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Bhutan

Country Name: Kingdom of Bhutan
Currency: Bhutanese Ngultrum (BTN), Indian Rupee (INR) (accepted for transactions)
Primary Tax Authority: Department of Revenue and Customs (DRC), Ministry of Finance
Key Legislation:

  • Income Tax Act of Bhutan 2001 (as amended)
  • Value Added Tax (VAT) Law (proposed, not yet implemented)
  • Customs Act of Bhutan 2017
  • Sales Tax, Customs and Excise Act 2000

Fiscal Authority Allocation

Centralized Fiscal System:
Bhutan operates a centralized tax system with the Department of Revenue and Customs (DRC) responsible for tax collection and administration, including corporate income tax (CIT), personal income tax (PIT), sales tax, customs duties, and excise taxes.

Corporate Income Tax (CIT)

Standard Rate: 30%
Bhutan imposes a corporate income tax rate of 30% on the net taxable income of companies. Small and medium enterprises (SMEs) may benefit from reduced rates or tax holidays depending on their location and industry.

Sector-Specific CIT Rates:

  • Small Businesses and Cottage Industries: 0% in certain remote areas under tax holiday schemes.
  • Corporate Entities: 30% on worldwide income.

Corporate Forms and Taxation:

  1. Domestic Companies: Subject to 30% CIT on their worldwide income.
  2. Foreign Companies: Taxed on Bhutan-sourced income only.

Exemptions and Incentives:

  • Tax Holidays for Priority Sectors: Businesses in sectors such as hydropower, tourism, agriculture, and renewable energy may benefit from tax holidays for up to 10 years.
  • Remote Areas: Companies operating in designated remote areas of Bhutan may benefit from full tax exemptions to encourage development in underdeveloped regions.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Not Yet Implemented
Bhutan has been considering the introduction of a Goods and Services Tax (GST), similar to VAT, to replace its current sales tax system. As of now, no formal implementation date has been set, but a VAT-like system is anticipated in the future to streamline indirect taxation.

Sales Tax (Precursor to VAT)

Standard Rate: 5% to 50%
Bhutan levies sales tax on goods and services at rates ranging from 5% to 50%, depending on the type of good or service. Higher rates are applied to luxury goods such as cars and alcohol, while basic goods like food and medicine are generally taxed at lower rates or exempt.

Personal Income Tax (PIT)

Progressive Rates:
Bhutan imposes personal income tax on individuals’ worldwide income. The rates for 2023 are as follows:

  • Up to BTN 250,000: 0%
  • BTN 250,001 to BTN 500,000: 10%
  • BTN 500,001 to BTN 1,000,000: 15%
  • Above BTN 1,000,000: 25%

Deductions and Allowances:
Individuals can claim deductions for specific expenses such as mortgage interest, charitable donations, and certain personal allowances. Basic allowances for individuals are also available.

Additional Mandatory Contributions

Social Security Contributions:
Bhutan does not have a formal social security system. However, employees and employers contribute to the National Pension and Provident Fund (NPPF), which covers pensions and retirement benefits.

  • Employer Contribution: 10% of gross salary.
  • Employee Contribution: 5% of gross salary.

Withholding Taxes

  • Dividends: 10%
  • Interest: 5%
  • Royalties: 5%
    Bhutan imposes withholding taxes on payments to non-residents. These taxes may be reduced under double taxation agreements (DTAs).

Transfer Pricing Rules

Bhutan does not currently have formal transfer pricing regulations. However, multinational companies operating in the country are expected to comply with the arm’s-length principle, ensuring that related-party transactions reflect market pricing.

Special Tax Regimes

  • Hydropower Sector: As Bhutan’s largest revenue-generating industry, hydropower projects benefit from tax holidays and special incentives, including reduced import duties on machinery and equipment.
  • Tourism Industry: Bhutan is known for its high-value, low-impact tourism policy. Foreign-owned and domestic tourism companies may qualify for tax exemptions or reduced CIT rates to promote sustainable tourism.

Other Taxes

  • Customs Duties: Bhutan levies customs duties on goods imported into the country, with rates ranging from 10% to 50%. Essential goods, such as food and medical supplies, are often subject to lower rates or exemptions.
  • Excise Taxes: Bhutan imposes excise taxes on specific goods, including alcohol, tobacco, and fuel, with rates varying by product.
  • Property Tax: Property taxes are imposed on the ownership and transfer of real estate, with rates depending on the size, location, and value of the property.

Double Taxation Agreements (DTAs)

Bhutan has signed a limited number of double taxation agreements (DTAs), primarily with neighboring countries such as India. These agreements help reduce withholding taxes on cross-border income and prevent the double taxation of income earned in Bhutan and abroad.

Local Taxes

Local governments in Bhutan may impose minor fees for services such as waste management, but most significant taxes, including CIT and PIT, are administered centrally by the Department of Revenue and Customs.

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by March 31st following the end of the fiscal year, which runs from July to June. Personal income tax returns are also due by March 31st. Sales tax returns must be filed monthly or quarterly, depending on the size of the business.

Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. The interest rate for late tax payments is typically set at 1.5% per month.

Recent Developments

Proposed GST Implementation:
Bhutan has been working toward implementing a Goods and Services Tax (GST) to replace its current sales tax system. GST would help streamline indirect taxation and increase government revenue. However, no definitive date for GST implementation has been set.

Tourism and Sustainability Initiatives:
Bhutan’s tourism sector continues to focus on sustainability under its “High Value, Low Impact” policy. The government is providing tax incentives to companies promoting sustainable tourism and eco-friendly practices, while ensuring that tourism development aligns with the country’s cultural preservation goals.

Hydropower and Renewable Energy:
The hydropower sector remains a key pillar of Bhutan’s economy. To promote further development, the government continues to offer tax incentives, including extended tax holidays and reduced import duties on equipment for renewable energy projects.

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