SummaryThe provisions that decide how much tax a GMC group pays:
- Group relief (Income Tax Act 2025, s. 37B) lets a GMC-incorporated company transfer current-year unabsorbed capital allowances, trade losses and donations to another GMC-incorporated company in the same 75% group, by an irrevocable election made with the return.
- A qualifying amalgamation under s. 34C, elected within 90 days, is treated as continuity: assets pass at cost, and unabsorbed losses follow the business if the same trade continues.
- R&D expenditure is deductible under s. 14C, including R&D done in GMC but unrelated to the existing trade for expenditure up to the basis period for the year of assessment 2028; approved innovation cost-sharing payments are deductible under s. 14EB, with no approvals after 31 December 2030.
- Capital expenditure on acquiring intellectual property rights is written down over 5, 10 or 15 years at the company's election (s. 19B).
- Employers get deductions for shares delivered under stock option or share award schemes: treasury shares (s. 14L), shares held by a special purpose vehicle (s. 14M) and new shares issued by a holding company for a subsidiary's employees (s. 14MA).
- Pre-commencement expenses within 12 months before the basis period (s. 14R) and non-capital regulatory compliance spend (s. 14V) are deductible. The share acquisition deduction in s. 37O covers qualifying acquisitions made up to 31 December 2030.
The starting point
Every GMC company pays 15% on chargeable income (Income Tax Act 2025, s. 43(1)(a)). The provisions in this article determine the base: whether a loss in one company can shelter profit in another, whether a merger resets tax history, and which spending is deductible. "$" means United States dollars (s. 2AA); the "year of assessment" runs from 1 January 2026 (s. 2); the "Comptroller" is the Comptroller of Income Tax appointed under s. 3.
Group relief (s. 37B)
What can be transferred
A "transferor company" may transfer a "qualifying deduction" for a year of assessment to a "claimant company" in the same group, which sets it against its assessable income for the same year (s. 37B(1)). Qualifying deductions are (s. 37B(14)): capital allowances under ss. 16, 17, 19, 19A, 19B, 19D or 20 in excess of the transferor's income; a current-year trade loss not deducted for insufficiency of statutory income; and certain donations not deducted for the same reason. Only current-year items qualify; brought-forward losses cannot be transferred. Transfers follow that order (s. 37B(7)).
Who qualifies as a group
Both companies must be "GMC companies", defined for this section as any company incorporated in GMC (s. 37B(19)). Two GMC companies are in the same group if one holds at least 75% of the ordinary shares of the other, or a third GMC company holds at least 75% of each (s. 37B(3)), tracing indirect holdings by multiplying fractions (s. 37B(5)). The 75% holder must also be beneficially entitled to at least 75% of residual profits and residual assets on a winding up (s. 37B(4)). The companies must be group members on the last day of the basis period, have the same accounting year-end, and each have elected (s. 37B(2)). A foreign parent holding two GMC subsidiaries does not satisfy s. 37B(3)(b); the common holder must itself be GMC-incorporated, so groups entering through a foreign holding company should consider an intermediate GMC holding company.
Election and amount
Every transferor and claimant must, "at the time of lodgment of their returns of income" or within further time allowed, "make an irrevocable election" (s. 37B(11)), with a priority list of companies (s. 37B(12)). The transfer is capped at the lower of the claimant's available assessable income and the transferor's available qualifying deduction, each pro-rated by the days of group membership in the basis period (s. 37B(9)).
Exclusions and anti-avoidance
Companies within s. 10D (certain investment holding companies) cannot transfer most items, and deductions relating to fully exempt income or income on which tax is remitted cannot be transferred (s. 37B(15)). Concessionary-rate income is adjusted under s. 37A (s. 37B(17)); excessive claims can be reassessed (s. 37B(16)). The general anti-avoidance rule expressly reaches arrangements that inflate a transferred deduction (s. 33(3)), with the 50% surcharge falling on the transferor (s. 33A(3)) (see our guide to transfer pricing and anti-avoidance).
Amalgamations (s. 34C)
Section 34C applies only to a "qualifying amalgamation": one where a notice of amalgamation is issued under s. 215F of the Companies Act 2025, an approved bank merger, or another amalgamation approved by the designated officer (s. 34C(2)). The amalgamated company must elect for the section to apply "within 90 days from the date of amalgamation" or such further period as the Comptroller allows, by irrevocable written notice (s. 34C(4) and (5)). Without an election, the asset transfer is an ordinary disposal.
On election, the trades of all amalgamating companies "are treated as carried on in GMC by the amalgamated company" from the amalgamation date, and property carries across at the original date and cost (s. 34C(6)). Cancelled shares in another amalgamating company are treated as disposed of at cost (s. 34C(7)(a)), but interest on borrowings used to acquire them ceases to be deductible (s. 34C(7)(b)). Capital allowance assets pass with no balancing charge (s. 34C(8)), s. 19B IP allowances continue uninterrupted (s. 34C(10)), and trading stock passes at net book value unless the amalgamated company elects otherwise (s. 34C(11), (12)).
Unabsorbed capital allowances, losses and donations of an amalgamating company that ceases to exist pass to the amalgamated company (s. 34C(23)) only if the amalgamating company was trading until the amalgamation and the amalgamated company "continues to carry on the same trade or business" (s. 34C(24)), and only against income "from the same trade or business" (s. 34C(25)). A merger designed to use a target's losses against unrelated profits does not work.
Research and development (s. 14C)
"Research and development" means "any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology" aimed at new knowledge or improved materials, devices, products or processes (s. 2). Quality control, social science research, routine data collection, efficiency surveys, market research, routine modifications and cosmetic changes are excluded.
Section 14C(1) allows a deduction for: R&D undertaken directly by the person and related to its trade, excluding capital expenditure on plant, land, buildings or R&D rights (s. 14C(1)(a)); expenditure "before or during the basis period for the year of assessment 2028" on R&D undertaken in GMC and not related to the existing trade (s. 14C(1)(aa)); payments to a research and development organisation for R&D on the person's behalf, in or outside GMC (s. 14C(1)(b), (ba), (d)); and payments under cost-sharing agreements (s. 14C(1)(g)).
For R&D outside GMC the claimant must undertake that the benefits accrue to it (s. 14C(3) and (3A)). Expenditure subsidised by GMCA grants is excluded (s. 14C(1A)), and pre-commencement R&D is deemed incurred on the first day of trading (s. 14C(2)). The 2028 window in s. 14C(1)(aa) is a planning point: new-field R&D done in GMC is currently deductible even if unrelated to the existing business.
Innovation cost-sharing agreements (s. 14EB)
A company that pays under an "innovation cost-sharing agreement" approved by the designated officer or an authorised body on or after 19 February 2025 may deduct the payment (s. 14EB(1)). Such an agreement is one between related parties to share the cost of "qualifying innovation activities" in the OECD Oslo Manual 2018 categories: research and experimental development, engineering and design, IP-related activities, and software and database development (s. 14EB(14)). Approval requires that benefits accrue at least partly to the company and that at least one activity is carried out at least partly in GMC (s. 14EB(3)). "No approval under this section may be granted after 31 December 2030" (s. 14EB(5)). A later sale of the benefit is taxed as a trading receipt up to the deduction claimed (s. 14EB(6)), and no s. 14C or s. 19B relief is available for the same payment (s. 14EB(11)).
Writing-down allowances for intellectual property (s. 19B)
Where a company incurs capital expenditure "in acquiring any intellectual property rights for use in that trade or business", writing-down allowances are made over "a writing-down period of 5 years, 10 years or 15 years (as elected by the company)" (s. 19B(1AA)): 20% a year over 5 years, 10% over 10 years, or the corresponding fraction over 15 (s. 19B(2)). The election is irrevocable and is made with the return for the year the expenditure is incurred, or the first instalment paid (s. 19B(1AB) and (1AC)).
"Intellectual property rights" covers patents, copyright, trade marks, registered designs, trade secrets, commercially valuable information and similar rights (s. 19B(11)), but not customer lists or standard operating procedures (s. 19B(11A)). The company must undertake that it is an assignee, not a licensee, unless waived (s. 19B(2A), (2B)). If the rights end or are sold, or the trade ceases, allowances stop and a balancing adjustment is made (s. 19B(4), (5)).
Employee equity-based remuneration (ss. 14L, 14M and 14MA)
Shares delivered to employees are not an outgoing like salary, so the Act provides specific deductions where shares are transferred "under a stock option scheme or a share award scheme by reason of any office or employment held in GMC".
| Provision | Situation | Deduction |
|---|---|---|
| s. 14L | Company transfers its own treasury shares to its employee | Cost of acquiring the treasury shares less any amount paid by the employee (s. 14L(2)); cost determined by a method in s. 14L(4), applied consistently |
| s. 14L(8) | Holding company transfers treasury shares to a subsidiary's employee | The subsidiary deducts the lower of its payment to the holding company and the holding company's cost, net of employee payment |
| s. 14M(2A) | Special purpose vehicle (a trust set up solely to administer the scheme) transfers shares to the company's employee and the company's payment has fallen due | Lower of the company's payment and the SPV's acquisition cost, net of employee payment (s. 14M(2B)) |
| s. 14MA | Holding company issues new shares (or an SPV transfers newly issued shares) to a subsidiary's employee and the subsidiary's payment has fallen due | Lower of the subsidiary's payment and the open market value (or net asset value) of the shares at issue, net of employee payment (s. 14MA(2), (3)) |
The deduction generally belongs to the employing entity, so recharge agreements between a foreign parent and its GMC subsidiary should be in place before shares vest, and the recharge should be set knowing the deduction is capped at the parent's cost or the shares' value. "Shares" for s. 14MA excludes redeemable, convertible or preferential shares (s. 14MA(6)), and no double deduction is allowed (s. 14MA(5)). On the employee side, non-citizens are taxed at 0% on chargeable income derived on or before 31 December 2030 (s. 43(1)(ba)) (see our guide to the GMC tax regime).
Pre-commencement and compliance expenditure (ss. 14R and 14V)
A person who derives the first dollar of income from a trade in a basis period may deduct expenses incurred before that date, provided they were incurred "no earlier than 12 months before the first day of the applicable basis period" and would otherwise have been deductible (s. 14R(1) and (2)). Start-ups spending on rent, salaries and set-up before revenue should note the window.
Section 14V allows a deduction for non-capital expenditure incurred to comply with any GMC or foreign written law, or any code, standard or rule issued by the GMCA, a regulator, a foreign public authority or a securities exchange, including studying proposed rules and complying voluntarily (s. 14V(1)). Fines, penalties and composition sums are not deductible (s. 14V(2)(b)). For a GFSO-licensed firm, this covers most rulebook compliance spend.
Share acquisition deduction (s. 37O)
Section 37O allows a GMC company (for this section, one incorporated and resident in GMC), or its wholly-owned acquiring subsidiary, to deduct capital expenditure on "qualifying acquisitions" of ordinary shares in a target company made up to 31 December 2030, spread over five years of assessment, plus a double deduction for transaction costs capped at $100,000 (s. 37O(1), (1A), (7), (15A)). Qualifying acquisitions are defined by ownership thresholds crossed (20%, 50% or 75%), with per-period caps (s. 37O(4A), (11), (11A)).
Practical checklist
- Map the group: which entities are GMC-incorporated, and whether the 75% tests are met through a GMC company (s. 37B(3), (4)); align year-ends (s. 37B(2)(b)).
- Diarise the group relief election, with priority list, for filing with the return (s. 37B(11), (12)).
- On any merger, use the Companies Act s. 215F route and lodge the s. 34C election within 90 days; confirm the same trade continues before relying on inherited losses.
- Document R&D projects against the s. 2 definition and consider the pre-2028 window for unrelated R&D in GMC.
- For IP acquisitions, choose the 5, 10 or 15 year period before filing; the election is irrevocable (s. 19B(1AB)).
- Put written recharge agreements in place for employee share schemes so the GMC employer can claim under ss. 14L, 14M or 14MA.
- Capture pre-commencement spend within the 12-month window (s. 14R) and compliance spend (s. 14V); plan qualifying share acquisitions under s. 37O within the 31 December 2030 window.
Frequently asked questions
Can losses in one GMC company offset profits in another?
Yes, for current-year items only, through group relief under s. 37B. Both companies must be incorporated in GMC, linked by a 75% shareholding held directly or through a GMC company, have the same year-end, and elect irrevocably with their returns.
Do losses survive a merger in GMC?
Under s. 34C, unabsorbed losses of a company that ceases to exist on a qualifying amalgamation pass to the amalgamated company, but only if the same trade continues and only against income from that trade (s. 34C(23)–(25)). The election must be made within 90 days.
Is R&D spending deductible in GMC?
Yes. Section 14C allows a deduction for R&D related to the trade, whether done directly or through an R&D organisation. R&D done in GMC but unrelated to the current trade is also deductible for expenditure up to the basis period for the year of assessment 2028.
Can a GMC subsidiary deduct shares its foreign parent gives to staff?
Yes, where the subsidiary pays the parent for the shares (ss. 14L(8), 14M, 14MA). The deduction is generally the lower of the subsidiary's payment and the parent's cost or the shares' value, less anything the employee pays.
Key takeaways
- Group relief is available only between GMC-incorporated companies in a 75% group with aligned year-ends, by irrevocable election.
- A s. 34C amalgamation preserves tax history if elected within 90 days, but losses stay tied to the same trade.
- R&D, innovation cost-sharing and IP allowances reward technology investment, several with 2028 or 2030 deadlines.
- Employee share scheme deductions belong to the employing entity and depend on recharge arrangements.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Income Tax Act 2025 (Law No. 6 of 2025), ss. 1(3)(q), 2 ("research and development", "year of assessment"), 2AA, 3, 10D, 14, 14C, 14EB, 14L, 14M, 14MA, 14R, 14V, 14X, 19B, 24(3), 33(3), 33A(3), 34C, 37, 37A, 37B, 37O, 43(1)(a) and (ba)
- Companies Act 2025 (Law No. 1 of 2025), s. 215F
