In brief: Article 28 of the General Tax Code (GTC) allows Moroccan taxpayers to deduct three categories of expenses from their overall taxable income (OTI): primary residence loan interest (up to 10% of OTI or with IR capped at 40%), supplementary retirement insurance contributions (10% of OTI), and donations made to public habous and associations recognized as being of public interest (fully deductible). These deductions represent a major tax optimization lever for employees and professionals.
Primary Residence Loan Interest (Art. 28-II GTC)
Article 28-II of the General Tax Code grants taxpayers who take out a mortgage for the acquisition or construction of their primary residence the right to deduct the interest paid from their overall taxable income. This provision aims to encourage home ownership.
Eligibility Conditions
To benefit from this deduction, the taxpayer must meet the following conditions:
- The loan must be taken out with an approved credit institution or similar organization
- The financed property must constitute the taxpayer’s primary residence
- The taxpayer must provide an interest certificate issued by the lending institution, along with a certified copy of the loan agreement
Two Options Available to the Taxpayer
The taxpayer has two options for the tax treatment of their mortgage interest:
Option 1 — Deduction up to 10% of OTI: Interest paid during the year is deducted from the overall taxable income, up to a limit of 10% of that income. This option is advantageous when the interest represents a significant amount relative to the income.
Option 2 — IR capped at 40%: The taxpayer may choose not to deduct the interest but instead cap the amount of IR due on their overall income at a rate of 40% thereof. This mechanism is beneficial for taxpayers with high interest payments and taxable income in the upper brackets of the tax scale.
The taxpayer opts for whichever method is most advantageous based on their personal situation. This choice is exercised annually at the time of filing.
Cost of Construction
When the loan finances the construction of the primary residence, the interest deduction extends to the cost of construction, within the same limits. The taxpayer must justify the allocation of the property for primary residential use within three years from the date of the occupancy permit.
Supplementary Retirement Insurance Contributions (Art. 28-III GTC)
Article 28-III of the GTC authorizes the deduction of premiums or contributions relating to individual or collective retirement insurance contracts with a duration of at least 8 years.
Deduction Ceiling
The deduction is limited to the more favorable amount between:
- 10% of the overall taxable income of the taxpayer
- 50% of the net taxable salary for employees
This dual ceiling allows employees to benefit from a larger deduction when 50% of their net taxable salary exceeds 10% of their OTI.
Practical Conditions
- The contract must be taken out with an insurance company approved in Morocco
- The minimum contract duration is 8 years
- The contract must mature in the form of a life annuity
- The taxpayer must provide a copy of the insurance contract and premium payment receipts
For employees, if contributions are deducted directly from the salary by the employer, the employer integrates the deduction into the salary IR calculation. Otherwise, the employee makes the deduction in their annual return.
Deductible Donations and Contributions (Art. 28-IV GTC)
Article 28-IV provides for the unlimited deduction of donations made to the following organizations:
- Public habous (mortmain properties managed by the Ministry of Habous)
- The National Mutual Aid organization
- Associations recognized as being of public interest that operate for charitable, scientific, cultural, literary, educational, sporting, teaching or health purposes
- Public institutions whose mission is to provide healthcare or carry out activities in the cultural, educational or research fields
- The Agency for the Promotion and Development of the North, the Agency for the Promotion and Development of the Southern Provinces, the Oriental Agency and the Hassan II Fund
These donations must be supported by receipts issued by the beneficiary organizations. In-kind donations are valued at their market value on the date of the donation.
Summary Table of IR Deductions (Art. 28 GTC)
| Deduction | Legal Basis | Ceiling | Required Documentation |
|---|---|---|---|
| Primary residence loan interest | Art. 28-II | 10% of OTI or IR capped at 40% | Interest certificate, loan agreement |
| Supplementary retirement contributions | Art. 28-III | 10% of OTI or 50% of net taxable salary | Insurance contract, receipts |
| Donations to public habous / public interest associations | Art. 28-IV | Unlimited | Receipts from beneficiary organizations |
Practical Case: Employee with Mortgage and Retirement Insurance
Let us consider the case of Mr. Karim, an employee earning an annual net taxable salary of 180,000 MAD, who has taken out a primary residence loan and subscribed to a supplementary retirement insurance.
Data
| Element | Annual Amount (MAD) |
|---|---|
| Net taxable salary | 180,000 |
| Mortgage interest paid | 24,000 |
| Supplementary retirement contributions | 15,000 |
Deduction Calculation (Option 1 — Interest Deduction)
Overall taxable income before deductions = 180,000 MAD
Loan interest deduction: ceiling of 10% of OTI = 180,000 × 10% = 18,000 MAD. The interest paid amounts to 24,000 MAD, so the deduction is capped at 18,000 MAD.
Supplementary retirement deduction: the more favorable ceiling between 10% of OTI (18,000 MAD) and 50% of net taxable salary (90,000 MAD). The contributions paid of 15,000 MAD are fully deductible: 15,000 MAD.
Overall taxable income after deductions = 180,000 − 18,000 − 15,000 = 147,000 MAD
Impact on IR
| Scenario | OTI (MAD) | Gross IR (MAD) | Tax Savings |
|---|---|---|---|
| Without deductions | 180,000 | 39,200 | — |
| With Art. 28 deductions | 147,000 | 27,980 | 11,220 MAD |
Mr. Karim saves 11,220 MAD in IR thanks to the deductions on overall income, representing a reduction of nearly 29% of his tax.
Frequently Asked Questions (FAQ)
Can I deduct interest on a loan for a second home?
No. The loan interest deduction provided for in Article 28-II of the GTC is reserved exclusively for the taxpayer’s primary residence. Interest paid on a rental investment or second home is not deductible from overall income.
If my spouse and I have a joint loan, who can deduct the interest?
Each spouse can deduct the share of interest they actually bear, provided that the property constitutes the couple’s primary residence. In practice, if the loan is taken out jointly, each spouse deducts 50% of the interest, up to the limit of 10% of their own OTI.
Are CIMR contributions deductible under Article 28-III?
CIMR (Moroccan Interprofessional Retirement Fund) contributions paid by the employee are already deducted from the gross taxable salary to determine the net taxable salary. They therefore do not fall under Article 28-III, which concerns individual supplementary retirement insurance contracts taken out in addition to the mandatory scheme.
Are donations made to a mosque deductible?
Only donations made to public habous or associations recognized as being of public interest are deductible. A donation made directly to a local mosque that is not managed by the public habous and does not have public interest status is not deductible.
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- Tax Law Advisory — Upsilon Consulting
This article is written by the team of chartered accountants at Upsilon Consulting, a firm registered with the Order of Chartered Accountants (OEC) of Morocco.
Need to optimize your tax deductions? Contact Upsilon Consulting for personalized income tax guidance.
