Moroccan Contractors Face Liquidity Pressures Due to Frozen Tax Credits

Moroccan contractors are facing heightened financial liquidity pressures due to the accumulation of unrecovered Value Added Tax (VAT) credits. These credits, which are subject to stringent legal and administrative conditions, have become frozen assets, limiting the contractors' ability to fund their activities, investments, and meet obligations to suppliers and employees.

This situation is exacerbated by the increasing amounts being returned by the tax administration to taxpayers. In 2025, the total amount of VAT refunds, reductions, and offsets processed reached approximately 25 billion Moroccan Dirhams (MAD), marking a 13.8% increase from the previous year. The domestic VAT accounted for 81.9% of this amount, totaling 20.47 billion MAD, while the achievement rate for the targeted VAT recovery goal, as stipulated in the finance law, was around 186%.

Financial data indicates that by the end of December 2024, the outstanding VAT refunds amounted to approximately 32.8 billion MAD, compared to a peak of 42.2 billion MAD at the end of 2020. More than two-thirds of the 2024 balance was held by the Office Chérifien des Phosphates. Additionally, domestic VAT refunds increased to 11.5 billion MAD by the end of September 2026, up from 9.5 billion MAD during the same period the previous year.

The recovery of these VAT credits is governed by specific conditions outlined in the General Tax Code of 2026, particularly Articles 103 and 103 bis. These conditions include the nature of the activity, adherence to deadlines for submitting requests and invoices, and providing proof of performance. Legal ceilings are also applied in certain cases. Failure to meet these requirements can result in the partial or total rejection of the refund, further straining the financial needs of contractors, particularly small, medium, and exporting firms.

The issue of frozen VAT credits arises when the VAT paid on purchases and equipment exceeds the VAT collected on sales, resulting in a credit balance that cannot be automatically converted into liquid funds. This situation is particularly pronounced among exporting contractors, who benefit from VAT exemptions on their exports but still incur VAT on domestic purchases.

The Moroccan government has acknowledged the challenges faced by contractors due to these frozen VAT credits. Efforts are being made to address the issue, including the implementation of measures to streamline the refund process and reduce the administrative burden on contractors. However, the effectiveness of these measures remains to be seen, as the complex nature of the tax system and the stringent conditions for VAT recovery continue to pose significant hurdles.