In brief: Temporary cessation of activity allows Moroccan companies to suspend operations for up to 3 years without dissolving. The company keeps its legal personality, benefits from minimum contribution exemption, and files only a single annual VAT return.
Temporary cessation of activity is a measure introduced by the 2018 Finance Law. Also referred to as “business dormancy” or “mise en sommeil”, this procedure offers Moroccan businesses a legal alternative allowing them to temporarily suspend their operations without undergoing a full dissolution. It provides a practical solution for companies facing temporary difficulties or wishing to pause their activity for strategic reasons.
This measure provides a simplified tax framework for temporary cessation of activity applicable to:
- First, companies (legal entities or individuals) subject to Corporate Tax;
- Second, individuals (or companies) subject to Income Tax on professional income. This measure applies to taxpayers under the Net Taxable Income (RNR) and Simplified Net Income (RNS) regimes.
The purpose of this regime is to protect entrepreneurs facing unfavourable economic conditions while maintaining the legal personality of the company and all its identifiers in the commercial register.
What is Temporary Cessation of Activity?
It is a measure available to businesses facing temporary difficulties that prevent them from continuing their operations. Temporary cessation of activity, or business dormancy, allows a company to preserve its legal existence while suspending its commercial operations.
Unlike dissolution, a company under temporary cessation retains its registration in the commercial register, its tax identification number, its professional tax number, and its affiliation with social security bodies. This legal continuity greatly facilitates the subsequent resumption of activity.
Simplified Tax Calendar
This measure lightens the tax calendar by reducing the number of required filings. In practical terms, the tax benefits are as follows:
The beneficiary is exempt from paying the minimum contribution. In addition, they benefit from reduced VAT reporting obligations.
Only a single annual VAT return is required, due by the end of January each year. Companies must pay the VAT relating to any collections received during the cessation period.
Article 150 bis (2nd paragraph) provides that the companies concerned must continue to file their tax returns for Corporate Tax and Income Tax on professional income.
Tax Obligations Maintained During Temporary Cessation
Although the temporary cessation regime significantly reduces reporting obligations, certain tax responsibilities remain. It is essential for business managers to be aware of these to avoid any reassessment.
Corporate Tax (IS)
Companies under temporary cessation must continue to file their annual tax returns, even if the taxable result is nil. However, they are exempt from paying the minimum contribution for the fiscal years covered by the cessation declaration. This exemption represents a significant advantage, particularly for companies that typically generate substantial turnover.
VAT During Cessation
Regarding value-added tax, the regime is simplified. Instead of filing monthly or quarterly returns, the company only needs to file a single annual return before the end of January. If any collections were received during the cessation period, the corresponding VAT must be paid.
Professional Tax
The professional tax (formerly known as “patente”) remains in principle payable during the temporary cessation period. However, companies may request an exemption by demonstrating the complete absence of activity and non-use of professional premises. It is advisable to contact the General Tax Directorate (DGI) to clarify the situation on a case-by-case basis.
Who Can File a Temporary Cessation of Activity Declaration?
This regime applies to:
- First, companies liable for Corporate Tax;
- Second, companies subject to Income Tax on professional income.
Eligible entities therefore include SARL (limited liability companies), SA (public limited companies), SNC (general partnerships), SCS (limited partnerships), and any other form of commercial company, as well as sole proprietorships subject to the Net Taxable Income (RNR) or Simplified Net Income (RNS) regime. Auto-entrepreneurs and taxpayers under the lump-sum regime are not covered by this regime.
Administrative Filing Procedure
To subscribe to this regime, companies must file a declaration using form No. ADC400F-18I on the DGI portal.
This declaration must state the reasons justifying the temporary cessation. Commonly cited reasons include: cyclical economic difficulties, loss of major contracts, health issues affecting the manager, or strategic restructuring of the business.
It must be filed within the month following the closing date of the last active fiscal year. Failure to meet this deadline may result in rejection of the application.
Duration of Validity
The temporary cessation is valid for two (2) fiscal years (renewable for one additional year). In total, a company may therefore remain dormant for a maximum of three consecutive fiscal years. Beyond this period, the company must either resume its activity or initiate dissolution proceedings.
CNSS Obligations During Cessation
It is important to note that temporary cessation of activity does not exempt the company from its social obligations. A company under temporary cessation does not benefit from any relief regarding CNSS (social security) contributions.
If the company no longer employs any staff, it must complete the formalities for deregistering employees with the CNSS. In the event of economic redundancy linked to the cessation, the employer must comply with the provisions of the Labour Code, including notice periods, severance pay, and prior authorisation from the governor of the relevant prefecture or province for collective redundancies.
Impact on Employees
Temporary cessation of activity has direct consequences for the company’s employees. Two situations may arise:
- Contract suspension: if the company anticipates a quick resumption, employment contracts may be suspended by mutual agreement with the employees. During this suspension, employees do not receive remuneration but retain their seniority.
- Economic redundancy: if the cessation makes it impossible to maintain jobs, the company must follow the economic redundancy procedure provided for in Articles 66 et seq. of the Moroccan Labour Code. Severance and notice pay are then due.
Resumption of Activity
If the company resumes its activity during the cessation period, it must notify the tax authorities. The company must send a notification letter to the authorities, using a form established by the administration.
The company must submit this letter within one year from the date of resumption.
The company must also regularise its tax situation for the relevant fiscal year under standard rules. This regularisation involves filing all required tax returns and paying the corresponding taxes, including the minimum contribution for the period of actual activity.
Benefits of Resumption After Temporary Cessation
One of the main advantages of temporary cessation compared to dissolution lies in the simplicity of resumption. The company retains its commercial register number, its tax identification number, and all its administrative files. There is no need to go through the company creation process again.
Difference Between Temporary Cessation and Dissolution
It is essential to clearly distinguish between these two procedures, which address very different situations:
| Criterion | Temporary Cessation | Dissolution |
|---|---|---|
| Legal personality | Maintained | Terminated |
| Commercial register | Registration preserved | Deregistered |
| Duration | 2 years + 1 renewable year | Permanent |
| Resumption of activity | Simplified | New incorporation required |
| Cost | Low | High (liquidation, deregistration) |
Temporary cessation is recommended when the company anticipates resuming activity in the near future. Dissolution is appropriate when the company no longer has a reason to exist or when the partners decide to permanently wind up the business.
Risks and Consequences of Extended Cessation
Temporary cessation that extends beyond the legal duration exposes the company to several risks. The tax authorities may consider the company to be in an irregular situation and proceed with reassessments.
Failure to Comply with This Tax Framework
By derogation from the standard statute of limitations provisions, the taxes due together with the related penalties and surcharges owed by non-compliant taxpayers are immediately assessed and payable in full, even if the statute of limitations has expired.
It is therefore crucial to strictly comply with reporting obligations and prescribed deadlines. In case of doubt, it is advisable to consult a chartered accountant or tax adviser to secure the company’s position.
When to Choose Temporary Cessation Over Dissolution
Temporary cessation of activity is particularly suited to the following situations:
- Temporary economic difficulties: cyclical market downturn, temporary loss of major clients.
- Personal reasons of the manager: illness, extended leave, temporary career change.
- Strategic restructuring: reorganisation of operations, business model pivot.
- Awaiting a market or opportunity: the company wishes to remain on standby to seize a future opportunity.
Conversely, dissolution is preferable when the company is irreversibly loss-making, when partners are in deep disagreement, or when the business project has been definitively abandoned.
Legal references:
Articles 144-I-C-3; 150 bis; 221-I and 232-VIII-17 of the General Tax Code.
Frequently Asked Questions
How long can a company remain in temporary cessation in Morocco?
Temporary cessation of activity is valid for two fiscal years, renewable for one additional year, for a maximum of three consecutive fiscal years. Beyond this period, the company must either resume its activity or initiate dissolution proceedings.
Does a company in temporary cessation still need to file tax returns?
Yes, companies under temporary cessation must continue to file their annual Corporate Tax and Income Tax returns, even if the taxable result is nil. However, they benefit from simplified VAT obligations, requiring only a single annual return due by the end of January, and are exempt from paying the minimum contribution.
What is the difference between temporary cessation and dissolution in Morocco?
Temporary cessation is a reversible measure allowing a company to suspend its operations for up to three consecutive fiscal years while maintaining its legal existence and tax obligations. Dissolution, by contrast, is a permanent and irreversible process that terminates the company entirely. Temporary cessation is appropriate for cyclical difficulties, strategic restructuring, or awaiting future opportunities, whereas dissolution is warranted when the business is irreversibly loss-making, partners are in irreconcilable disagreement, or the business project has been definitively abandoned.
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