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Bhutan

Why bhutan?

Located on the eastern ridges of the Himalayas, the economic core of Bhutan lies in the fertile valleys of the Lesser Himalayas, which are separated from one another by a series of high and complex interconnecting ridge. Because Bhutan is landlocked, trade and transit arrangements. with India play a critical role in its economic life. Free trade with India prevails, and India is the source of the great majority of Bhutan’s imports, which include machinery, transport equipment, base and fabricated metals, petroleum products, vegetables and other food, and textiles. Electricity is the country’s principal export, followed by copper wire and cable, calcium carbide, metal alloys, cement, and polyester yarn. Cardamom and other spices, gypsum, timber, and handicrafts also are exported, albeit on a smaller scale. Secondary trading partners, for the most part in Asia, have included Japan, Hong Kong, Bangladesh, and Singapore. Bhutan is a member of the South Asian Association for Regional Co-operation (SAARC) and participates in the South Asian Free Trade Agreement along with the other SAARC signatories.

Over the last few decades, socio-economic progress has greatly reduced the number of people below poverty line, increase in GDP per capita and improvement in living standard. There are some benefits to starting a business in Bhutan.

Advantages

Bhutan is strategically located in a region surrounded by emerging economies with vast market opportunities. Particularly, India is Bhutan’s major trading partner constituting over 80 percent of Bhutan’s external trade. Bhutan and India have a free trade agreement on Trade in Goods.

Skilled workforce

Thanks to free public education, Bhutan offers an educated workforce with good command of the English language since the medium of instruction is English in schools and tertiary institutes.

Political Stability

Bhutan has enjoyed political stability and peace for over a century. The Global Peace Index ranks Bhutan as the most peaceful country in the region. According to Transparency International’s Corruption Perception Index (2020), Bhutan is ranked 24th least corrupt country in the world and 6th in Asia.

Membership

Bhutan is a member of the South Asian Association for Regional Cooperation and enjoys free trade with member countries under the South Asian Free Trade Area. Bhutan is also a member of the Bay of Bengal Initiative for Multi-Sectorial Technical and Economic Cooperation which provides access to a huge market of over 1.73 billion people in the region.

Incentives and Tax Exemption

 Foreign investors are provided with a host of incentives while investing in Bhutan, which include the following:

  1. Tax Holiday of 5 to 10 years depending on the sector.
  2. Sales Tax and Customs Duty exemption on import of Plant and Machinery, raw materials & primary packaging materials.
  3. 10 years tax exemption on convertible currency earnings from manufacturing and IT/ITES services.
  4. Tax rebate of 15% on environmental up-gradation.
  5. Reinvestment allowance

Simple Tax Regime

Individual Income Taxes

Bhutanese citizens, residents and any other persons earning gross income exceeding Nu. 300,000

per annum in Bhutan from one or more of the four sources mentioned below shall be liable to

pay PIT. The four sources of income are: 1. Salary Income, 2. Rental Income, 3. Dividend Income,

and 4. Income from Other Sources.

Income up to Nu. 300,000 is liable to tax at a rate of 0%

Income from Nu.300,001 to Nu. 400,000 is liable to tax at a rate of 10%.

Income from Nu. 400,001 to Nu. 650,000 is liable to tax at a rate of 15%;

Income from Nu. 650,001 to Nu. 1,000,000 is liable to tax at a rate of 20%;

Income from Nu. 1,000,001 to Nu. 1,500,000 is liable to tax at a rate of 25%; and

Income from Nu. 1,500,001 and above is liable to tax at a rate of 30%.

Under the Constitution of Bhutan, the Royal Family receives annuities set by Parliament and is exempted from taxation.

Registered civil society organizations (“CSOs”) are exempt from tax on income or other gains

earned as a result of investing endowed property or other funds in accordance with

regulations promulgated by the Department of Revenue and Customs.

Income Tax Rate

The following Income tax Slab is applicable in Bhutan:

NOTE: Surcharge at the rate of 10% shall be levied on (PIT) Personal Income Tax, if the annual personal Income Tax is equal to or more than Nu. 1,000,000.

Corporate Income Taxes

CIT is a Corporate Income Tax. It is levied @ of 30% on net profit for state enterprise companies and @ of 25% on net profit for other companies. CIT is payable by those entities registered under the Company’s Act of the Kingdom of Bhutan, 2000.

Tax exemptions

NOTE: No customs or duties are levied on goods imported into Bhutan from India, as per the nations’ Agreement on Trade and Commerce

Bhutan Companies

When establishing a business, a person must decide what form of business entity to establish. Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and Scorporation, Limited Liability Company (LLC) .

Sole Proprietorship

A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.

Partnerships

A partnership is the relationship between two or more people to do trade or business. Each person contributes money, property, labor or skill, and shares in the profits and losses of the business.

Corporations

In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

Corporations

Corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure allowed by state statute. Owners of an LLC are called members. Most states do not restrict ownership, so members may include ¬†individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit ‚Äúsingle-member‚ÄĚ LLCs, those having only one owner.

Located on the eastern ridges of the Himalayas, the economic core of Bhutan lies in the fertile valleys of the Lesser Himalayas, which are separated from one another by a series of high and complex interconnecting ridge. Because Bhutan is landlocked, trade and transit arrangements with India play a critical role in its economic life.

Author: Chandrawat & Partners

Topic: Doing Business in Bhutan

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