by the company to banking institutions are deductible expenses.
- Trade discounts, rebates, and allowances received
When a company obtains trade discounts or rebates from its suppliers outside of invoices, these must be recorded as a reduction of deductible expenses.
C - Deductible Expenses - Taxes and Duties
Taxes and duties that the company pays on its own behalf are fiscally deductible. These taxes include:
- Local and municipal taxes;
- Customs duties;
- Registration fees
- Professional tax;
- Annual special tax on vehicles
- Stamp duties
- In general, all fiscal duties charged to the company (unless otherwise provided)
However, the following are not deductible expenses for corporate income tax purposes:
- Corporate income tax;
- Contributions attributable to corporate income tax;
- Withholding taxes on fixed-income investment products;
- Social solidarity contribution
Penalties and surcharges that the company pays as a result of tax violations are, however, not deductible from its taxable income.
D - Deductible Expenses - Personnel Costs
Personnel and labor costs are deductible expenses. This deduction extends to social charges related to personnel costs.
The deduction covers:
- Gross salaries
- Social and employer contributions
- Allowances of any kind paid by the company to its employees
- Bonuses of any kind paid to personnel (13th month, bonuses, housing assistance, etc.)
- Benefits in kind borne by the company on behalf of its personnel
- Various additional costs related to personnel (occupational medicine, staff travel expenses, trips offered to staff, etc.)
Furthermore, remuneration paid by the company to employees during their leave period is also deductible.
Special case 1: Provisions for paid leave are deductible expenses
The company may set up a provision for paid leave. This provision constitutes a deductible expense under certain conditions:
- The provision must be calculated in detail
- Its amount must be individualized
Given that this provision is not part of the elements of the salary declaration, the company must attach a statement explaining the difference with its tax return.
Special case 2 - Severance pay is a deductible expense
The company may deduct the severance pay it pays to dismissed personnel. Severance payments are deductible up to the portion that corresponds to what the legislation in force provides for. The deduction is also valid for payments ordered by a competent court. These expenses are deductible whether they relate to:
- damages and interest awarded by the courts
- severance pay itself
- voluntary departure allowances
Special case 3 - Remuneration of company directors or the business owner
Remuneration allocated by the company to its directors is deductible insofar as it does not exceed the normal compensation for the functions performed by the individuals concerned.
However, a distinction must be made between remuneration for actual work performed and remuneration corresponding to a disguised profit distribution.
Thus, normal remuneration for actual work or a special function (special attendance fees) is deductible from the corporate income tax base. However, amounts that correspond to a share in the company’s profits are not deductible in principle. Exceptionally, if the company grants a profit-sharing payment to an employee, it may deduct it if it has been subject to Income Tax.
E - Other operating expenses
Various other expenses related to operations are deductible.
These include:
- ordinary attendance fees
- bad debt losses that are habitual and related to the company’s current activity;
- losses on joint operations;
- transfer of profits on joint operations.
It should be noted that bad debt losses are only deductible to the extent that the company proves it has taken the necessary steps for recovery. Thus, voluntary write-offs of receivables lose their deductible character. Conversely, losses related to a counterparty’s bankruptcy remain deductible.
F - Operating allocations
Operating allocations include depreciation charges and provision charges.
Depreciation charges
Depreciation is the accounting recognition of the loss of value of fixed assets. This loss arises mainly from:
- First, wear and tear over time;
- Second, technical obsolescence
Depreciation is a technique aimed at recording fixed assets on the balance sheet at their net values (the net value is, by definition, lower than the historical value).
The following fixed assets may be depreciated:
- non-value assets (preliminary expenses, pre-start-up costs, expenses to be spread over several fiscal years, etc.). The depreciation period for non-value assets is 5 years from the first fiscal year of their recognition.
- intangible assets provided they are subject to a loss of value over time. These include, in particular, research and development costs, trademarks and patents, etc. When these assets do not depreciate over time, they cannot be depreciated. This includes goodwill when its use has no time limit.
- tangible assets of any nature (with the exception of land in general).
Original cost
Depreciation is calculated on the original value, excluding recoverable value-added tax. The depreciable value corresponds to the amount the company records as a fixed asset. This original value includes:
- the acquisition cost, which includes the purchase price plus other transportation costs, insurance costs, customs duties, and installation costs;
- the production cost for assets produced by the company for its own use;
- the contribution value stipulated in the contribution agreement for contributed assets;
- the contractual value for assets acquired through exchange.
Note that registration and stamp duties, fees and commissions, and deed costs are not part of the original value defined above. They are expenses to be spread over several fiscal years.
Depreciation rates in Morocco
As a general rule, deductible depreciation corresponds to the straight-line spreading of the historical value of the asset over its useful life.
From an accounting perspective, depreciation consists of recognizing the loss of value of fixed assets. Indeed, these assets are considered to depreciate with time and use. Therefore, depreciation charges aim to:
- Record fixed assets on the balance sheet at a net value of this loss;
- Charge each fiscal year with a share of the depreciation
The accounting law authorizes companies to carry out depreciation in several ways:
- Depreciation using a straight-line rate
- Using a progressive depreciation rate
- Depreciation based on units of production
Circular 717 provides, as an indication, the accepted depreciation period for each category of depreciable asset.
As an illustration, here are some examples of the depreciation rates proposed by the circular:
- Residential or commercial buildings 4%
- Industrial buildings built with permanent materials 5%
- Lightweight structures 10%
- Equipment, fixtures, and Installations 10% to 15%
- Large IT equipment 10% to 20%
- IT equipment, peripherals, and software 20% to 25%
- Furniture and Software 20%
- Rolling stock 20% to 25%
- Low-value tools 30%
Special case of passenger vehicles:
The depreciation rate on the acquisition cost of passenger transport vehicles (known as passenger vehicles) cannot exceed a value of 300,000 dirhams including all taxes per vehicle, spread over a period of 5 years in equal installments.
If a vehicle exceeds this value, the portion exceeding this limit must be added back.
Provision charges
A provision, like depreciation, may relate to losses sustained on asset items. The company may set up provisions even in the absence of profits. However, a provision differs from depreciation in that it aims to cover future and probable losses or expenses.
The conditions for deducting a provision are as follows:
- First, it must cover a depreciation, a loss, or a deductible expense
- Second, the provision must cover losses and expenses clearly specified as to their nature
- Third, the losses and expenses must originate in the current fiscal year
- Finally, in terms of form, for provisions to be deductible, they must be effectively recorded in the accounting entries for the fiscal year.
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Deductible Expenses - Financial Expenses
Under the provisions of Article 10-II of the CGI, financial expenses are deductible expenses.
Financial expenses include all expenses recorded in account 63 of the chart of accounts, namely:
- interest charges;
- exchange losses;
- other financial expenses;
- financial allocations.
It should be noted that banking services and commissions are not considered financial expenses but operating expenses under the CGNC (General Chart of Accounts).
Conditions for deductibility of loan interest
Loan interest is deductible regardless of its calculation method when:
- The company can justify the reality of the debt and the enforceability of the interest;
- The loans are allocated to the company’s operations (any diverted use may lead to denial of the right to deduction);
- The interest relates to the fiscal year in question regardless of the period of payment.
Special case of current account interest
When interest is charged by a shareholder (or a parent company) as remuneration for a credit balance on a current account, the following additional conditions must be taken into consideration:
- The loan amount must not exceed the amount of paid-up capital;
- The rate must not exceed the regulatory rate set by the Ministry of Finance (annually). This rate depends on the average interest rate on six (6) month Treasury bills from the previous year.
In the case where one of the above conditions is not met, interest may be partially deductible.
Conditions for deductibility of exchange losses
Under legal provisions, receivables and debts are recorded during the fiscal year at the exchange rate on the transaction date. Exchange losses may be recorded if the settlement rate increases the company’s cost.
In this case, we speak of realized exchange losses. These are deductible expenses.
However, at closing date, receivables and debts in foreign currencies must be valued at the end of the fiscal year at the closing rate. When a closing rate results for the company in:
- an increase in debt
- a decrease in receivable
The company must record provisions for exchange losses. These are, as a general rule, also considered deductible.
Other deductible financial expenses
The following expenses are also considered deductible:
- losses on receivables related to equity investments;
- net losses on disposal of securities and short-term investments;
- discounts granted.
Deductible Expenses - Non-Recurring Expenses
To be admitted as deductions, non-recurring expenses must, like other expenses and costs related to operations, meet the general conditions for deductibility of expenses.
Non-recurring expenses are defined by their nature.
They are linked to the occurrence of exceptional circumstances. These include:
Net book values of disposed fixed assets
These are deductible insofar as the disposal proceeds are taxable. When they are recorded without disposal proceeds, they are deductible if they relate to fixed assets used in the company’s operations;
Other non-recurring expenses
The company may deduct from its taxable income the following expenses:
-
Penalties on contracts and forfeits;
-
Tax reassessments insofar as they do not correspond to penalties (principal amount). It should be noted that Corporate Income Tax reassessments are not deductible insofar as Corporate Income Tax itself is not;
-
Penalties and fines. A distinction must be made:
Tax penalties and fines for any legal or regulatory infringement: non-deductible,
-
Damages and interest charged to a company following a court judgment: admissible as a deduction from the taxable income of the fiscal year in which the final judgment was rendered.
Losses resulting from the definitive write-off of irrecoverable receivables are deductible. They lose their deductible character when they constitute gratuitous benefits.
Non-recurring allocations
These essentially consist of declining balance depreciation charges and non-recurring allocations to regulated provisions.
Declining balance depreciation charges
Under standard law, depreciation must be carried out on a straight-line basis. The law authorizes companies, in certain cases, to apply declining balance depreciation. In this case, the excess over the straight-line charge is recorded as a declining balance depreciation charge. This is fiscally deductible.
Allocations to regulated provisions
Allocations made under an advantageous tax or regulatory regime follow the general rules of said regime.
Partially non-deductible expenses
For the determination of taxable income, only 50% of expenses relating to the charges referred to in Article 10 (I-A, B, and E) of the CGI that are paid in cash are deductible.
Summary
Expenses recorded in the accounts and meeting the conditions for deductibility are automatically deductible. Certain expenses are not fully deductible, notably:
- Fines, penalties, and tax surcharges (or for other legal violations);
- Expenses not supported by a proper document;
- Gratuitous benefits and expenses unrelated to operations.
Furthermore, the law limits the deductibility of certain expenses:
- Expenses paid in cash;
- Certain donations;
- Promotional gifts;
- Depreciation of transport vehicles;
- Current account interest;
It is very important to properly identify these expenses at the time of filing. If identified during a tax audit, penalties and surcharges may apply.
Once you have identified your deductible expenses, what will your IS rate be? Use our free Corporate Tax Rate Calculator to determine the applicable rate, minimum contribution and SSC for your taxable result.
Frequently Asked Questions
What are the main conditions for an expense to be deductible for IS in Morocco?
An expense must meet four conditions: it must be incurred in the interest of the business, correspond to an actual charge supported by proper documentation, be recorded in the correct fiscal year, and comply with the specific limits set by the General Tax Code (e.g., caps on gifts, entertainment, and vehicle depreciation).
Are all salaries and wages deductible for corporate tax in Morocco?
Salaries and wages are generally deductible provided they correspond to actual work performed and are not excessive relative to the services rendered. Director compensation, bonuses, and benefits in kind must also be reasonable. Excessive remuneration may be reclassified and rejected during a tax audit.
What happens if a non-deductible expense is incorrectly deducted?
If identified during a tax audit, the non-deductible expense will be added back to taxable income, resulting in additional tax liability. The company will also face penalties of 15% on the first notification (or 20% on the second) plus late payment interest of 0.50% per month. Proper identification at filing time is essential to avoid these consequences.
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