Episode 92 Transcript

Welcome to Episode 92 of the Business of Morocco 
Podcast today we're going to talk a little bit  
about the economic free zones in morocco the 
places where there are special advantages and  
privileges uh to doing business in these specific 
uh geographical regions so as you can see here on  
uh this photo we've got the the Tanger Freezone 
tangier free zone we have Casablanca finance city  
over here in the top right we have the port of 
Ceuta between Spain and morocco in the northeast  
portion of morocco and then down here we have 
uh the city of Dakhla which has some special  
advantages and privileges for businesses 
and individuals that live and work there  
so let's get started we'll take a look at a map 
here um we've got uh down here in the bottom  
left we've got Dakhla which has its own special 
situation in morocco that is highly political  
a lot of countries around the 
world weighing into that situation  
and morocco has done various political 
and economic things in order to  
to build up that region and stabilize it and cause 
it to grow here we have Casablanca finance city  
which is in Casablanca just north of that 
you have the Kenitra Atlantic free zone  
uh which is focused on exports and you have the 
tangible freezer up here and where you can't see  
it but it's just close here just a little bit 
farther east is uh uh which is a part part of  
Spain and there's a border crossing there and 
morocco is creating an initiative another one  
you have out here is an uzda i will not be 
talking about uzhda and konitra today but  
i just wanted to point them out on the map as 
as being locations for for economic free zones
all right so these are the 
four regions that cover today  
various aspects there each of them is different 
each of them has different advantages and purposes
so first of all we'll just talk about 
some of the the overall economic  
advantages that apply to all of them 
in general or at least most of them
so first is that all these regions they have a tax 
exemption for the first five years so corporate  
income tax is zero percent for the first five 
years once you set up your business and start  
operating uh in one of these zones the next is 
after you pass the five years typically your tax  
is capped at 8.75 for the following 20 years 
and this is a little bit different for um
for casablanca finance city and for for dacha 
actually but in general if you can get into an  
economic free zone you're going to have reduced 
taxes that's that's the point versus having a  
business that is located uh somewhere else 
in morocco in an area that's not a free zone  
next we have uh dividend incentives 
meaning if you're in a free zone  
you do not have to pay the same kind of dividend 
tax that other companies have to pay so first you  
have your corporate income tax so you have 
incorporating income you pay a tax on that  
and then whatever's left once you distribute 
those earnings to the shareholders of the  
company then there's a tax on that as well 
however if you're in economic free zone  
you don't have to pay that tax especially to 
non-resident shareholders now there are some  
variations depending on whether you're in 
finance city or other areas but typically  
the non-resident shareholders will not have to 
pay that dividend tax after the corporate tax  
is paid and this is to encourage foreigners 
to invest in building companies in morocco  
knowing that they won't have to pay as high a 
tax uh on their earnings if they live overseas
next uh no value-added tax so it's not not only 
no value-add tax when you when you sell things  
export things and sell them overseas but if you're  
moving things between economic free 
zones say uh between konitra and tangier  
you don't pay a value out of tax not only that if 
you buy products or services from other companies  
that are outside the free zone you do not have 
to pay a vat tax when you buy those products  
or services from in the free zone so that is 
an automatic reduction in your expenses of 20  
uh for most uh products and services so that's 
a huge advantage next uh no no custom feats  
so when you're importing things 
into these free zones for example  
renault is building cars there so they import 
the parts and the raw materials they need to  
do the assembly of their vehicles then they 
export the vehicles they're not paying any  
of those customs fees in order to get those 
vehicle parts and raw materials into their  
manufacturing and assembly facilities and 
they're also not paying export fees so once  
the the car is assembled and they ship it to 
europe or the united states or south america  
they're not paying export fees and this is again 
this is in general uh one of the advantages
next uh the capital controls okay so if you're 
you're operating here in morocco and you have a  
normal business in one of the major cities you 
understand there are very strict and severe  
capital controls on your money uh whether you 
try to import money here uh bring money invest  
money into the country though you're gonna 
get hit hard with currency transaction fees  
and they're going to give you terrible exchange 
rates so let's say you invest a million dollars  
into morocco in just currency fees and transaction 
fees you may lose five or ten percent of that  
money uh by the time you actually have it 
uh converted into durham's to invest here so  
that's a huge problem they know it's a huge 
problem and it's the reason they change the  
rules for these economic free zones it's because 
they know that foreign companies and individuals  
do not want to lose five or ten percent of 
their money when they invest in morocco so  
they create these these situations where you 
can you can operate in your foreign currency  
you don't need to change it in the durhams 
in order to to do your business there uh the  
only uh exceptions to that is you can pay local 
employees in durham's and you can buy various  
products and services and terms but in general 
you don't even need to convert your currency  
into moroccan durham's in order to have 
a business in these economic free zones  
lastly uh there's a lot of moroccan government 
paid training so whether it comes to aerospace  
industry or automotive industry you're going 
to get the morgan government is paying for  
a lot of this technical training so that there 
is an adequate workforce to go and be hired by  
these companies that are building factories and 
starting businesses in these economic free zones  
so these are some of the the general advantages 
that apply to economic free zones across morocco  
but now we can we can go and get a little 
bit more specific so this is a picture of the  
tangier free zone it's located in the the 
north part northern part of the country morocco  
near the mediterranean sea and spain 
just across the straits of gibraltar  
this was created in 1999 and it has been 
growing and expanding ever since then
so again it has a very strategic 
location near the chandra port of medport  
you have access to europe to the rest of north 
africa into central asia and also ships that are  
moving across the atlantic ocean so it's a very 
good location very strategic here's a picture of  
of that port as you can see very high capacity 
to to do logistics so you see all the cars  
located down here a huge hub for importing 
and exporting cars and importing and exporting  
other products finished goods 
and raw materials as well
when you talk about the economic free 
zone in in tangier uh a lot of assembly  
of major end items like 
planes automobiles a lot of uh  
creation and assembly of parts for these 
uh industries for automobiles and planes um  
huge part of this danger-free zone we're looking 
at companies like renault peugeot ford dossier
it adds up to more than a hundred thousand 
jobs in just this region of the country we're  
looking at a hundred billion or more 
in durham's in annual revenue per year  
um that's that's the forecast for 2021 about 
more than 100 billion durham's in revenue  
and uh this region assembles and puts out 
more than 700 000 cars automobiles every year  
so it's a lot of activity a lot 
of production going on there  
and a lot of it has to do with these advantages 
that are specific to the free zones in morocco we  
also look at companies like boeing that has over 
a thousand employees uh in the tangier reason  
assembly so we've got assembly plants 
here you've got moroccans that are  
building cars uh the pujo 208 is uh is built in 
morocco and here it is looks like a very nice car  
and they are building a lot of these cars uh 
in the tangier free zone the dossier sandero  
is actually exclusively made and 
assembled in morocco so this is  
some of the kinds of activities that are 
going on here in the tanger free zone
next food production and export textiles 
you you've got a lot of things citrus  
fish olives olive oil vegetables fruits 
huge quantities of these products are moved  
through this area this free zone every year the 
products are are brought in in raw form they're  
refined they're packaged and they're exported all 
over the world and uh this is a major aspect of  
the commerce that goes on in these regions 
um i think when i looked at overall exports  
uh this accounted for about 20 of what morocco is 
exporting so it's it's a very significant number
so uh yeah again
the uh the tax incentives applied to this this 
free zone no taxes for the first five years  
reduced taxes eight point seven five percent 
for the next 20 years um reductions no tavera
no capital controls you know 
less currency restrictions so  
a lot of commerce is happening in this area 
because of the policies of this free zone
all right next uh region we'll talk about 
is dahla in layun here's a picture of leiyn  
and you know morocco is actively encouraging  
its citizens to move to these areas 
of the country uh leyon and dacha  
it has a lot to do with politics i'm not really 
going to talk about the politics of these regions  
i'm more interested in the economic policies 
and how they have impact business in morocco  
so these regions have a full exemption from 
taxes i mean do i have to say much more than that  
you are exempt from taxes no vat tax no 
corporate income tax no personal income tax um  
and you know that's enough that's enough of 
a reason to have a very strong reason to to  
start a business there or to do business in the 
and leon regions you're saving 10 20 30 40 50
by just having your business located 
there and doing your business there  
clearly the the morgan government wants companies 
and people to move to this region and they are  
doing everything they can to incentivize you the 
last bullet i have i have here is infrastructure  
they've got airports in lyon and they have 
ports on the ocean encouraging fishing  
and logistics and uh auto roads i mean you could 
take an auto route from casablanca to dahla and  
uh you know i've not done it myself but i know 
others who've had and it's it's not bad it's a  
very high quality auto route and you know there's 
services along the way gasoline food auto repair  
maintenance so it's a fairly safe trip that you 
can make you can drive there and that is a huge  
uh advantage to this area is is logistics and 
transportation being able to move people and  
products uh all across the region is a big exam 
because if you manufacture things in leonardo  
you can move them around the country 
fairly easily because of these auto routes  
all right the next one we're going to 
talk about is casablanca finance city  
located in the city of casablanca and focused 
on finance if you didn't get it from the name  
here's a photo of a tower that's gone up in 
in the city you can see the construction in  
the background it's going all around and this 
is actually a tramway that stops right in front  
of this tower and to the left of 
this tower they're building other
buildings for society general and popular 
so a lot of companies are locating here  
and uh it's a very nice area  
so you've got uh right in the middle of this 
finance city is a park it's a beautiful park as  
i mentioned there's a tramway that goes around 
the city to various locations including the  
working hubs where there are companies located and 
then also the residential areas have tramway stops  
and there's a beautiful park in the middle it's 
got fountains and grass and benches and chairs  
and playgrounds um and uh you know we're 
recording right now in november of 2020. the  
park's currently closed uh because of government 
decisions regarding uh coronavirus so you're not  
allowed to go into the park right now but when 
it does open it's a beautiful park and it's great  
for kids uh and for doing exercise big physical 
activity and again it's right in the middle of the  
finance city so it's a it's a great incentive and 
here here are the things family stops beautiful  
parks playgrounds exercise equipment and it's not 
too far from the airport um muhammad sank airports  
it's about 35 minutes depending on how fast you 
drive it's overall it's a very good location  
now when it comes to the economics or business 
aspects it is specifically designed for uh african  
headquarters of major multinational companies that 
is uh the goal uh and the incentives are directed  
towards these types of companies so let's talk 
a little bit about the administrative incentives  
you can create a company in finance city in two 
days 48 hours now that is a a big difference  
between the normal process which can take weeks 
or months for me it took six weeks seven weeks  
to create a company and they're saying that in 
finance city the people that are working there  
can do it in two days which is fantastic it's a 
great incentive um i wish it was that way all over  
moronco next foreign work permits so if you 
want foreigners to come work for your company  
in finance city you can get approval to do that 
in two two days 48 hours and you will receive  
i i don't know this from personal experience but 
what they say is you will receive that work permit  
the cart says your in 14 days which again is 
fantastic because the normal person is going  
to wait three or four months in order to get 
that card stature so if you're in finance city  
and you can get that work permit that cart stage 
roar in two weeks that is a huge advantage finally  
if you're a company headquartered in finance city 
you do not have to justify your workers the anapec  
ana pec law that is in place that requires 
companies to justify the hiring of foreign workers  
you have to say what the position is and why 
you need a foreigner to do it and why a moroccan  
cannot do the job and you have to justify 
it with various paperwork including foreign  
references and legalized work permits and 
certificates and experience and diplomas um  
you have to do that if you're a normal 
business business you have to justify  
your foreign workers but in casablanca finance 
city you do not have to do that and you can get  
a work permit in as little as three days so again 
huge incentives uh to have your business located  
in finance city next we'll talk about uh capital 
mobility capital controls money investments um  
you can have a single currency account for your 
business and it does not have to be durham's  
and you can work and operate in your foreign 
currencies now if you have local employees you  
will need to pay them uh in durham's and your tax 
law will apply uh and they will have to have uh  
moroccan bank accounts as well so you do have to 
have moroccan bank account but there's flexibility  
regarding which currencies you use and which 
currencies you you operate in and your ability  
to move money in and out of morocco is much 
easier than for companies like mine that are not  
located in in casablanca finance city the 
restrictions and the policies and regulations  
are onerous and they are much more difficult to 
deal with outside of casablanca finance city um  
additionally uh you you just 
don't have to deal with the fees  
um transfer fees so anyone who's done business in 
morocco trying to import products or pay for uh  
some of the services that you've acquired to run 
your business overseas going through that process  
is it takes a long time it can take weeks to send 
a wire transfer when you do it the bank is going  
to take a huge cut of the of the wire transfer and 
they're going to give you a terrible exchange rate  
and so that's just like that's just the way 
it is it's absolutely true but in casablanca  
finance city you don't have to deal with any of 
that there's also some benefits to foreign travel  
and some of the regulations and 
restrictions that are involved in that  
for companies so a lot of the administrative 
and capital mobility incentives and  
in finance city possible incompetency tax benefits 
they're great and they're very similar to the  
other free zones in morocco first is again no 
corporate income tax for the first five years  
after that it's a flat rate of 15 percent and 
there's no date limit on that so clearly zero  
percent for five years is great 15 caps is also 
very good in terms of the corporate income tax
personal income tax is limited to 20 for 
for up to 10 years and that applies to  
not only existing employees but all new 
employees so that is a great tax benefit  
and i'll talk a little bit later about 
the specifics of that and why it's so good  
next you don't have the dividend tax you 
don't have the withholding on the dividends  
paid to residents and non-residents so um you 
uh once you make your money and you pay your  
employees and you pay your corporate income tax 
once you do your distributions your dividends to  
your resident and non-resident shareholders you're 
not going to have to pay a dividend tax on that  
whereas companies like mine i'm going to if i do 
a distribution a dividend payout it's going to  
be like 15 or more after you've paid employment 
taxes after you've paid your corporate income  
tax so this is a great incentive in casablanca 
finance city finally you're also exempt from  
all the registration fees that are associated with 
creating the business and doing a capital increase  
so those are some of the great tax benefits now um 
talk specifically about the benefits of employment  
okay so if you have an employee who's making 
25 000 durham's net per month okay net  
in casablanca finance city your tax is capped 
at 20 so that's five thousand terms per month  
so your total out of pocket for a company to have 
the employee have a net of twenty five thousand  
is thirty thousand and that's great that's uh it's 
a great incentive okay you take that same employee  
working out in casablanca but not in finance city 
for example in polo or gautier and the taxes are  
around 56 okay it's not exactly 50 6 but it's 
it's around 56 or 13 500 terms uh per month  
on that salary net of 25 000. so your total out of 
pocket is 38 500 okay which means that by having  
your business located in finance civic city you're 
saving about 8 500 terms per month in finance city  
versus having it located somewhere else in the 
city and of course that is a huge advantage  
it means that you can recruit uh very talented 
employees and you could pay them a much higher  
net salary than the competition because 
as we talked about the net out of pocket  
for a company in cfc is 30 000 where the 
employee keeps 25 but here i have to pay 38.5  
38 500 in order to have my employee net the same 
25. so it costs a lot more for me to hire that  
employee than someone in a company in costa blanca 
financially that is a huge competitive advantage
um so yeah those are the advantages of organizing 
your business and locating accounts of one  
confined city um and they're substantial 
and companies are doing it and a lot of  
construction is going up and i have a source there 
at casablanca finance city that tells me that 90  
of the office space is already rented um 
in a building that wasn't even finished  
so there's a lot of demand for the office 
space in casablanca finance city is for good  
reason there have a lot of advantages 
and a lot of incentives in this area
all right the next one i'm going to talk 
about is the economic free zone uh infin deck
region of morocco the border with spain  
okay so here's some photos of this border um 
it's been in the news for the last few years  
you have here it's a major area of 
of human trafficking human smuggling  
african immigrants and migrants trying to get to 
spain or trying to climb the fence there's been  
riots and people have died and people are injured 
trying to climb these fences and get to spain get  
to europe it's a major area for drug trafficking 
out of morocco into spain as you can see here  
there's a lot of problems with product coming 
into into morocco the law basically allows  
people individuals can walk across the border 
and whatever they can carry has no import duties  
no fees no taxes no duties so what you 
have is you have moroccan businesses  
on the on the morocco side paying these 
people to go into spain and carry the product  
from spain into morocco and it's done on a massive 
scale billions of durham's cross that border every  
year or at least they used to um and it's a big 
deal and for for businesses that import products  
legally it's a huge problem so uh this this port 
of entry has a history of smuggling um and in  
october of 2009 the moral government 
shut it down basically because  
there were there were no customs and people were 
taking advantage of the fact there was there  
was huge logistics operations going on between 
spain and morocco to bring product into morocco  
ship it all over the country and sell it and avoid 
uh the taxes that are that are a big deal they're  
a big problem um this this movement of product 
this black market essentially logistics and import  
uh was causing long delays at the border you 
can wait there for hours to move through the  
border and for people and for cars um it 
was it was a huge problem and again it led  
to injuries and deaths um and the smuggling of 
contraband and other illegal goods and products  
now this economic reason has a couple 
of goals okay um it's to create jobs  
because when they closed it the uh 
moroccan moroccan world news estimated that  
almost half a million 450 000 people lost 
their income and lost their jobs because  
the products were no longer coming from 
spain into morocco so they want to create  
an economic free zone to create jobs 
and to help people in the tetuan region  
gain employment and increase that economic 
activity that was lost in the area
um and again the goal was to stop the 
smuggling they want to they want to  
have an economic free zone and they want 
to stop the smuggling here's the problem  
in july the moroccan government increased the 
import duties on many products up to 40 percent  
means that if i have a product that's 10 
durhams and i want to import it i have  
got to pay the morale and government 
44 terms for 40 of the value of that  
and i tell you that is a huge problem 
it is huge barrier to importing products  
as i mentioned on a podcast i'm thinking about 
importing toys and exercise equipment here  
into morocco and uh this tax and this import fee 
is is a big obstacle i don't know if i want to  
do it because i don't know if there's enough 
incentive left for me to spend all of my time  
and money and effort importing these products 
when eventually i'm not going to have any  
income i'm not going to have any net income 
not going to have any profits because they're  
all they all go to the moroccan government 
and various taxes and fees and regulations  
and i don't actually get to keep 
any of the benefits of my labor  
so this 40 tax is a huge problem the goal of 
this economic free zone is to stop the smuggling  
but you know it's not really i don't my personal 
opinion is not going to work you're not going to  
stop the smuggling um and and the legal importers 
are complaining about it because they have  
competition that doesn't have to pay the taxes 
but the fact is that that it's the taxes that  
incentivize the smuggling the smuggling will never 
stop as long as the reward is better than the risk  
the smuggling is just going to move somewhere else 
40 is a very strong incentive to smuggle if i can  
i can keep the four durham's okay so i 
have that tender and product that i import  
and i can keep the four durham's and not give 
it to the government that is a huge incentive  
to smuggle i can spend a ton of money avoiding 
and smuggling avoiding the authorities paying  
bribes this is what happens instead of paying the 
rocking government i the four durhams in in in  
import taxes and fees i can use three durham's 
to pay the police to pay the duan to pay coyotes  
and other folks to smuggle goods across the border 
and i'll still come out on top i'll still benefit  
and so by having these very high taxes the moral 
government is incentivizing people to smuggle  
if there weren't this huge incentive they 
wouldn't do it that's just the bottom line
so again here's a recap of the economic free 
zones that we talked about uh tangier-free  
zone dahla and lehyun casablanca finance city and 
the one that is planned for through to spain it's  
not currently up and running yet but it is planned 
and again the the incentives the reasons were to  
create jobs and reduce the smuggling so um 
here's again an overall review of the general  
benefits to the economic free zones in morocco 
lower taxes better foreign worker incentives  
better regulations and taxes regarding imports 
and exports fewer capital controls on the currency  
and dividends and the movement of money and 
the moroccan government is doing a lot of paid  
training and um workforce development 
in order to support the industries  
and the new companies that want to locate 
in morocco so i hope this was helpful i  
hope it was clear give you a good idea of the 
various advantages that are going on in morocco  
um if you have any uh more specific questions 
you can go ahead and email us at ryan at  
moroccopodcast.com we can start a conversation 
about the opportunities and advantages  
of locating the business here in morocco 
that's all we got for today see you next time

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