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 are required when the pro-rata varies significantly (over five years) or when fixed assets are not retained for the required period (60 months for movable assets, ten years for immovable property). 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. 104, 106-I-9°, 145 and 146)
Beyond substantive conditions, the CGI imposes rigorous formal requirements:
- Compliant invoice — The deduction is only allowed on a regular and probative invoice (Art. 106-I-9° and 146) separately stating the VAT amount, the rate applied, the pre-tax amount and the total including tax, the supplier’s tax identification number (IF), its business tax (taxe professionnelle) article number and the ICE (Art. 145-III and VIII).
- Sequential numbering — Each invoice must be pre-numbered in a continuous series or issued by a computer system in a continuous series.
- Complete identification — The name or company name, address and identifiers of both the supplier and the customer must be shown, together with the references and the method of payment.
- Deduction deadline — The right to deduct arises in the month of partial or full payment of the invoice (or of the issue of the customs receipt) and must be exercised within a period not exceeding one year from the month or quarter in which it arose (Art. 101-3° CGI). After this deadline, a late deduction is penalised by a fine of 15% of the deductible VAT amount, with a minimum of 500 MAD (Art. 204 bis CGI).
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 paid in cash is only deductible up to a limit of 5,000 MAD (including tax) per day and per supplier, not exceeding 50,000 MAD (including tax) per month and per supplier. Beyond these ceilings, the portion of VAT 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, Entertainment and Representation Expenses
VAT on business travel (mission), entertainment and representation expenses is excluded from the right to deduct (Art. 106-I-6° CGI), with no distinction according to their lavish nature or their link with the business. Administrative doctrine extends this exclusion to accommodation, catering and show-organisation expenses and to the transport of persons, whatever the route and means used. The only exception is for expenses supplied or financed as a donation in the cases provided for in Articles 92-I-21° and 23°.
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.
Pro-rata Variation (Movable and Immovable Assets)
For all assets recorded as fixed assets, the adjustment linked to the variation of the pro-rata applies during the five years following the date of acquisition (Art. 104-II-1° CGI). If, for any of those years, the pro-rata differs by more than five hundredths from the initial pro-rata, the taxable person makes a repayment (decrease) or an additional deduction (increase) equal to one fifth of the difference between the initial deduction and the deduction calculated on the new pro-rata. This adjustment is entered on the March return (monthly regime) or the first-quarter return (quarterly regime).
Failure to Retain Assets
Independently of the pro-rata, movable assets must be retained for 60 months and immovable property for ten years (Art. 102 CGI). Otherwise, the VAT initially deducted or exempted is adjusted, reduced by one sixtieth per month elapsed for movable assets and by one tenth per year elapsed for immovable property (Art. 104-II-2°).
Disposal of Capital Assets
The treatment differs depending on the nature of the asset. For a movable capital good sold before the end of the 60-month retention period, the taxable person adjusts the VAT initially deducted, reduced by one sixtieth per month or part of a month elapsed since acquisition (Art. 104-II-2°); the disposal is itself subject to VAT on the sale price (second-hand goods, Art. 125 bis-I), and the adjusted VAT gives the seller a right to deduct within the limit of the VAT invoiced on that disposal. The month of acquisition and the month of disposal each count as a full month. For a building sold before the end of the ten-year period, the taxable person repays the VAT initially deducted reduced by one tenth per year or part of a year elapsed since acquisition, the year of acquisition and the year of disposal each counting as a full year.
Example: a building acquired in 2024 with deducted VAT of 100,000 MAD is sold in 2026. Three years have elapsed (2024, 2025, 2026, each counted as a full year); the deducted VAT is reduced by 3 tenths, giving a repayment of 100,000 × 7/10 = 70,000 MAD. For a machine (movable good) acquired in January 2024 with deducted VAT of 20,000 MAD and sold in June 2026, 30 months have elapsed (months of acquisition and disposal counted in full): the adjusted VAT is 20,000 × 30/60 = 10,000 MAD, the disposal being taxed on its sale price and the adjusted VAT being deductible by the seller within the limit of the VAT invoiced on that disposal.
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, 104, 106 and 145-146 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?
The pro-rata variation adjustment covers the five years following acquisition, for all fixed assets, whenever the deduction pro-rata varies by more than 5 percentage points from the initial pro-rata (Art. 104-II-1°). Independently of the pro-rata, failure to retain assets for 60 months (movable assets) or ten years (immovable property) triggers an adjustment of the VAT deducted (Art. 102 and 104-II-2°).
