In brief: Disbursements in Moroccan tax law are amounts advanced by a service provider on behalf of a client, with invoices in the client’s name. They are VAT-neutral and do not affect the provider’s taxable income, unlike reimbursable expenses which constitute turnover.
Disbursements are amounts that a company advances on behalf of its clients. For example, a lawyer might pay court fees on behalf of a client. These fees are then re-invoiced to the client at the exact same amount. Understanding the distinction between disbursements and reimbursable expenses in Moroccan tax law is essential for any professional seeking to optimize their accounting and tax management.
Under Moroccan law, the concept of disbursements carries particular importance because it directly determines the applicable tax treatment for VAT, corporate income tax (IS), and personal income tax (IR). Misclassification can lead to significant tax reassessments during an audit.
Upsilon Consulting, member of the OEC, led by Salaheddine Yatim, Chartered Accountant, can advise you on the proper classification of disbursements.
Legal Definition: Disbursements vs Reimbursable Expenses
Before addressing the tax treatment, it is important to clearly distinguish between the two fundamental concepts in Moroccan taxation:
Disbursements are amounts advanced by an agent (the service provider) on behalf of and in the name of the client (the principal). The service provider acts as a simple intermediary: they pay an expense that legally falls upon the client, then seek reimbursement for the exact same amount, without any margin.
Reimbursable expenses, on the other hand, are costs incurred by the service provider in their own name as part of delivering a service. Even if these costs are subsequently re-invoiced to the client, they constitute a charge for the service provider and form an integral part of their turnover.
The Determining Criterion: In Whose Name Is the Invoice Issued?
The fundamental criterion lies in the wording of the original invoice. If the third-party invoice (court registry, tax authority, notary) is issued in the name of the end client, it qualifies as a disbursement. If it is issued in the name of the service provider, it constitutes a reimbursable expense. This distinction, although simple in appearance, determines the entire accounting and tax treatment.
Treatment of Disbursements for Corporate Income Tax Purposes
In business relationships, a supplier may receive instructions from a client to incur expenses on behalf of that client. The supplier must then seek reimbursement of these costs at the exact same amount (upon presentation of supporting documents).
In this regard, Circular 717 of the DGI distinguishes between disbursements and reimbursable expenses for Corporate Income Tax purposes. The circular considers that:
- Reimbursable expenses: when the invoice for the expenses bears the name of the supplier, these are reimbursable expenses. In this case, the supplier must record the invoice as part of its own expenses on one hand, and as part of its turnover when re-invoicing on the other.
- Disbursements: when the invoice received by the supplier is in the client’s name, these are disbursements. In this case, the supplier acting as agent must not record them as expenses. These advanced costs are to be recorded in a third-party account under class 3 until reimbursement.
Impact on IS/IR Deductibility
For corporate income tax and personal income tax purposes, the distinction between disbursements and expenses has direct consequences on deductibility:
- Reimbursable expenses constitute a deductible charge from the service provider’s taxable income. In return, the reimbursement received from the client constitutes taxable revenue included in turnover.
- Disbursements do not impact the service provider’s taxable income. They constitute neither a deductible charge nor taxable revenue. The service provider remains fiscally neutral on these transactions.
Special Case of Travel Agencies
A travel agency purchases transport tickets and hotel reservations on behalf of its clients.
Circular 717 indicates two treatments depending on the situation of the travel agency:
- First, the case where the agency acts as a simple intermediary. In this case, its turnover consists solely of its commissions;
- Second, the case where the agency takes charge of certain services and generates a margin. In this case, the full lump-sum amount invoiced constitutes turnover.
Treatment of Disbursements for Value Added Tax Purposes
For VAT purposes, disbursements remain outside the scope of the VAT tax base. Conversely, reimbursable expenses recorded as turnover must be subject to VAT.
Conditions for Qualifying an Expense as a Disbursement
To be considered as authorized disbursements, the expenses borne by the taxpayer must meet the following conditions:
- These expenses must be legally (or contractually) the responsibility of the client;
- The client must not reimburse these costs on a lump-sum basis (but rather upon presentation of supporting documents);
- The supplier must list them separately on its invoice, at cost without any margin;
- The supplier must not apply VAT on its invoice. Whenever VAT is shown on an invoice (even in error), it becomes due to the Treasury.
Thus, if the supplier deals on a lump-sum basis for a global price that includes expenses incurred, VAT must be paid on the total amount of receipts.
Common Examples of Disbursements in Morocco
Here are the most frequently encountered disbursements in Moroccan professional practice:
- Court registry fees: fees paid to the commercial court for registration or modification formalities at the Trade Registry;
- Registration duties: taxes paid to the tax authority when registering legal documents (company formations, share transfers, capital increases, etc.);
- Tax stamps: stamp duties paid to the administration for the legalization of documents or deeds;
- Publication fees in the Official Gazette and legal announcement newspapers;
- Land registry fees: fees paid to the ANCFCC (National Agency for Land Registry) for property registrations and certificates.
Accounting Treatment of Disbursements in Moroccan Tax
Recording by the Agent (Service Provider)
Disbursements do not pass through expense and revenue accounts. They are recorded in a third-party account (class 3). Here is a practical example:
Example: A chartered accountant advances 5,000 MAD in court registry fees on behalf of a client.
When advancing the fees:
- Debit: 3497 - Transitory or suspense accounts (debit): 5,000 MAD
- Credit: 5141 - Bank: 5,000 MAD
When reimbursed by the client:
- Debit: 5141 - Bank: 5,000 MAD
- Credit: 3497 - Transitory or suspense accounts (debit): 5,000 MAD
Recording Reimbursable Expenses
However, if these same fees are considered reimbursable expenses (invoice in the service provider’s name), the accounting treatment differs:
When incurring the expense:
- Debit: 6136 - External charges: 5,000 MAD
- Credit: 5141 - Bank: 5,000 MAD
When re-invoicing the client (with 20% VAT):
- Debit: 3421 - Trade receivables: 6,000 MAD
- Credit: 7127 - Ancillary sales and revenue: 5,000 MAD
- Credit: 4455 - State, VAT invoiced: 1,000 MAD
Documentation Requirements for Disbursements
To secure the treatment of disbursements during a tax audit, the service provider must retain the following supporting documents:
- The original invoice issued in the client’s name by the third-party supplier;
- The mandate or written agreement authorizing the service provider to incur expenses on behalf of the client;
- The reimbursement invoice listing the disbursements separately, without VAT and without any margin;
- Proof of payment (bank statements, receipts) evidencing the actual disbursement.
The absence of any of these documents may be sufficient for the tax authority to reclassify the disbursements as reimbursable expenses, with the resulting tax consequences.
Risks During a Tax Audit
Misclassification of disbursements can lead to several risks during a tax audit:
- VAT reassessment: if the tax authority reclassifies disbursements as reimbursable expenses, VAT will be demanded on the amounts concerned, plus penalties and late payment interest;
- Corporate income tax reassessment: the reclassified amounts will need to be included in the service provider’s taxable turnover;
- Rejection of deductibility: if the formal conditions are not met (absence of mandate, invoice in the service provider’s name), the expense may be reclassified;
- Penalties: applicable surcharges can reach 15% on the first notification and 20% on the second notification, in addition to late payment interest of 0.50% per month of delay.
It is therefore strongly recommended to implement rigorous internal procedures to properly document and classify each disbursement transaction in Moroccan tax law.
Frequently Asked Questions
What is the difference between disbursements and reimbursable expenses in Moroccan tax law?
Disbursements (débours) are expenses paid by a service provider on behalf of a client, with invoices issued directly in the client’s name. Reimbursable expenses are costs incurred by the provider in their own name that are later recharged to the client. The distinction has significant VAT and corporate tax implications in Morocco.
Are disbursements subject to VAT in Morocco?
True disbursements are not subject to VAT because they are considered pass-through payments made on behalf of the client. However, if the formal conditions are not met (no mandate, invoice in the provider’s name instead of the client’s), the tax administration may reclassify them as reimbursable expenses subject to VAT.
What documentation is required to support disbursements in Morocco?
To properly support disbursements in Morocco, you must maintain a written mandate or agreement from the client authorizing the expenditure, invoices issued directly in the client’s name by the third-party supplier, and proof of payment (such as bank statements or receipts) evidencing the actual disbursement. The absence of any of these documents may be sufficient for the tax authority to reclassify the disbursements as reimbursable expenses, triggering VAT and corporate income tax reassessments along with penalties that can reach 15% on the first notification and 20% on the second, plus late payment interest of 0.50% per month of delay.
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