Section 233: amalgamation and demerger

Introduction

Business reorganisations can affect an existing tonnage-tax option. The section treats amalgamation and demerger differently, and continuation depends on the resulting company meeting the qualifying-company conditions.

Key takeaways

Amalgamation

Where a company amalgamates with another company or companies, the tonnage tax scheme provisions apply, as far as may be, to the amalgamated company - provided it is a qualifying company.

If the amalgamated company is not already a tonnage tax company, it must exercise the option under Section 231(1) within three months from the date the scheme of amalgamation is approved.

Where the amalgamating companies were both tonnage tax companies, the scheme applies to the amalgamated company for as long as the option with the longest unexpired period would otherwise have continued.

Where one of the amalgamating companies was a qualifying company as on 1 October 2004 but had not exercised the tonnage tax option before 1 January 2005, the scheme does not apply to the amalgamated company, and its shipping income is computed under the Act's other provisions.

Demerger

Where, in a scheme of demerger, the demerged company transfers its business to the resulting company before the tonnage tax option expires, the scheme applies, as far as may be, to the resulting company for the unexpired period - provided it is a qualifying company.

The option in respect of the demerged company itself remains in force for the unexpired period, as long as the demerged company continues to be a qualifying company.

When this provision applies

Identify whether the restructuring is an amalgamation or demerger and document each company’s qualifying status, existing option and remaining period. Different subsections govern these events.

For amalgamation, distinguish a company already within the scheme from an amalgamated company that must exercise a Section 231(1) option within three months of approval of the amalgamation scheme.

Limits and procedural safeguards

The longest remaining period rule is a continuation rule, not a fresh ten-year entitlement arising solely from amalgamation. Other conditions of this Part continue to matter.

Check the historical exclusion in subsection (4): a qualifying company as on 1 October 2004 that did not opt before 1 January 2005 can prevent the scheme applying to the amalgamated company.

On demerger, both the resulting company’s continuation and the demerged company’s retained option depend on their respective qualifying status. Transfer must occur before the existing option expires for subsection (5).

Step-by-step review

1. Record the approval date, transfer event and statutory type of reorganisation.

2. Verify qualifying status and remaining option periods for all relevant companies.

3. For amalgamation, apply the fresh-option requirement where needed, the longest unexpired-period rule where applicable and the historical exclusion.

4. For demerger, assess the resulting and demerged companies separately and retain the unexpired-period calculation.

Hypothetical example

Hypothetical: two tonnage tax companies amalgamate with three and six years remaining on their options. If the statutory conditions are met and the exclusion does not apply, subsection (3) follows the option with the longer unexpired period; it does not create a new ten-year period merely because the companies merged.

Records to prepare

Keep the approved restructuring scheme, dates and evidence of the business transfer.

Retain each existing tonnage option, remaining-period calculation and qualifying-company analysis after restructuring.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 233 and related provisions

Step-by-step flow for applying Section 233 to a restructuring

1. 1

   Is the restructuring an amalgamation or a demerger?

   • Amalgamation: Go to the next step.
   • Demerger: Skip to the demerger check (step 5).
2. 2

   Was any amalgamating company a qualifying company on 1 October 2004 that had not exercised the tonnage tax option before 1 January 2005?

   • Yes: Under Section 233(4) this Part does not apply to the amalgamated company. Its income from operating qualifying ships is computed under the other provisions of the Act.
   • No: Go to the next step.
3. 3

   Is the amalgamated company a qualifying company?

   "Qualifying company" is defined in Section 235(h).

   • No: Section 233(1) does not carry the tonnage tax scheme to the amalgamated company.
   • Yes: Go to the next step.
4. 4

   What was the option position of the companies?

   Section 233 deals with two cases.

   • The amalgamating companies are tonnage tax companies: Under Section 233(3) the Part applies to the amalgamated company for as long as the option with the longest unexpired period stays in force.
   • The amalgamated company is not a tonnage tax company: Under Section 233(2) it must exercise an option under Section 231(1) within three months from the date of approval of the scheme of amalgamation.
5. 5

   Demerger: did the demerged company transfer its business to the resulting company before its option expired?

   Under Section 233(5) the scheme applies to the resulting company for the unexpired period, if it is a qualifying company. Under Section 233(6) the demerged company's own option stays in force for the unexpired period if it continues to be a qualifying company.

   • No: Section 233(5) does not carry the scheme to the resulting company.
   • Yes: Test each company separately: the resulting company under Section 233(5) and the demerged company under Section 233(6).

Practical checklist

Glossary

Amalgamated company

The company to which the amalgamation provisions apply following the merger.

Unexpired option period

The remaining period of an existing tonnage-tax option, rather than a newly started full term.

Frequently asked questions