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Chapter 4

Employment investment incentive

500. Qualifying investors

(1) In this Part, a qualifying investor is an individual who subscribes on his or her own behalf for eligible shares in a qualifying company and complies with this section.

(2) (a) An individual shall not be a qualifying investor if at any time in the compliance period he or she is connected, as determined in accordance with this section and section 501, with the company.

(b) In this Part, an individual shall be connected with a company if the individual or an associate of the individual——

(i) is a partner of the company, or any company in the RICT group,

(ii) subject to subsection (3), is a director or employee of the company, or any company in the RICT group, or

(iii) subject to subsection (5), has an interest in the capital of the company, or any company in the RICT group.

(3) Subsection (2)(b)(ii) shall only apply if the individual or the individual’s associate (or a partnership of which the individual or the individual’s associate is a member) receives a payment from a company in the RICT group during the relevant period, other than——

(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the individual or the individual’s associate in the performance of the duties of the individual or of the associate, as the case may be, as such director or employee,

(b) any interest which represents no more than a reasonable commercial return on money lent to a company in the RICT group,

(c) any dividend or other distribution paid or made by a company in the RICT group which does not exceed a normal return on the investment,

(d) any payment for the supply of goods in the course of a trade or business, which does not exceed their market value, and

(e) any reasonable and necessary remuneration which——

(i) (I) is paid for services rendered to a member of the RICT group in the course of a trade or profession, not being secretarial or managerial services or services of a kind provided by any company in the RICT group, and

(II) is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule,

or

(ii) in a case where the individual is a director or an employee of a company in the RICT group and is not otherwise connected with any company in the RICT group, is paid for services rendered to the company of which the individual is a director or an employee, in the course of the directorship or the employment.

(4) Subsection (3) shall apply to payments——

(a) which a person is entitled to receive in respect of the relevant period as it applies to payments made in that period, or

(b) made to the individual indirectly or to the individual’s order or for the individual’s benefit.

(5) (a) Subject to subsection (6), for the purposes of this section, an individual shall have an interest in the capital of a company in the RICT group if that individual, or that individual’s associate, directly or indirectly possesses or is entitled to acquire——

(i) any of the issued share capital of any such company,

(ii) any of the loan capital of any such company,

(iii) any of the voting power in any such company, or

(iv) rights to the assets on a winding up of any such company.

(b) For the purposes of paragraph (a)(ii) and section 505(4)(b)(ii), the loan capital of a company shall be treated as including any debt incurred by the company——

(i) for any money borrowed or capital assets acquired by the company,

(ii) for any right to receive income created in favour of the company, or

(iii) for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium on the debt),

but shall not include a debt incurred by the company by overdrawing an account with a person carrying on a business of banking if the debt arose in the ordinary course of that business.

(c) (i) For the purposes of paragraph (a)(iv), an individual shall have a right to the assets on a winding up if that individual, or an associate of the individual, has rights as would, in the event of the winding up of a company or in other circumstances, entitle the individual to receive any of the assets of the company which would at that time be available for distribution to equity holders of the company, and for the purposes of this subsection——

(I) the persons who are equity holders of the company, and

(II) the percentage of the assets of the company to which the individual would be entitled,

shall be determined in accordance with sections 413 and 415, with references in section 415 to the first company being construed as references to an equity holder and references to a winding up being construed as including references to any other circumstances in which assets of the company are available for distribution to its equity holders.

(ii) In applying sections 413 and 415 in determining the percentage of share capital or other amount which a shareholder beneficially owns or is beneficially entitled to under subparagraph (i), no regard shall be had to the provisions of section 411(1)(c).

(d) (i) For the purposes of this section, an individual shall have an interest in the capital of the company if he or she has control of it within the meaning of section 11.

(ii) For the purposes of this section, an individual shall be treated as having an interest in the capital of the company if he or she has at any time in the compliance period had control, within the meaning of section 11, of another company which has since that time and before the end of the relevant period become a subsidiary of the company.

(6) For the purposes of subsection (5), no account shall be taken of——

(a) shares in the company concerned which are held by the individual concerned, or an associate of that individual, where——

(i) that individual or that associate, as the case may be, was entitled to relief under this Part in respect of the acquisition of those shares, and

(ii) that individual, or a person connected with that individual, does not at any time in the compliance period control the company concerned,

or

(b) shares subscribed for upon the formation of the company concerned where——

(i) the company has issued no shares other than those subscribed for on formation, and

(ii) the company has not yet commenced carrying on, or made preparations for the carrying on of, any trade or business.

(7) For the purposes of this section an individual shall be treated as entitled to acquire anything which he or she is entitled to acquire at a future date or will at a future date be entitled to acquire, and there shall be attributed to any person any rights or powers of any other person who is an associate of that person.

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