Qualifying corporate bond meaning

Shari’a-compliant financing arrangements Shari’a‑compliant financing arrangements, otherwise described as Islamic financing arrangements, can be structured in a number of ways. To cater for the direct tax analysis of Shari’a financing variants, the UK has put in place specific provisions known as the alternative finance arrangement rules. The purpose of these UK rules is to ensure that, for direct tax purposes, a qualifying Shari’a‑compliant financing is taxed in the same manner as an equivalent conventional financing arrangement. Achieving that parity depends upon the arrangements meeting the relevant statutory conditions prescribed for alternative finance arrangements in the applicable legislation. Currently, the regime extends to five distinct categories of financing arrangement. Importantly, the direct tax framework for alternative finance is not limited solely to Islamic financing; non‑Shari’a structures can, in principle, be brought within its scope as well. Among the five categories is the investment bond arrangement, commonly known as an alternative finance investment bond, or AFIB. This Practice Note deals with AFIB arrangements. Sukuk, which are a type of Shari’a financing...

This Practice Note will consider the following: direct tax issues for UK resident corporate bondholders direct tax issues for UK resident individual bondholders the UK stamp tax and VAT consequences of being a bondholder (whether individual or corporate) Bondholders may likewise wish to note the possible implications for them of the Foreign Account Tax Compliance Act (FATCA) and the EU Financial Transactions Tax (FTT). These are addressed in Practice Note: Tax issues for bond issuers—FATCA and FTT. Direct tax issues for corporate bondholders For UK resident companies acquiring a bond, the principal tax questions to assess are: the loan relationship rules—the bond will almost always be a loan relationship and be taxed on that basis chargeable gains—the bond will almost always be a qualifying corporate bond and exempt from corporation tax on chargeable gains withholding tax—the bondholder will look to rely on an exemption from withholding tax Each of these matters is...

Where no exemption or relief is available, UK‑sourced annual interest is subject to UK withholding tax at the basic rate (20%), moving to the savings basic rate (22%) from 6 April 2027. For further details, see Practice Note: UK withholding tax on yearly interest. This Practice Note summarises the exemption from UK withholding tax that: is set out in section 888A of the Income Tax Act 2007 (ITA 2007) and the Qualifying Private Placement Regulations 2015, SI 2015/2002 (QPP Regs) has been in force since 1 January 2016 applies to interest paid: by a corporate borrower on an unlisted security or loan that qualifies as a qualifying private placement (QPP), and is expected to apply to bond issues and bilateral and syndicated loans—see: What is a qualifying private placement? and Creditor certificates below to a lender resident in a qualifying territory, namely the UK or certain tax treaty jurisdictions—see: Conditions relating to the creditor below ...