Dismemberment of property in the transfer of assets

On Karim Mameri

and Hakim ESSADIQ

Partners of the Chartered Accounting and Statutory Audit firm Roche Mameri – Exygene Group Network

Comments collected by Afifa Dassouli

The transmission of assets is a major issue for anyone wishing to prepare their succession in the best conditions. What satisfaction to see the fruit of a lifetime of work transmitted and developed by future generations, thanks to a strategy ensuring the continuity of activities and family assets. The use of appropriate legal structures makes it possible to facilitate this transmission, sustain economic activity and avoid transition problems.

This article limits the scope of its study to resident Moroccans, as the treatment of the situation of foreigners and Moroccans around the world is approached on a case-by-case basis, due to the specificities linked to religious confession and place of tax residence in the country. stranger.

According to article 6 of the Moroccan Nationality Code, in its consolidated version of October 26, 2011, all children born to a Moroccan father or a Moroccan mother are “Moroccan by law”. In our country, these heirs are not taxed in terms of inheritance. The costs are limited to the payment of registration fees during the transfer of ownership, linked to the inheritance, of around 1.5%. However, this advantageous tax system, considered “fair”, does not encourage “heads of families” to ask themselves the right questions during their lifetime.

Of course, mentalities are changing, but the first generation, who worked hard to accumulate their wealth, tends to want to maintain control until death. The donation of full ownership, authorized by Moroccan law, to transmit, during one’s lifetime, one’s capital to ascendants, descendants, brothers and sisters, without limit of amount, remains marginal. But more and more business leaders, annuitants or land and real estate owners consult our firm on these aspects, wanting clear answers to their problems, in order to prepare their succession, particularly when they do not only have daughters as heirs.

Mechanisms exist to calmly prepare for the transmission of one’s assets in a fair and efficient manner. “Heads of families”, at the head of significant assets, are now using it. The fundamental question, for them, being to retain full powers over their assets until their death.

One assembly, in particular, is possible: the dismemberment of property. This strategy can concern, at the same time, the transfer of shares of companies or production tools, land and real estate assets… Securities and cash are rather the subject of outright donations. Dismemberment is a situation where the ownership rights of an asset are divided into two distinct parts: theusufruct and the bare ownership.

Subject to specific modifications or adjustments, agreed between the parties, depending on the terms of the notarial deed establishing the dismemberment, the bare owner and the usufructuary have distinct rights and obligations.

In general:

• L’usufructuary has the right to use and enjoy the property, to receive any income from activity or to rent it, for a defined period and according to the terms set when the notarial deed of dismemberment was drawn up.
• The bare owner has the right to possess the property without being able to enjoy it, nor draw rental or activity income from it during the duration of the usufruct. Once the usufruct is over, the bare owner regains full ownership and therefore enjoyment of the property.

The legal aspects relating to the dismemberment of real estate or shares in companies involving bare ownership, held by a natural person, and usufruct by a natural or legal person, are governed, at the same time, by the Dahir forming the Code of Obligations and Contracts, in its latest consolidated version of December 19, 2019, particularly its Book II – Title I and by Law No. 39-08 relating to the Code of Real Rights, Dahir No. 1-11-178 of November 22, 2011.

On a tax level, in accordance with the reference framework defined in the General Tax Code updated by finance law No. 55-23 for the 2024 budget year, article 131 § 4, supplemented by case law in tax matters , the impacts of property dismemberment vary depending on the status and nature of the parties involved.

The main things to remember are:

• During the operating or rental phase, the bare owner does not receive income or immediate benefits from capital or income from the real estate. Bare ownership therefore has no tax implications.
• With full enjoyment of his shares or his real estate, the usufructuary retains his full rights to the income and his decision-making power. He will continue to receive his rents or capital income from the companies of which he has usufruct. It is up to the usufructuary to pay income tax or corporate tax, if it is a legal entity. The same goes for other categories of taxes.

It is fundamental to neutralize any tax risk for the bare owner and the usufructuary, during dismemberment and consolidation. The scale of article 131 of the General Tax Code indicates a decreasing value of the usufruct depending on the age of the usufructuary: the older the latter is, the lower the value of the usufruct taking into account its life expectancy. In other words, the earlier the donation of bare ownership is made, the lower its value will be (Example: For a usufructuary under the age of 50, the value of the usufruct is fiscally fixed at 4/10th and bare ownership at 6/10). This explicit hypothesis is retained in practice, it is consistent to opt for a principle where the less you will enjoy a property, due to the length of time you have left to live, the less value the usufruct has. The tax scale therefore regularly serves as a regulatory reference although the economic value of the expected returns from the property over the coming period may have an impact on usufruct.

The Code of Real Rights records the definitive extinction of the rights of the usufructuary under the terms of the period agreed in the initial act of dismemberment. In its chapter 3, “Extinction of usufruct”, Law No. 39-08 uses a term leaving no doubt as to its interpretation, in its article 99: “the usufruct is extinguished by: the death of the usufructuary, the expiration of the time for which it was granted, the total loss of the thing on which the usufruct is established, the express renunciation of the usufruct, the meeting on the same head of the two qualities of usufructuary and of owner”. We interpret the terms “extinction” and “extinguishes” as the definitive loss of enjoyment of the property and the return to full ownership, with its recovery by the bare owners. Let us, in this reasoning, only retain the most frequent case of “death of the usufructuary”. On this date, the consolidation is understood as a return to a “normal” situation, where the bare owners regain full enjoyment of the property. This “extinction” has a legal and fiscal impact with the return to full ownership of the bare owners. The latter become partners or full owners.

They recover the use and full ownership of the real estate or shares and regain all rights, and homework, attached to the property. They become responsible for the management and maintenance of the property, recover the use of the shares, while now benefiting from all the income and rights attached to full ownership. “Full owners” become liable for all taxes and duties related to real estate and social shares, according to the tax legislation in force in Morocco.

The operation of dismemberment and regrouping of property is completely compatible with the spirit of successional transmission and therefore inheritance. Since the usufruct is determined until the death of the usufructuary in the initial act. We noted that article 99 of the Code of Real Rights allows a usufruct for a period shorter than the life of the usufructuary. In this context, there can be no question of transmission of assets, the usufructuary can survive the duration of the act. Furthermore, an operation of dismemberment of property rights is not irreversible, the stakeholders can, unanimously, reverse this decision and proceed with the consolidation before the inheritance transfer. Apart from these very rare situations, the arrangement itself cannot be called into question by the rules of inheritance defined by the Family Code.

NB: it should be noted that article 100 of the Code of Real Rights provides for the case of a usufructuary legal entity but which necessarily expires “at the end of a maximum period of forty (40) years”.