FBR sets out eligible entities and conditions for corporate mergers to qualify as amalgamations under tax law

ISLAMABAD: The Income Tax Ordinance, 2001 defines the term “amalgamation” for Tax Year (TY) 2027, setting out the entities and conditions under which a corporate merger qualifies as an amalgamation for income tax purposes.

The Federal Board of Revenue (FBR) has released the Income Tax Ordinance, 2001, updated up to June 30, 2026, incorporating amendments introduced through the Finance Act, 2026.

Entities covered by amalgamation definition

Under the Ordinance, an amalgamation refers to the merger of one or more specified entities, including:

• Banking companies;

• Non-banking financial institutions;

• Insurance companies;

• Companies owning and managing industrial undertakings;

• Companies engaged in providing services, excluding trading companies; and

• Companies incorporated under any law other than the Companies Act, 2017.

At least one of the companies involved in the merger must be a public company or a company incorporated under a law other than the Companies Act, 2017.

The companies being merged are referred to as the “amalgamating company” or companies, while the company with which they merge, or the company formed as a result of the merger, is referred to as the “amalgamated company”.

Conditions for qualifying as an amalgamation

The Ordinance sets out two key conditions that must be met for a transaction to qualify as an amalgamation for income tax purposes.

First, the assets of the amalgamating company or companies immediately before the amalgamation must become the assets of the amalgamated company by virtue of the amalgamation.

This condition does not cover situations where the assets are purchased by the amalgamated company or distributed to it following the winding-up of the amalgamating company or companies.

Second, the liabilities of the amalgamating company or companies immediately before the merger must become the liabilities of the amalgamated company by virtue of the amalgamation.

Tax treatment of corporate mergers

The definition provides the legal framework for determining whether a corporate merger falls within the scope of amalgamation under the Income Tax Ordinance, 2001.

The provisions are particularly relevant to companies and financial institutions undertaking restructuring, consolidation or merger transactions, as the classification of a transaction as an amalgamation can determine how applicable income tax provisions are applied.

The FBR’s updated version of the Ordinance serves as a consolidated reference for taxpayers and other stakeholders following amendments introduced through the Finance Act, 2026.