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where the total amount of business entertainment expenses in
the year of assessment does not exceed half per cent (0,5%) of
the gross income of the business up to a maximum of Cí5.000;

(13) expenses in respect of a private motor vehicle;

(14) amount paid or payable in respect of professional tax;
(15) interest applicable or which is deemed to be applicable to the
cost of purchase of a private motor vehicle, irrespective of
whether it is used in the business or not, and to the cost of
purchasing of any other asset not used in the business:
Provided that this provision does not apply after the lapse of
seven years from the date of purchase of the relevant asset.

Valuation of 12. (1) In computing the chargeable income of a business, which
trading stocks has been discontinued in the year of assessment, any trading stocks
on
belonging to the business at the discontinuance thereof shall be
discontinuance
valued as follows:
of business.
(a) in the case of any such trading stocks -

(i) sold or transferred for a valuable consideration to a
person who carries on or intends to carry on a business in
the Republic; and

(ii) the price of aquisition whereof the purchaser may claim
as a deduction in computing the chargeable income of the
business carried on or to be carried on by the purchaser,

the value thereof shall be taken to be equal to the amount
realised on the sale or equal to the value of the consideration


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given for the sale; and

(b) in the case of any other such trading stocks, the value thereof
shall be taken to be equal to the price which would have
realized if it sold in the open market on the discontinuance of
the business.

(2) For the purposes of sub-section (1)-

(a) the business is not deemed to be discontinued in the case of
death of the individual carrying on the business, provided that
such business continues to be carried on by the heirs who shall
submit a written undertaking to this effect;

(b) the expression «trading stocks» in relation to any business
means property of any description, whether movable or
immovable, being either-

(i) property sold in the ordinary course of trade or would be
so sold if it were mature or if its manufacture or
construction were complete; or

(ii) materials used in the manufacture, preparation or
construction of any such property described in the
foregoing sub-paragraph.
Allowance of 13. (1) Subject to the provisions of sub-section (9) of this section,
losses.
where the amount of a loss which, if a gain or profit would be
chargeable to tax under this Law, is such that it cannot be wholly set
off against a person's income from other sources for that year of
assessment, the amount of such loss shall, to the extent to which it is
not so set off, be carried forward and shall, subject as hereinafter
provided, be set off against such person's income for subsequent
years.

Provided that-

(a) if within any three-year period there is any change in the


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ownership of the shares of a company and a substantial change
in the nature of the business of the company, or

(b) if at any time since the scale of the company's activities has
diminished or has become negligible and before any substantial
reactivation of the business there is a change in the ownership
of the company's shares,

no loss which has been incurred before the change in the ownership
of the shares of the company shall be carried forward in the years
subsequent to such change:

Provided further that any loss in respect of the year 1997 and after
which was not set off against profits up to the year 2002 may be
carried forward to the year 2003 and the following years.

(2) For the purposes of this section there is a change in the
ownership of the shares of the company -

(a) if a person acquires more than half of the ordinary share capital
of the company, or

(b) if two or more persons jointly or severally acquire at least 5%
of the ordinary share capital of the company so that all together
acquire more than half of the ordinary share capital of the
company:

Provided that there is no change in the ownership of the shares of the
company if the change involves a gift made from parent to child,
between spouses or relatives up to the second degree of kindred or
to a limited company all shareholders of which are and continue to
be members of the disposer's family for a period of five years after
such gift.

(3) No amount of loss under this section may be allowed in respect
of any year of assessment for which the person liable to tax delays
the submission of accounts for such year for a period exceeding six
years from the date when he ought to have submitted the accounts
for the said year.




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(4) Subject to and in accordance with the provisions in the
following sub-sections, losses may be surrendered by a company
resident in the Republic («the surrendering company») and, on the
making of a claim by another company resident in the Republic
(«the claimant company») may be allowed to the claimant company
set-off of group losses as provided in sub-section (7).

(5) Set-off of group losses shall be allowed in a case where the
surrendering company and the claimant company are both members
of the same group for the whole of the year of assessment.

(6) A payment for set-off of group losses-

(a) shall not be taken into account in the computation of the
chargeable income of the surrendering or the claimant
company, and

(b) shall not for the purposes of this Law be regarded as a
distribution of dividend or as an allowed deduction.

(7) If in any year of assessment the surrendering company has
incurred a loss in carrying on a business, the amount of such loss
may be set off for the purposes of corporation tax against the total
chargeable income of the claimant company for its corresponding
year of assessment:

Provided that in the computation of the loss which may be
surrendered, no amount of loss brought forward from a previous
year shall be taken into account.

(8) For the purposes of this section-
(a) payment for the set-off of group losses means a payment made
by the claimant company to the surrendering company in
pursuance of an agreement between them with regard to an
amount surrendered by way of set-off of group losses, which
does not exceed that amount;

(b) two companies shall be deemed to be members of a group if
one is by seventy five per cent (75%) subsidiary of the other or
both, each one separately, are by seventy five per cent (75%)



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subsidiaries of a third company;

(c) a company shall be deemed to be by seventy five per cent
(75%) subsidiary of another company if and so long as not less
than seventy five per cent (75%) of its ordinary share capital
with voting rights are owned directly or indirectly by that other
company and that other company has a beneficial entitlement
to not less than seventy five per cent (75%) of-

(i) any profits available for distribution, and

(ii) any assets of the subsidiary company which would be
available for distribution to the shareholders on its
winding-up;

(d) in determining whether one company is by seventy five per
cent (75%) subsidiary of another company, the other company
shall be treated as not being the owner -

(i) of any share capital which it owns directly in a company
if the profit on a sale of the shares would be treated as a
trading receipt; or

(ii) of any share capital which it owns indirectly, and which is
owned directly by a company for which the profit on a sale
of the shares would be a trading receipt; or

(iii) of any share capital which it owns directly or indirectly in
a company not resident in the Republic.

(9) Notwithstanding the provisions of sub-section (1), losses
incurred by any person from any business carried on outside the
Republic, whether through a permanent establishment or not, shall
be allowed as a deduction from such person™s income from other
sources for the same year, and to the extent that it cannot be wholly
set off in this way, the remaining amount of such loss shall be carried
forward and shall, subject as hereinafter provided, be set off against
such person™s income for subsequent years.

(10) In case where an owner of a business, including a partnership,



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converts his business into a company, any accumulated losses of the
owner may be carried forward to the company.
14. In ascertaining the chargeable income of any individual who-
Deduction in
respect of life
(1) shall have made an insurance on his life securing the payment
insurance and
of a fixed or determinable capital sum on death under a policy
contributions to
as defined in the Law on Insurance Services and other Related
pensions and
Issues, or
other funds.
35(I)/2002.
(2) shall have made contributions to a Widows' and Orphans'
Pensions Fund established under any law in force in the
Republic or under a comparable law in force outside the
Republic, or
(3) shall have made contributions to an approved Pension or
Provident Fund or any other Insurance Fund established in the
Republic or outside the Republic, or
(4) shall have paid premiums or some other contribution to an
insurance company for the issue of an approved insurance
policy providing for an annuity, whose form has been approved
by the Commissioner, having for its main object the provision
for the individual of a life annuity in old age; or
(5) shall have paid premiums or other contributions to an
insurance company for a Pension Scheme or Medical Scheme
approved under Regulations, or

(6) shall have paid any contribution under the General Health
89(I) of 2001.
Scheme Law in force from time to time in the Republic or
under a comparable law in force from time to time outside the
Republic,

there shall be allowed a deduction equal to the annual amount of the
premiums paid bysuch individual or other deduction equal to the
amount of such premiums or contributions, as the case may be:

Provided that -

(i) in the case of any policy of insurance securing the payment of
a fixed or determinable capital sum on death the amount of the
deduction allowed shall not exceed seven per cent (7%) of that


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capital sum, exclusive of any additional benefit by way of bonus
or otherwise; and

(ii) no such deduction shall be allowed in respect of any premiums
and contributions beyond an amount equal to one-sixth of the
chargeable income of such individual computed in accordance
with the provisions of this Law before making the deductions
specified in this section; and

(iii) in the case of surrendering a life insurance policy within three
years from the date of such policy there shall be added to the
income of such individual thirty per cent (30%) of the
premiums for which a deduction had been allowed under the
provisions of this section, and twenty per cent (20%) of such
premiums if the surrender takes place within the fourth, fifth
and sixth year from the date of the insurance policy;

(iv) within sub-section (1) also fall the insurance premiums paid by
an individual in insuring the life of the spouse before the
commencement of the present Law and in respect of which
allowance was granted pursuant to the provisions of the
previously existing income tax law.

PART IV

SPECIAL MODES OF TAXATION OF

CERTAIN KINDS OF INCOME

Special modes 15. Notwithstanding anything provided in this Law, tax shall be
of taxation. assessed in the cases specified and as provided in this Part .

Insurance 16. (1) In the case of an insurance undertaking, engaged in
undertakings insurance business in general class, the profits or benefits from such
engaged in business on which tax is payable in accordance with the provisions
insurance of section 25, shall be ascertained in the following manner:
business in general
(a) all sums of gross premiums, interest, commissions and other



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class. income are added together,

(b) from the sum of (a) any premiums returned to the insured and
premiums paid on reinsurance are deducted,

(c) from the sum of adding together (a) and (b) the reserve for
unexpired risks at the end of the year of assessment is deducted
and the reserves similarly calculated for unexpired risks
outstanding at the commencement of the year of assessment
added thereto , and

(d) from the amount arrived at in (c) the net claims, expenses and
any other deductions allowed under the provisions of this Law
are deducted.

(2) Where the amount of loss which, if a profit or benefit would be
chargeable to tax under this Law, is such that it cannot be wholly set
off against the income of the insurance undertaking from other
sources for the same year of assessment, the amount of such loss
shall, to the extent to which it is not so set off, be carried forward
and shall be set off against the income of the insurance undertaking
for subsequent years in accordance with the provisions of section 13.

(3) For the purposes of this section:-

«claims» means the amount arrived at after adding or deducting, as
the case may be, to or from the total amount of compensations paid
under insurance policies during the year of assessment, the increase
or decrease in compensations payable during the same year of
assessment;

«reserves for unexpired risks» include the reserve for unearned
income and the reserve for unexpired risks and shall be calculated
according to the methods adopted by the insurance undertaking.
These methods shall be applied consistently from year to year,
unless there is adequate justification for any change by the insurance
undertaking to the satisfaction of the Commissioner:




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Provided that the Commissioner may not accept any method or a
change in a method followed by the insurance undertaking, if
evidently it does not conform with generally accepted insurance and
accounting principles. For this purpose the Director may demand
from the insurance undertaking the submission of such evidence
which he may deem necessary;

«insurance undertaking» and «business in general class» have the
meaning assigned to these terms in the Law on Insurance Services
35(I)/2002.
and other Related Issues;

«expenses» include commissions and, in the case of an insurance
undertaking whose Head Office is outside the Republic, a fair
proportion of the expenses of the Head Office of the insurance
undertaking which shall not exceed three per cent (3%) of the
premiums in the Republic, after deducting premiums paid on
reinsurances; and

«net claims» means the claims reduced by the amount recovered
during the year of assessment in connection thereto pursuant to
reinsurance.

Insurance 17. (1) In the case of an insurance undertaking engaged in
undertakings insurance business in life class, the profits or benefits from such
engaged in
business on which tax is payable in accordance with the provisions
insurance business
of section 25 shall be ascertained in the following manner -

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