• Part 7: Part 7: Reorganisations and Reconstructions

    • Article 41 - Policy Statement on Reorganisations and Reconstructions

      The QFC tax regime supports commercially driven reorganisations. This Part provides relief for a number of specified transactions. Relief is also available on a discretionary basis for other transactions carried out as part of a bona fide commercial reorganisation or reconstruction.

    • Article 42 - Intra-Group Transfer of Assets

      (1) Where a Company ("Company A") disposes of an asset to another Company ("Company B") at a time when both Companies are QFC Entities and are members of the same Group, then Company A and Company B shall be treated for the purposes of these Regulations as if the asset was acquired by Company B for a consideration of such amount as would secure that neither a gain nor a loss would accrue to Company A on the disposal.
      (2) If within 12 months after the disposal in Article 42(1) Company A and Company B cease to be members of the same Group then that disposal will be treated as having taken place at Market Value, at the date of the disposal.

    • Article 43 - Replacement of Business Assets

      (1) Where a QFC Entity disposes of specified business assets (the "old assets") and the consideration for the disposal is used to acquire other specified business assets (the "new assets"), then on making a claim—
      (a) the consideration for the disposal of the old assets shall be treated as if it were an amount to secure that neither a gain nor a loss would accrue to the QFC Entity; and
      (b) the consideration for the acquisition of the new assets shall be reduced by the difference between the actual consideration for the disposal of the old assets and the amount the QFC Entity is treated as receiving under Article 43(1)(a).
      (2) In this Article a "specified business asset" is an asset meeting all the following conditions—
      (a) the asset has been used for the purposes of generating Local Source income; and
      (b) it falls within one of the following classes of assets—
      (i) a building, part of a building or land;
      (ii) goodwill;
      (iii) patents, copyrights or any other form of intellectual property.
      (3) Where the consideration for the disposal is not fully utilised to acquire new assets, the consideration under Article 43(1)(a) shall be increased by the amount not so utilised.
      (4) Where the old assets have not been used for the purposes of generating Local Source income for the whole of their period of Ownership, or have not been used wholly for such purposes, the consideration under Article 43(1)(a) shall be of such an amount to secure that the gain accruing to the QFC Entity is proportionate to the period during which the old assets were not used for generating Local Source income or proportionate to the extent the old assets were not used for generating Local Source income, as the case may be.
      (5) This Article only applies where the acquisition of the new assets takes place within the period beginning 6 months before and ending two years after the disposal of the old asset.
      Amended (as from 18th June 2014)

    • Article 44 - Reduction in Share Capital

      (1) This Article applies where a Company
      (a) extinguishes or reduces the liability on any of its shares in respect of capital not paid up;
      (b) cancels any paid up capital that is lost or unrepresented by available assets; or
      (c) redeems or otherwise purchases any of its shares.
      (2) Any QFC Entity carrying out, receiving proceeds from or generating a profit and loss account credit in respect of a transaction listed in Article 44(1) shall be exempt from tax under these Regulations on the transaction.
      Amended (as from 16th June 2020)

    • Article 45 - Incorporation of a Business

      (1) This Article applies when—
      (a) a QFC Entity that is not a Company (“QFC Entity A”) transfers to a QFC Entity that is either a Company or an LLP (“QFC Entity B”) a business as a going concern, together with the whole, or substantially the whole of the assets of the business other than cash;
      (b) the business is transferred wholly in exchange for shares or interests, as applicable, (the “New Shares”) issued by QFC Entity B to QFC Entity A or a Person Connected to QFC Entity A; and
      (c) the condition outlined in Article 45(2) is fulfilled.
      (2) The condition is that QFC Entity A or a Person Connected to QFC Entity A will, in consequence of the exchange outlined in Article 45(1)(b):
      (a) where QFC Entity B is a Company, hold 100% of the shares in QFC Entity B; or
      (b) where QFC Entity B is an LLP, beneficially own 100% of the assets of, and income earning rights in, the LLP.
      (3) The consideration for the transfer of assets shall be treated as being of such amount as would secure that neither a gain nor a loss would accrue to QFC Entity A.
      (4) In the event that—
      (a) where QFC Entity B is a Company, Ownership of more than 50% of the new shares changes; or
      (b) where QFC Entity B is an LLP, Ownership of more than 50% of the assets of the LLP or Ownership of more than 50% of the income earning rights in the LLP changes,
      in each case, within 12 months of the date of transfer of the business mentioned in Article 45(1), that transfer shall be treated as taking place at Market Value on the date the business was transferred to the Company or the LLP, as applicable.
      (5) Tax losses not utilised at the date of transfer by QFC Entity A shall be available to QFC Entity B as though they were losses carried forward under Article 28 at the date of transfer.
      (6) The consideration for the issuance of New Shares referred to in Article 45(1) shall be deemed to be for a consideration equal to the Market Value of the assets of the business transferred on the date of such transfer.
      Amended (as from 18th June 2014)

    • Article 46 - Reorganisations and Reconstructions Carried out for Bona Fide Commercial Reasons

      (1) If a QFC Entity carries out a reorganisation or reconstruction not covered by Articles 42 to 45
      (a) for bona fide commercial reasons; and
      (b) if obtaining a tax advantage was not the main object, or one of the main objects, of the transaction or series of transactions, the Tax Department shall, on application by the QFC Entity, consider treating the transaction or series of transactions constituting the reorganisation or reconstruction in a tax neutral manner.
      (2) The Tax Rules may contain provisions regarding the form and manner in which an application under Article 46(1) is to be made (TAX 14).