In brief — The right to deduct VAT in Morocco is governed by Articles 101 to 106 of the General Tax Code (Code Général des Impôts — CGI). It allows taxable persons to recover input VAT paid on professional purchases, provided they meet strict substantive and formal conditions. Certain expenses are excluded (passenger vehicles, cash payments exceeding 5,000 MAD), and mixed taxable persons must apply a deduction pro-rata. Adjustments over 5 or 10 years are required when the pro-rata varies significantly. See also our complete guide to VAT in Morocco and our VAT qualification tool.
Principle of the Right to Deduct (Art. 101)
The VAT mechanism is built on a fundamental principle: tax neutrality for businesses. In practice, the VAT owed by a taxable person is calculated as follows:
VAT payable = Output VAT on sales − Input VAT on purchases
The taxable person therefore does not bear the VAT burden, provided their transactions give rise to the right to deduct. This right applies when the goods and services acquired are used for the needs of the business and are allocated to taxable transactions or transactions exempt with the right to deduct (known as “ADD” exemptions, such as exports).
The right to deduct arises at the time of partial or full payment of the purchase invoice. For imports, it arises when customs duties and import VAT are paid.
Substantive Conditions (Art. 101)
For a deduction to be allowed, three cumulative substantive conditions must be met:
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Business use — The goods or services must be acquired for the direct needs of the professional activity. Any expense of a personal nature or unrelated to the company’s corporate purpose is excluded from the right to deduct.
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Use in transactions giving rise to deduction — VAT is only recoverable if it relates to transactions within the scope of VAT that are effectively taxed, or exempt with the right to deduct (exports, supplies of capital goods to certain companies benefiting from tax incentives, etc.).
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Payment to registered suppliers — The supplier must themselves be a registered VAT taxpayer and must have invoiced the tax in accordance with regulations. An invoice issued by a non-registered person does not allow any VAT recovery.
Formal Conditions (Art. 102)
Beyond substantive conditions, the CGI imposes rigorous formal requirements:
- Compliant invoice — The invoice must separately state the VAT amount, the rate applied, the pre-tax amount, and the total including tax. The supplier’s tax identification number (IF) and ICE number must appear.
- Sequential numbering — Each invoice must bear a unique number in a continuous series.
- Complete identification — The supplier’s name or company name, address, and business registration number must be shown.
- Deduction deadline — The deduction must be made in declarations filed for the period during which payment was made, or at the latest by December 31 of the following year.
With the progressive implementation of electronic invoicing in Morocco, these formal requirements will be reinforced through automated controls and digital transaction traceability.
Exclusions from the Right to Deduct (Art. 106)
Certain categories of expenditure are expressly excluded from the right to deduct, even if they meet the substantive and formal conditions.
Passenger Vehicles
VAT on the purchase, lease, or maintenance of passenger transport vehicles (private cars) is not deductible. This exclusion covers outright purchase, finance leases, and long-term rental agreements.
Exceptions: vehicles used for public passenger transport, collective staff transport, ambulances, or delivery vehicles whose registration document states “utility” are not subject to this exclusion.
Fuel
Diesel and petrol for passenger vehicles are not deductible. However, diesel used to power utility vehicles, construction equipment, or generators does give rise to the right to deduct.
Cash Payments Exceeding 5,000 MAD
Article 106-II of the CGI provides that VAT shown on an invoice with a unit amount exceeding 5,000 MAD (including tax) that is paid in cash is not deductible. This measure aims to encourage financial traceability and combat the informal economy. Payment must be made by bank transfer, crossed non-endorsable cheque, bill of exchange, or any electronic payment method.
Business Travel and Entertainment Expenses
Expenditure on entertainment, accommodation, and hospitality of a lavish nature or without a direct link to the business is excluded from the right to deduct. In practice, the tax authorities tolerate the deduction of VAT on entertainment expenses when they are directly related to commercial activity and duly justified.
Assets Outside the Business
Any purchase of goods or services not used for business purposes (personal use by the director, assets allocated to an activity outside the scope of VAT) is excluded from the right to deduct.
Deduction Pro-Rata (Art. 104-105)
Taxable persons simultaneously carrying out taxable (or ADD-exempt) transactions and transactions exempt without the right to deduct (or outside the scope) are classified as mixed taxable persons. They may only deduct a fraction of the input VAT, determined by the deduction pro-rata.
The simplified pro-rata formula is:
Pro-rata = (Taxable turnover + ADD-exempt turnover) / Total turnover × 100
The result is rounded up to the nearest whole number. A 100% pro-rata means all VAT is deductible; a 0% pro-rata means no VAT is recoverable.
For a detailed analysis of the calculation, special cases, and reporting obligations, see our dedicated article: VAT Deduction Pro-Rata in Morocco.
Adjustments
When the deduction pro-rata varies from one year to the next, adjustments are required by the CGI to ensure correlation between the VAT deducted and the actual use of capital assets.
Movable Assets
For movable capital goods, the adjustment period is 5 years from the date of acquisition. If the current year’s pro-rata varies by more than 5 percentage points from the initially applied pro-rata, the taxable person must make a repayment or benefit from an additional deduction, calculated at 1/5 of the difference for each remaining year.
Immovable Property
For buildings and constructions, the adjustment period is extended to 10 years. The calculation follows the same logic, but the annual fraction is 1/10 instead of 1/5.
Disposal of Capital Assets
When a capital asset is disposed of before the adjustment period expires, the taxable person must repay a fraction of the VAT initially deducted. The repayment corresponds to 1/5 (movable assets) or 1/10 (immovable property) of the VAT deducted, multiplied by the number of remaining years.
Example: a machine acquired in 2024 with deducted VAT of 100,000 MAD is sold in 2026. There are 3 remaining adjustment years, resulting in a repayment of 100,000 × 3/5 = 60,000 MAD.
Practical Worked Example
A mixed taxable company purchases industrial equipment for 500,000 MAD (excluding tax), with VAT of 100,000 MAD (20% rate). Its deduction pro-rata is 80%.
- Initial deductible VAT: 100,000 × 80% = 80,000 MAD
- The following year, the pro-rata drops to 70%, a 10-point variation (> 5 points). The company must make an adjustment:
- Difference: (80% − 70%) × 100,000 = 10,000 MAD
- Annual adjustment: 10,000 × 1/5 = 2,000 MAD to repay
- If the pro-rata rises to 85% the year after, the company benefits from an additional deduction following the same mechanism.
Legal References
- General Tax Code (CGI) — Articles 101 to 106
- Circular Note No. 717 on the CGI
Tools
- VAT Qualification Tool — Quickly determine the VAT regime applicable to your transactions.
FAQ
What are the conditions for deducting VAT in Morocco?
VAT deduction is subject to substantive conditions (goods acquired for business use, taxable or ADD-exempt transaction, registered supplier) and formal conditions (compliant invoice with separately stated VAT, tax identification, actual payment). These conditions are cumulative and set out in Articles 101 and 102 of the CGI.
Is VAT on passenger vehicles deductible?
No, VAT on the purchase, lease, and maintenance of passenger vehicles is not deductible (Art. 106 CGI). Only utility vehicles, public transport vehicles, and collective staff transport vehicles are exempt from this exclusion.
What is the adjustment period for VAT deductions?
Adjustments cover a period of 5 years for movable capital goods and 10 years for immovable property. They apply whenever the deduction pro-rata varies by more than 5 percentage points from the initial pro-rata.
