In brief: In Morocco, unfurnished residential rental is exempt from VAT, while furnished or fitted-out premises for commercial, industrial, or professional use are taxed at 20%. Tourist accommodation is taxed at 10%. Since 2024, unequipped professional premises are also subject to VAT if built with VAT deduction benefits. Landlords must register and file periodic returns with the DGI.
Is real estate rental subject to VAT? This is one of the most frequently asked questions by property owners, investors, and businesses renting real estate in Morocco. The VAT regime applicable to real estate rentals is nuanced and depends on the nature of the property, its fit-out level, and the intended use.
Value added tax (VAT) in Morocco is a consumption tax. The standard VAT rate is 20%. The scope of VAT is very broad, as it applies to virtually all products and services. However, certain transactions — particularly those of a civil nature — fall outside its scope entirely.
In this article, we provide a comprehensive overview of VAT on real estate rentals in Morocco. We address the following questions:
- Does real estate rental fall within the scope of VAT?
- What is the difference between furnished and unfurnished rental for VAT purposes?
- What VAT rates apply depending on the type of rental?
- What are the landlord’s filing and payment obligations?
- How does the option to elect for VAT taxation work?
Real estate rental and the scope of VAT
As we discussed in our article VAT in Morocco: Scope of Application, the scope of VAT is defined by the General Tax Code (CGI):
Certain sectors remain outside the scope of VAT in Morocco. These include: the agricultural sector and civil transactions (with no commercial purpose)
Accordingly, civil acts fall outside the scope of VAT. Circular 717 defines civil acts as:
“those that a taxpayer carries out under conditions that do not give them a commercial, service-provision, or industrial character”.
This fundamental principle is essential for understanding the tax treatment of real estate rentals in Morocco. It is the civil or commercial nature of the transaction that determines whether or not VAT applies.
Unfurnished vs. furnished rental: different VAT treatment
The distinction between unfurnished and furnished rental is the central criterion in determining the applicable VAT regime for real estate rentals in Morocco.
Unfurnished residential rental — Out of scope (civil act)
A real estate rental is considered civil when it involves:
- Bare land;
- Unfurnished or unequipped buildings not fitted out for professional purposes.
Under these conditions, the real estate rental constitutes a civil transaction outside the scope of VAT. It should not be confused with the exemptions provided for in Articles 91 and 92 of the CGI, which concern transactions that are within the scope but are specifically dispensed from taxation. In practice, the result is similar: the landlord does not charge VAT to the tenant and cannot recover VAT on investment or maintenance expenses related to the property. However, the legal distinction is important in the event of a tax audit or when applying the VAT prorata deduction.
Furnished or fitted-out rental — Taxable transaction
According to the circular, fitted-out premises refers to a property that the landlord equips and arranges for:
- Industrial use
- Commercial use
- Professional practice
When premises meet this condition, value added tax (VAT) applies.
The circular also specifies that quarry land operations carried out in exchange for royalties represent a taxable transaction.
Applicable VAT rates for real estate rentals
The VAT rate depends on the nature of the real estate rental:
- 20% rate: applies to the rental of furnished or fitted-out premises for commercial, industrial, or professional use. This is the standard default rate.
- 10% rate: applies to hotel accommodation and furnished tourist rentals (hotels, riads, guesthouses, tourist residences).
- Exemption: unfurnished rentals used exclusively for residential purposes remain exempt from VAT.
It is important to note that the 2024 Finance Act introduced a major change: the rental of unequipped premises for professional use is now mandatorily subject to VAT when such premises were acquired or built with the benefit of the right to deduct VAT or VAT exemption. This measure aims to combat abuse where landlords recovered VAT on construction costs without subsequently charging it on rental income.
Option to elect for VAT taxation
A landlord whose rental is normally exempt from VAT may, under certain conditions, voluntarily elect to be subject to VAT. This option is particularly attractive when the owner makes significant investments in the property and wishes to recover the VAT on those expenses.
Impact on input VAT recovery
Electing for VAT opens the right to deduct input VAT on expenses and investments related to the rented property. Conversely, if the landlord remains exempt, no VAT deduction is available. This distinction has a significant financial impact, especially during the construction or renovation of a building intended for rental.
The landlord must then apply the VAT input deduction pro-rata when carrying out both taxable and exempt transactions simultaneously.
Special rental cases
Rental of cellars on an agricultural estate
The rental of a fitted-out cellar located on such an estate constitutes a civil act. It therefore falls outside the scope of VAT.
Indeed, Circular 717 considers the cellar to be ancillary to the rental of the estate as a whole. It consequently remains outside the scope of VAT.
However, when such a rental exclusively involves a cellar fitted out for a winemaker, VAT must apply. The circular specifies that to remain outside the scope, the cellar must be bare. Conversely, when the rental involves premises with fittings enabling a particular type of operation, the transaction is subject to VAT. This includes, in particular, cemented cellars containing piping and/or pumps.
Rental of a cold storage warehouse
The rental of a cold storage warehouse constitutes a service subject to VAT at the rate of 20%. Indeed, a cold storage warehouse is considered to be equipped premises by nature.
Rental of a business (fonds de commerce)
Circular 717 distinguishes two cases:
First, simple rental
The rental of a business including furniture or equipment constitutes a commercial transaction subject to VAT. There is no need to distinguish between full or partial rental of the business.
Second, management lease (location-gerance)
A free management contract for a business constitutes a transaction subject to VAT. In this case, VAT applies to the royalty received by the owner. The free manager operates the business at their own risk, while the owner receives a fee that forms the VAT taxable base.
SCI and VAT on real estate rentals
The Societe Civile Immobiliere (SCI) is a legal vehicle frequently used in Morocco for holding and managing real estate assets. The applicable VAT regime for an SCI depends on the use of the properties it rents out:
- SCI renting for residential use: the rental is exempt from VAT, whether the property is furnished or unfurnished, as long as it is intended for residential purposes.
- SCI renting for professional use: VAT applies as soon as the premises are fitted out or equipped. Since 2024, VAT also applies to unequipped premises if the SCI benefited from the right to deduct VAT upon acquisition.
The SCI must then register for VAT, maintain compliant accounting records, and file VAT returns within the legal deadlines.
Withholding tax on rentals paid to non-residents
When a Moroccan tenant pays rent to a non-resident landlord, a withholding tax applies. This withholding is set at 10% of the gross rental amount, unless otherwise provided by a double taxation treaty between Morocco and the landlord’s country of residence.
Since 1 July 2024, new provisions regarding VAT withholding at source have come into effect. A tenant who is subject to VAT must withhold tax on the VAT amount invoiced by certain service providers, including in the context of real estate rentals subject to VAT.
Alternative contracts - Ijara
The Ijara contract is a contract offered by Islamic (participatory) banks that is similar to leasing arrangements. Indeed, the bank bears all ownership risks.
It makes the asset available to the client in exchange for:
- Periodic rent payment throughout the contract term
- Purchase option at the end of the contract
Whether it involves bare or fitted-out premises, the Ijara contract is subject to VAT under the same conditions as leasing.
Filing and payment obligations
A landlord subject to VAT must comply with the following obligations:
- Tax registration: obtain a tax identification number and register with the General Tax Directorate (DGI).
- Invoicing: issue compliant invoices stating the amount excluding VAT, the rate, and the VAT amount.
- Periodic filing: submit a VAT return on a monthly basis (if annual turnover exceeds MAD 1,000,000) or quarterly basis.
- Payment: remit the collected VAT minus deductible input VAT within the legal deadlines.
Failure to comply with these obligations exposes the landlord to surcharges and penalties as provided by the CGI.
Practical examples
Example 1: Mr. Ahmed rents an unfurnished apartment for residential use in Casablanca for MAD 8,000 per month. This rental is exempt from VAT. Mr. Ahmed does not charge VAT and cannot deduct VAT on renovation work.
Example 2: A company rents fitted-out commercial premises (equipped offices) for MAD 25,000 excluding VAT per month. VAT at the rate of 20% applies, i.e., MAD 5,000 in VAT. The rent including VAT is MAD 30,000. The landlord may deduct input VAT on related expenses.
Example 3: A riad in Marrakech is rented furnished to tourists. VAT at the rate of 10% applies to the rental income received, in accordance with the regime applicable to tourist accommodation activities.
Frequently Asked Questions
Is residential rental subject to VAT in Morocco?
No, unfurnished residential rental is exempt from VAT under Article 91 of the General Tax Code. The landlord does not charge VAT to the tenant but also cannot recover VAT on investment or maintenance expenses related to the property.
When does VAT apply to real estate rental in Morocco?
VAT applies when the premises are furnished or fitted out for commercial, industrial, or professional use. The standard rate is 20% for commercial rentals and 10% for hotel accommodation and tourist rentals. Since 2024, unequipped premises for professional use are also subject to VAT if they were acquired with the benefit of VAT deduction.
What are the VAT filing obligations for landlords in Morocco?
A landlord subject to VAT must register for a tax identification number, issue compliant invoices showing VAT amounts, and submit periodic VAT returns (monthly if annual turnover exceeds 1,000,000 MAD, otherwise quarterly). The collected VAT minus deductible input VAT must be remitted within legal deadlines.
Does VAT apply to the rental of a business (fonds de commerce)?
Yes, the rental of a business including furniture or equipment is a commercial transaction subject to VAT at 20%. Similarly, a management lease (location-gerance) contract for a business is subject to VAT on the royalty received by the owner.
Tools
Morocco VAT Qualification 2026 — Free Tool: Determine in a few clicks whether your transaction is out of scope, exempt, or taxable, and at which rate.
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