On 5 May 2006, the Income Tax Division issued Practice Note PN 134/06 which sets out the criteria under which certain companies that are subject to the zero rate of income tax can elect to pay tax at the 10% rate. This facility is being introduced to enable trading companies that wish to retain profits for reinvestment in their business to do so without being subject to the Distributable Profits Charge (DPC). A trading company that elects to pay tax at the 10% rate will be classified as a distributing company and thus will not be liable to the DPC.

The election must be made in writing using a prescribed form and submitted by the statutory filing date for the tax return for the period to which the election first relates. The election will apply for 5 years and cannot be revoked. The taxpayer can make a further 5-year election before the filing date for the tax return for the last year of assessment covered by the previous election. If the taxpayer ceases to trade in any year covered by an election, the election ceases to apply for that year and subsequent years.