Evolution of the legal and tax regime of the CFC regional offices following the reform introduced by Decree Law 2-20-665

The CFC regime has been strongly revised by The Decree Law 2-20-665 of 30 September 2020 and its implementing decree Decree No. 2-20-841 of 8 Jumada I 1442 (23 December 2020) to meet international standards in terms of international taxation and in particular the notion of substance of companies.

The notion of Regional Headquarters is replaced by the notion of Technical and Administrative Service Provider, they can now invoice intra and extra-group services and no longer only intra-group. Companies with the status before the entry into force of the decree-law have one year after the entry into force of the implementing decree, i.e. on 24 December 2021, to comply with the following provisions provided for in Article 2 and 3 of Implementing Decree No. 2-20-841:

ART. 2.– In order to assess the effectiveness and substance of the proposed activity in the light of the criteria laid down in Article 1 above, the financial and non-financial undertakings provided for in Articles 4 and 5 of Decree-Law No 2-20-665 above must:

• have their effective headquarters at CFC;

• be directed and managed from CFC. As such, they must have at least one director residing in Morocco;

• allocate a minimum of operating expenses in line with the nature and volume of essential income-generating activities;

• have among its staff, highly qualified persons, including at least one senior executive with professional experience, in this capacity, including at least three (3) years of international experience for providers of technical and administrative services and ancillary service providers, as well as for trading companies, and one year for other activities;

• contribute to the promotion of technical and technological expertise and the development of the place, particularly with regard to trade and financing for development in Africa.

ART. 3.– The providers of technical services and the providers of administrative services referred to in paragraph 2 of Article 5 of Decree-Law No 2-20-665 cited above, must, in addition to the requirements laid down in Article 2 above, provide at least three services among the following services to at least three entities of the same group or with which are associated by virtue of commercial relations, technical or capitalistic:

– the supervision and coordination of the activities carried out, by the entities of the group to which the aforementioned service provider belongs, on the national territory or in one or more foreign countries;

– the direction and management of those entities;

– the provision of services on behalf of those entities;

– the provision of services on behalf of third parties;

– invoicing goods and services on behalf of those entities or to third parties;

– any other administrative, management or coordination service relating to regional and international headquarters.

The new CFC regime now focuses on the effectiveness and substance of the planned activity, particularly with regard to the number of staff recruited (or to be recruited), operating budgets and the business model to the detriment of the criteria of the old CFC regime which focused on commitments to achieve a certain turnover internationally.

Below you will find a summary table comparing the old and new CFC regimes applicable to regional headquarters (now called technical and administrative service providers).

	Ancien Régime CFC (Law 44-10)	New CFC Regime (Decree-Law ° 2-20-665)
SWC status applicable to regional offices	Regional Headquarters The term “regional or international headquarters”, within the meaning of Law 44-10, means any company with legal personality, which carries out an activity of supervision and coordination of the activities of companies carried out in one or more foreign countries.	Technical and Administrative Service Providers any legal person, which mainly carries out at least one of the following activities: – the supervision and coordination of the activities carried out by the entities of the group to which the aforementioned service provider belongs in the national territory or in one or more foreign countries; – the direction and management of said entities; – the provision of services on behalf of said entities.
General eligibility conditions for all CFC statutes set by law or decree law	1 – submit an application accompanied by a file including the elements fixed by the commission referred to in Article 15; 2- be in compliance with the legislation applicable to them; 3– undertake to carry out activities with non-residents in proportions that are set by regulation. However, representative offices are not subject to this commitment; 4- comply with the legislation and regulations in force relating to foreign trade and foreign exchange; 5– undertake to respect the code of ethics	1 – be duly constituted or in the process of being constituted 2 – have its effective registered office and its activities at CFC 3 – establish a program of activities meeting criteria set by regulation and undertakes to carry it out. These criteria must make it possible to assess the effectiveness and substance of the planned activity, in particular with regard to the number of staff recruited (or to be recruited), operating budgets and the business model. Representative offices are not subject to this commitment; 4 – present sufficient guarantees, in particular, as regards its organisation, its technical means and the experience and good repute of its managers; 5 – comply with the legislation and regulations in force applicable to them, in particular those relating to foreign trade, foreign exchange and the fight against money laundering and the financing of terrorism, as well as the tax treaties in force applicable to them; 6 – undertake to comply with the code of ethics referred to in Article 17 below; 7 – undertake to transmit to CFCA all documents and information it requests to ensure compliance with the commitments on the basis of which they were granted CFC status. In addition, the decree-law introduced conditions relating to the substance of companies to comply with international compliance requirements: • have their effective headquarters at CFC; • be directed and managed from CFC. As such, they must have at least one director residing in Morocco; • allocate a minimum of operating expenses in line with the nature and volume of essential income-generating activities; • have among its staff, highly qualified persons, including at least one senior executive with professional experience, in this capacity, including at least three (3) years of international experience for providers of technical and administrative services and ancillary service providers, as well as for trading companies, and one year for other activities; • contribute to the promotion of technical and technological expertise and the development of the place, particularly with regard to trade and financing for development in Africa.
Specific conditions for the status of regional office set by regulation	Supervision and coordination activities are defined as the functions of direction, management, coordination and control. The provision of services by the institutions on behalf of other entities in their group includes research and development services, strategic services and human resources and IT management, communication or public relations services. The decree does not provide for a minimum export turnover for the Regional Headquarters because they are not considered financial companies.	Technical service providers and administrative service providers must provide at least three of the following services to at least three entities in the same group or with which are associated by virtue of commercial, technical or capital-intensive relations: • supervision and coordination of the activities carried out by the entities of the group to which the above-mentioned provider belongs, on the national territory or in one or more foreign countries; • the direction and management of these entities; • the provision of services on behalf of these entities; • the provision of services on behalf of third parties; • billing for goods and services on behalf of such entities or third parties; • any other administrative, management or coordination service relating to regional and international headquarters.
New opportunities for activities introduced by the Decree-Law for regional offices	Intra-group invoicing only	Intra- and extra-group invoicing, and invoicing on behalf of third parties. Technical service providers may also: – provide services on behalf of third parties; – invoice goods and services on behalf of those entities or to third parties.
Modalities of sanctions and withdrawal from the Statute	This status is withdrawn by SWC in the following cases: 1) at their request; 2. where they no longer fulfil the conditions laid down in point 2 of the table above in the light of which they were granted that status or the commitments to which they have entered into. The commission cannot pronounce the withdrawal of the “Casablanca Finance City” status without first duly convening and hearing the company concerned. To this end, the committee sends the company concerned a registered letter with acknowledgment of receipt at least ten (10) working days before the date set for the hearing session. The notice of meeting for the undertaking concerned shall indicate the place, day, time and purpose of the hearing session and shall invite the undertaking concerned to bring all the relevant documents and supporting documents.	This status is withdrawn by CFCA in the following cases: 1) at the request of the supervisory authority concerned in the event of withdrawal of the authorisation or authorisation granted to the undertaking 2) where the undertaking has not made use of its status within twelve (12) months from the date of notification of the decision granting said status; 3) when the company no longer carries out its main activity for a minimum period of six (6) months; (4) where the undertaking no longer fulfils the conditions under which that status was granted to it or where it does not honour the commitments to which it has entered into. When the facts identified do not constitute a major breach of the conditions for granting the status or the commitments entered into, CFCA may send a warning to the company concerned and order it to regularize the situation within the period it sets. In the absence of regularization within the prescribed period, the CFC status is suspended for a period of twelve (12) months or withdrawn.
Tax	Corporate tax rate of 10% applicable on the following basis: The tax base of these entities is equal: – in case of profit, the highest amount resulting from the comparison of the tax result with the amount of 5% of the operating expenses of said headquarters; – in the event of a deficit, the amount of 5% of the operating expenses of the said seats.	– Taxation at the specific rate of 15% at the IS; – permanent exemption from withholding tax on dividends and other income from similar participations paid