BhutanTax Obligations Detailed

In Bhutan, employers face several tax obligations, including corporate income tax, business income tax, and personal income tax withholding, as well as sales tax.

Corporate Income Tax (CIT)

• CIT is levied on the net profits of incorporated businesses at a rate of 30%.
• The CIT filing deadline is March 31st of the year following the income year.

Business Income Tax (BIT)

• BIT applies to unincorporated businesses and is levied on net profits at a rate of 30%.
• The filing deadline for BIT is March 31st of the year following the income year.

Personal Income Tax (PIT)

• Employers are responsible for withholding PIT from their employees' salaries.
• PIT is calculated based on a progressive tax system with varying rates based on income levels.
• The PIT filing deadline for employees is February 28th of the following year.

Sales Tax

• A 50% sales tax is applied to the purchase price of certain goods and services. This is generally a consumer tax, but businesses are responsible for collecting it.

Taxpayer Identification Number (TPN)

• All businesses and companies must obtain a TPN from the Revenue and Customs Office (RCO). This number is essential for all tax-related interactions.

Tax Deduction at Source (TDS)

• TDS applies to various income types, such as rental income, dividends, and interest.
• Specific TDS rates apply to each income category, and employers or other payers are responsible for deducting and remitting the tax.

It is important to note that this information is current as of February 5, 2025, and might be subject to change. Consulting with a tax professional or referring to official government resources is advisable for the latest updates and specific details. Additional taxes and regulations may apply depending on the nature of the business and specific circumstances.

Employee tax deductions in Bhutan are determined by the Income Tax Act of 2001, encompassing various deductions and exemptions.

Direct Taxes

Personal Income Tax (PIT)

Bhutan employs a progressive income tax system, with rates escalating up to 30%. A tax-free personal allowance of Nu 300,000 is applicable. Deductions and exemptions from the PIT scheme include contributions to Provident Fund (PF) and Gratuity Insurance Scheme (GIS), insurance premiums, and specific allowances for education and rental expenses. The deadline for filing PIT returns is typically the end of February of the following year (e.g., February 28, 2025, for the 2024 income year).

Allowable Deductions & Exemptions

• Provident Fund (PF) and GIS Contributions: These contributions are deductible from salary income.
• Rental Income Deductions: 20% of rental income can be deducted for repairs, maintenance, interest payments, urban taxes, and insurance premiums.
• Dividend Income Exemption: The first Nu 10,000 of dividend income is exempt. Interest on loans taken for shareholding is also deductible. Any dividend income above Nu 30,000 is subject to a 10% tax deducted at source (TDS).
• Other Income Deduction: A 30% deduction is allowed on gross other income.
• Insurance Premiums: Premiums paid to recognized insurance companies are deductible.
• Education Allowance: Actual education costs for dependents (within Bhutan) up to Nu 50,000 per child are deductible. Supporting documentation, such as proof of school attendance, is required.
• Cash Crop Income Deduction: 30% of cash crop income is deductible.

Tax Deducted at Source (TDS)

TDS applies to various income categories, including salary, rental income exceeding a certain threshold, dividends above Nu 30,000, and interest from certain sources. Employers are responsible for deducting the appropriate tax amount from employee salaries and remitting it to the Revenue & Customs Office.

Indirect Taxes

Sales Tax

The Sales Tax, Customs and Excise Act 2000 governs sales tax in Bhutan. Various goods and services are subject to sales tax, with rates varying depending on the specific item. Some exemptions and zero-rated supplies exist.

Customs Duties

Customs duties are levied on imported goods, with rates determined by the Customs Act of 2017. The Fiscal Incentives Acts of 2017 and 2021 outline specific exemptions from customs duties for certain sectors.

Corporate and Business Income Tax

Corporate Income Tax (CIT)

CIT is levied on the net profits of companies at a rate of 25% as of 2025. Various deductions are permitted, including employment expenses, depreciation, and interest expenses. The Fiscal Incentives Act provides certain tax holidays and exemptions for eligible businesses. The deadline for filing CIT returns is typically at the end of March of the following year (e.g. March 31st, 2025, for income year 2024).

Business Income Tax (BIT)

BIT applies to unincorporated businesses, with similar deduction rules as CIT. The deadline for filing BIT returns is also typically the end of March of the following year (e.g. March 31st, 2025, for income year 2024).

Tax Administration

The Department of Revenue and Customs (DRC) is responsible for tax administration in Bhutan. Taxpayers are required to register with the DRC and file tax returns according to the prescribed deadlines. Penalties may be imposed for non-compliance. As of 2025, Bhutan also levies a Goods and Services Tax (GST), which is a consumption tax levied on most goods and services.

This information is current as of February 5, 2025, and may be subject to change. Consulting with a tax professional or referring to the latest official publications from the Bhutanese Ministry of Finance is recommended for the most up-to-date information.

Bhutan's Goods and Services Tax (GST) implementation, initially planned for July 2022, has been postponed indefinitely. While the intended GST framework aimed to replace the existing sales tax with a 7% rate on most goods and services, the rollout has been delayed due to IT infrastructure challenges and the impact of the COVID-19 pandemic.

Current Tax System in Bhutan (as of February 5, 2025)

Since the GST implementation has been postponed indefinitely, the current tax system, primarily based on sales tax, remains in effect. Details of specific rates and exemptions under the current system should be verified with the Department of Revenue and Customs.

Planned GST Framework (Implementation Postponed)

The intended GST framework, though not yet in effect, was designed with the following key features:

• Standard Rate: 7% on most goods and services.
• Exemptions: Specific goods and services were to be exempt or zero-rated, including certain essential items, exports, and potentially educational and healthcare services. Details of these exemptions would have been outlined in the GST Act schedules.
• Registration Threshold: Businesses with an annual turnover exceeding Nu. 5 million were planned to be required to register for GST.
• Filing and Payment: Monthly filing and payment of GST were expected, with deadlines likely to be set around the 15th of the following month.
• E-invoicing: Electronic invoicing would have been mandatory under the GST regime.

Other Taxes

Bhutan's tax system also includes other taxes like:

• Corporate Income Tax (CIT): Levied at 30% on net profit for incorporated businesses.
• Business Income Tax (BIT): Levied at 30% on net profit for unincorporated businesses.
• Personal Income Tax (PIT): Applies to individual income.
• Property Transfer Tax: Levied at 5%.
• Customs Duties: Applicable to imported goods at varying rates.
• Excise Duties: Applicable on certain goods.

Future of GST in Bhutan

While the implementation of the GST is currently on hold, it remains a key objective for Bhutan's tax system modernization. Updates on the revised implementation timeline and details of the GST framework should be monitored through official government channels.

It's crucial to remember that this information is current as of today, February 5, 2025, and might change as the Bhutanese government releases further updates on its tax reforms. Consulting with a tax advisor specializing in Bhutanese tax law is recommended for personalized guidance.

Bhutan offers various tax incentives to attract investment and stimulate economic growth. As of today, February 5, 2025, the details below are applicable, keeping in mind that incentive structures can change. Always verify current regulations with official Bhutanese government resources.

General Incentives

These incentives apply to all sectors of the Bhutanese economy.

• Tax Holidays: Bhutan offers tax holidays of up to 10 years, depending on the sector and location of the investment.

• Customs Duty (CD) and Sales Tax (ST) Exemptions: Exemptions on imported plant, machinery, and raw materials are available.

• Tax Rebate for Employing Bhutanese Nationals: Businesses employing 100% Bhutanese nationals (minimum 20 employees) may be eligible for a tax rebate.

• Other Incentives: Reinvestment allowance and accelerated depreciation are also provided.

Sector-Specific Incentives

These incentives apply to priority sectors as identified in Bhutan's Economic Development Policy, which focuses on areas like hydropower, tourism, and manufacturing.

• Manufacturing and IT Services: A 10-year income tax exemption on convertible currency earnings from exports may be available for businesses with at least 40% value addition. Certain raw materials and packaging materials are also eligible for CD exemptions.

• Tourism: Incentives target infrastructure development and include indirect tax exemptions on furnishings for hotels, as well as CD and ST exemptions for tour operators on certain vehicles and hiking equipment.

• Hydropower: Incentives are designed to reduce construction costs and encourage the use of high-quality products.

• Agriculture: Incentives encourage domestic production by providing exemptions on seeds and tools.

• Mining: CD exemptions on equipment and machinery are available to promote value addition to domestically sourced minerals.

Application Procedures

While specific procedures vary depending on the incentive, generally involve applying to the relevant government body, such as the Economic Development Board (EDB) or the Department of Revenue and Customs (DRC). Clear documentation and adherence to eligibility criteria are crucial for successful applications.

Additional Considerations

• Foreign Direct Investment (FDI): Bhutan permits up to 100% foreign ownership in certain sectors, further incentivizing international investment.

• Digitalization of Tax Processes: Online platforms now facilitate filing corporate and personal income tax returns, streamlining tax compliance.

It is crucial to consult the most recent official resources from the Bhutanese government, such as the Department of Revenue and Customs (DRC) and the Economic Development Board (EDB), to ensure you have the most accurate and updated information on tax incentives and regulations.

Income Tax Rates for Individuals

As of 2011, the general individual income tax rates in Bhutan were:

• First Nu. 100,000: 0%
• Up to Nu. 250,000: 10%
• Up to Nu. 500,000: 15%
• Up to Nu. 1,000,000: 20%
• Above Nu. 1,000,000: 25%

Additionally, a 5% tax is levied on property transfers.

Remember to cross-check this information with the official updates for the current fiscal year.