The end of the year is often a time for taxpayers to review their annual income and make necessary adjustments and reconciliations. It’s also an opportunity for financial professionals to reconsider their clients’ tax situation. The goal is to align with evolving regulations, particularly concerning the deductibility of allowances and benefits paid to employees, ensuring they remain exempt from income tax.

We take this opportunity to highlight the main thresholds in effect and the required conditions to benefit from the exemption of the most common allowances and benefits paid within the framework of an employment contract.

Please note that all information is derived from the Internal Revenue Service memorandum dated March 13, 2017, aimed at clarifying the treatment of these remunerations.

Mileage, Travel, and Commuting Allowances: Understanding the Differences

Although these allowances bear some resemblance in their naming, each serves a distinct purpose and hence enjoys distinct tax treatment.

Transport Allowance to the Usual Place of Work:

As the name suggests, it compensates for commuting expenses, whether via public or personal means. It is exempt up to 500 MAD per month and taxable beyond that threshold. The limit is raised to 750 MAD per month for commutes outside the urban perimeter (or between two contiguous cities). However, exemptions may not apply in certain cases, such as when transportation is provided by the employer or when the employee has access to a company vehicle or lives at the same location as their workplace.

Mileage Allowance:

Employees may use their personal vehicles for work-related travel, and employers can provide mileage allowances to compensate for vehicle wear. These allowances are tax-exempt if they do not exceed 3 MAD per kilometer, provided the journey starts from the company’s address. Employers are advised to prepare signed mission orders for each trip and maintain a copy of the employee’s vehicle registration in the personnel files for potential audits.

Travel Allowance:

Professional travels entail expenses covering accommodation, meals, tolls, etc. Employers have two options for granting these allowances: based on receipts and justification or as a flat rate not exceeding authorized thresholds (refer to summary).

Benefits in Kind: Naturally Taxable

Cash salary might be the primary income from employment, but it’s often not the only one! Perks like a company car, staff housing, canteen meals, etc., are benefits in kind that must be included in the income tax calculation. One common scenario is providing a company car for both professional and personal use, which constitutes a taxable benefit in kind. In such cases, the vehicle’s periodic depreciation value can be included in the taxable income granted to the respective employee.

Social Benefits: All in One Basket

Throughout the year, various family, social, or religious events occur. Employers can grant additional bonuses to one or several employees on top of their regular salary. Since the issuance of the IRS memorandum, the total of these bonuses is exempt if it doesn’t exceed the ceiling of 2,500 MAD annually, encompassing all events.

Marriage, birth, death, holiday bonuses, back-to-school allowances, charity purchases during Achoura… Any amount exceeding the maximum limit is subject to income tax. Note that the Hajj pilgrimage bonus falls under a separate category (refer to summary).

Representation Allowance: Reserved for Directors!

Hiring a senior executive? Ensure they maintain a presentable appearance! The tax administration exempts the grant of a representation allowance, limited to 10% of the gross salary of the executive.

The goal? Ensure that the employee maintains a consistently appropriate appearance.

Condition? Only specific job titles (or equivalents) are accepted: CEOs, Directors, Managers… Therefore, trying to optimize the entire payroll might result in painful audits.

A variety of treatments, each different from the other, allowing for monthly payroll optimization and related taxation.