The Ijara Mountahia Bitamlik (IMB) is a contract whereby an Islamic bank makes one of its properties available to a client on a rental basis. At the end of the rental period, the propriety of the good is transferred to the client depending on the modalities agreed upon by the parties (art. 58 of law n°103-12 of December 24, 2014, relating to credit institutions and similar entities).
To promote convergence of the existing legal system with international standards and guarantee the fiscal neutrality of this type of financing, the Finance Law for the 2016 budgetary year (LF2016) amended the tax system applicable to real estate financing through an IMB and to extend to it the treatment reserved thus far to Murabaha contracts.
In this vein, the circular note n°726 issued by the General Tax Administration with regard to the LF2016 tax measures came to clarify the provisions applicable to the IMB, including the following:
As of January 1st, 2016, the amount of the rental margin paid to the credit institution and similar bodies for the purchase of property intended to serve as primary residence is deductible. The deduction is limited to 10% of the global taxable income (art. 28-II CGI) and subject to conditions, in particular the evidence that the premises are personally occupied by the taxpayer as their primary residence. Particular measures are applicable to social housing.
In case it is proven that the property does not in fact serve as primary residence, the taxpayer will be subject to regularization in addition to applicable sanctions. The complementary rights, the penalties and increases are immediately established and due in whole for every year subject to a deduction or restitution, even after expiration of the limitation period.
The transfer of the capital gained by the property serving as primary residence is exempted from taxation after 6 years. The time of occupation by the tenant is taken into account for the calculation of the six-year period. In this way, the exemption system is lined up to the one applicable when acquiring real estate property by classical financing services.
It should also be noted that article 65-I of the CGI, as modified by the LF2016, states that, to determine the real estate profit resulting from the sale of property acquired through IMB, the margin paid to the Islamic bank must be taken into account. It is therefore added to the cost of acquisition for the calculation of the real estate profit. This measure applies to transfers made after January 1st, 2016.
Before January 1st, 2016, the rental margin resulting from IMBs was subject to VAT at a 20% rate, while the margin resulting from Murabaha contracts was subject to a reduced rate of 10%. This rate applies to maturities due after January 1st, 2016.
Sale operations on social housing serving as main residence are also exonerated from VAT when their surface is comprised between 50m2 and 80m2 and when the selling price does not exceed 250,000 dirhams excluding taxes.
In principle, the IMB is regarded as two successive transfers relating to the same property. Therefore, the registration fees should have been due after each transfer. It should be noted, however, that the second transfer is generally done at derisory price after a long rental period.
The system applicable to registration fees has now been clarified: Registration fees are only due once. The determining taxable amount is the land acquisition price by the Islamic bank (i.e. the first transfer).
Jan 1, 2016, tax law, Moroccan law
