FOREIGN INVESTMENT
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Traders’ Manual : BHUTAN
INVESTING IN BHUTAN
I. FOREIGN INVESTMENT POLICY AND REGULATIONS
In its attempt to integrate into the world economy, Bhutan has taken steps towards encouraging and
facilitating the development of the private sector. The country is in the preparation process to access to WTO
and the Foreign Direct Investment Policy was introduced in 2002.
This policy replaced the previous ad-hoc system of foreign investment approval and it allows the foreign
investors to hold up to 70 per cent equity, sets a minimum project size of US$ 1 million in the manufacturing
sector and US$ 500,000 in the services sector, and opens up 14 sectors, including manufacturing and
tourism for possible foreign participation.
Foreign direct investment (FDI) is defined as an investment made in convertible currency and where at least
20 per cent is foreign owned. This minimum requirement is aimed at protecting local cottage and small
enterprises.
II. INVESTMENT PROCEDURES
Investors are required to apply to the Ministry of Trade and Industry for an FDI Registration Certificate stating
the conditions that must be fulfilled by the investors. This Certificate is the initial condition before investors
acquire other necessary permits and licences. In addition, all commercial and industrial activities operating
in the country are required to obtain an operating license from the Ministry of Trade and Industry.
All foreign investments must register with the Registrar of Companies and follow the regulations as
stipulated in the Companies Act, 2000.
The Ministry of Trade and Industry is in the process of establishing an FDI Facilitation Committee to assist
investors in gathering investment information and obtaining necessary clearances, approvals and permits.
III. INVESTMENT INCENTIVES
In September 2002, the Ministry of Finance announced tax holidays and incentives in the three following
categories, of which a business entity is eligible for only one:
Tax holiday from corporate income tax (CIT) and business income tax (BIT) for newly established business
entities (established between 1 January 2003 and 30 June 2007) in manufacturing industries including
those in the interior regions, information technology training and vocational training institutes, hotels,
schools and auto-mechanical workshops in the interior regions;
BIT/CIT exemption for export income earned in convertible currency accruing from 1 January 2003 by
manufacturing industries, IT service industries and agriculture produce exporters; and
Re-investment allowance for incorporated companies: 20 per cent of total re-investment, from 1 January
2003 to 30 June 2007.
In addition, other incentives include the following:
Bhutan is also implementing the Bureau of Indian Standards (BIS) Certification Scheme. This Scheme aims
at helping Bhutanese products find better opportunities to enter Indian markets.
Two sectors are open for foreign direct investment namely manufacturing and services:
- Agriculture and agro-processing;
- Forestry and wood-based industries;
- Livestock-based industries;
- Light industries including electronic industries; and
- Engineering and power intensive industries.
- Tourism including hotels;
- Transport services;
- Roads and bridges;
- Education;
- Business infrastructure;
- Information technology;
- Financial services; and
- Housing.
IV. TAXATION
The Department of Revenue and Customs at the Ministry of Finance is responsible for structuring and
implementing the tax system. There are three categories of tax:
All companies registered with the Ministry of Trade and Industry, and business units holding trade license
issued by the Ministry of Trade and Industry are liable for corporate income tax (CIT) and business income
tax (BIT).
CIT and BIT are levied at 30 per cent of the net profit of companies and businesses in each calendar year,
and to be filed between January and March each year. Excise Tax is applicable to all domestically
manufactured alcoholic beverages and aerated water, ranging from 20 to 60 per cent ad valorem at ex-factory
price.
V. FOREIGN EXCHANGE
According to Article 7 “Operating Environment” of the Foreign Direct Investment Policy, 2002, the foreign
exchange regulations for FDI-related transactions have to comply with the following:
VI. LABOUR ISSUES
Employment of Bhutanese nationals is encouraged. According to the FDI Policy, 2002 the employment of
expatriate personnel in the skilled, semi-skilled and un-skilled categories will have to be phased out. The
expenses for training of Bhutanese nationals to replace such personnel will be allowed as deductions for tax
purposes.
Expatriate employment is allowed where there is a shortage of local skills and foreign investments are
entitled to a number of work permits based on the size of the investment:
VII. DISPUTE SETTLEMENT
Presently there is no dispute settlement setting. However, Bhutan has become the 85th member of the
Chartered Institute of Arbitrators (CIArb) in an effort to achieve effective dispute resolution methods. There is
an arbitral procedure by the Construction Development Board for Bhutan’s construction industry.
VIII. CAPITAL MARKET
The Royal Securities Exchange of Bhutan (RSEB) was formally established in 1993 in an attempt to boost
private sector development and to assist in creating a capital market. RSEB began with the participation of
only four companies - Bhutan Board Products Ltd. (BBPL), Bhutan Carbide and Chemicals Ltd. (BCCL),
Penden Cement Authority Ltd. (PCAL) and Royal Insurance Corporation of Bhutan (RICB) - with a market
capitalization of Nu 493 million. As of 2002, fifteen companies are listed with the RSEB with a market
capitalization of around Nu 3,156 million. However the market remains relatively weak and inactive, reflecting
the low level of economic activity, the extent of monetization and the private sector development in the country.
IX. PROTECTION OF PROPERTY RIGHTS
Bhutan is a member of the World Intellectual Property Organization (WIPO) Convention and a signatory to the
Paris Convention, the Madrid Agreement, and the Protocol to the Madrid Agreement.
The rights to the national protection of intellectual property are stipulated in the Industrial Property Act of the
Kingdom of Bhutan, 2001, and the Copyright Act of the Kingdom of Bhutan, 2001. The Intellectual Property
Division under the Ministry of Trade and Industry is responsible for implementing intellectual property
policies.
Under the Copyright Act, original works under protection include literary, dramatic, musical and artistic works,
audiovisual works, computer programmes, databases, sound recordings, performances of artistic and
programmes of broadcasting organizations. Authors are not required to register their original works for
protection. Intellectual property protection starts from the date of the first publication of the works, or after the
life of the creator, and lasts for an average of 50 years.
The Industrial Property Act requires that trademarks, including service marks, should be registered with the
Registry of Industrial Property in the Ministry of Trade and Industry for protection. The duration of protection is
10 years from the date of the filing of application, and can be renewed indefinitely. Industrial designs, in order
to be registered with the Registry of Industrial Property, must be new and not contrary to public order or
morality. The protection of industrial designs is five years starting from the date of filing, and can be renewed
for two successive terms of five years each.
In order to be patented and protected, matters should be registered with the Registry of Industrial Property.
Protection lasts 20 years from the date of filing and must be renewed annually. The right to a patent may be
assigned or transferred by succession. Matters excluded from being patented are (i) discoveries, scientific
theories and mathematical methods, (ii) schemes, rules, or methods for doing business, performing purely
metal acts or playing games, and (iii) methods of treatment and diagnostic methods for treating humans and
animals.
References for part four: Investing in Bhutan
Ministry of Finance. Notification: Tax Incentive and Rules Thereof, 13 September 2002.
http://www.mof.gov.bt/drc/taxation.html
Ministry of Finance. 2000. Sales Tax, Customs and Excise Act of the Kingdom of Bhutan.
http://www.mof.gov.bt/drc/excise.html
Ministry of Trade and Industry. Foreign Direct Investment Policy 2002. Royal Monetary Authority of Bhutan.
Monthly Statistical Bulletin, January and March 2003.
http://www.rma.org.bt/mcpJanuary2003.asp#FDI
http://www.rma.org.bt/mcpMarch2003.asp#BhutanPublicLTDProfile
INVESTING IN BHUTAN
I. FOREIGN INVESTMENT POLICY AND REGULATIONS
In its attempt to integrate into the world economy, Bhutan has taken steps towards encouraging and
facilitating the development of the private sector. The country is in the preparation process to access to WTO
and the Foreign Direct Investment Policy was introduced in 2002.
This policy replaced the previous ad-hoc system of foreign investment approval and it allows the foreign
investors to hold up to 70 per cent equity, sets a minimum project size of US$ 1 million in the manufacturing
sector and US$ 500,000 in the services sector, and opens up 14 sectors, including manufacturing and
tourism for possible foreign participation.
Foreign direct investment (FDI) is defined as an investment made in convertible currency and where at least
20 per cent is foreign owned. This minimum requirement is aimed at protecting local cottage and small
enterprises.
II. INVESTMENT PROCEDURES
Investors are required to apply to the Ministry of Trade and Industry for an FDI Registration Certificate stating
the conditions that must be fulfilled by the investors. This Certificate is the initial condition before investors
acquire other necessary permits and licences. In addition, all commercial and industrial activities operating
in the country are required to obtain an operating license from the Ministry of Trade and Industry.
All foreign investments must register with the Registrar of Companies and follow the regulations as
stipulated in the Companies Act, 2000.
The Ministry of Trade and Industry is in the process of establishing an FDI Facilitation Committee to assist
investors in gathering investment information and obtaining necessary clearances, approvals and permits.
III. INVESTMENT INCENTIVES
In September 2002, the Ministry of Finance announced tax holidays and incentives in the three following
categories, of which a business entity is eligible for only one:
Tax holiday from corporate income tax (CIT) and business income tax (BIT) for newly established business
entities (established between 1 January 2003 and 30 June 2007) in manufacturing industries including
those in the interior regions, information technology training and vocational training institutes, hotels,
schools and auto-mechanical workshops in the interior regions;
BIT/CIT exemption for export income earned in convertible currency accruing from 1 January 2003 by
manufacturing industries, IT service industries and agriculture produce exporters; and
Re-investment allowance for incorporated companies: 20 per cent of total re-investment, from 1 January
2003 to 30 June 2007.
In addition, other incentives include the following:
- Sales tax and customs duty are not collected on plant, machinery and raw materials (as mentioned
in Part Two); - • CIT/BIT is to be exempt for income in convertible currency by manufacturing industries, IT industries
or services and agricultural produce; and - The tax-deductible salary limits will not apply to incorporated companies.
Bhutan is also implementing the Bureau of Indian Standards (BIS) Certification Scheme. This Scheme aims
at helping Bhutanese products find better opportunities to enter Indian markets.
Two sectors are open for foreign direct investment namely manufacturing and services:
- For manufacturing - the minimum size of investment of total project cost is US$ 1 million and the
foreign investors can hold up to 70 per cent:
- Agriculture and agro-processing;
- Forestry and wood-based industries;
- Livestock-based industries;
- Light industries including electronic industries; and
- Engineering and power intensive industries.
- For services - the minimum size of investment is US$ 500,000 and the foreign investors can hold up
to 70 per cent:
- Tourism including hotels;
- Transport services;
- Roads and bridges;
- Education;
- Business infrastructure;
- Information technology;
- Financial services; and
- Housing.
IV. TAXATION
The Department of Revenue and Customs at the Ministry of Finance is responsible for structuring and
implementing the tax system. There are three categories of tax:
- Direct tax (urban tax and rural tax): including corporate income tax and business income tax (30 per
cent of net profit), property transfer (5 per cent), land and house tax, cattle tax; - Indirect tax: including Bhutan Sales Tax, customs duty and excise tax; and
- Other taxes: including export tax on goods of primary form like timber, tax on motor vehicles, and
royalties on forestry products, mines, minerals and Tourism industries.
All companies registered with the Ministry of Trade and Industry, and business units holding trade license
issued by the Ministry of Trade and Industry are liable for corporate income tax (CIT) and business income
tax (BIT).
CIT and BIT are levied at 30 per cent of the net profit of companies and businesses in each calendar year,
and to be filed between January and March each year. Excise Tax is applicable to all domestically
manufactured alcoholic beverages and aerated water, ranging from 20 to 60 per cent ad valorem at ex-factory
price.
V. FOREIGN EXCHANGE
According to Article 7 “Operating Environment” of the Foreign Direct Investment Policy, 2002, the foreign
exchange regulations for FDI-related transactions have to comply with the following:
- Any convertible currency requirement for import of capital goods must be met out of the foreign equity;
- Repatriation of profits/dividends must be balanced by “net foreign exchange” earning;
- Repayment of foreign currency loans shall be permitted subject to prior approval of the loan by the
Royal Government of Bhutan; - Repatriation of capital on sale or liquidation along with capital gain is permitted in foreign currency;
- Royalties, technical services fees and management fees may be allowed in foreign exchange as
appropriate on evaluation of the royalty agreement, technical service/management agreements; and - All foreign exchange transaction must be routed through the normal banking channels.
VI. LABOUR ISSUES
Employment of Bhutanese nationals is encouraged. According to the FDI Policy, 2002 the employment of
expatriate personnel in the skilled, semi-skilled and un-skilled categories will have to be phased out. The
expenses for training of Bhutanese nationals to replace such personnel will be allowed as deductions for tax
purposes.
Expatriate employment is allowed where there is a shortage of local skills and foreign investments are
entitled to a number of work permits based on the size of the investment:
- Exceeding US$ 5 million: 5 expatriate posts;
- From US$ 1 million to US$ 5 million: 3 expatriate posts; and
- Below US$1 million: 2 expatriate posts.
VII. DISPUTE SETTLEMENT
Presently there is no dispute settlement setting. However, Bhutan has become the 85th member of the
Chartered Institute of Arbitrators (CIArb) in an effort to achieve effective dispute resolution methods. There is
an arbitral procedure by the Construction Development Board for Bhutan’s construction industry.
VIII. CAPITAL MARKET
The Royal Securities Exchange of Bhutan (RSEB) was formally established in 1993 in an attempt to boost
private sector development and to assist in creating a capital market. RSEB began with the participation of
only four companies - Bhutan Board Products Ltd. (BBPL), Bhutan Carbide and Chemicals Ltd. (BCCL),
Penden Cement Authority Ltd. (PCAL) and Royal Insurance Corporation of Bhutan (RICB) - with a market
capitalization of Nu 493 million. As of 2002, fifteen companies are listed with the RSEB with a market
capitalization of around Nu 3,156 million. However the market remains relatively weak and inactive, reflecting
the low level of economic activity, the extent of monetization and the private sector development in the country.
IX. PROTECTION OF PROPERTY RIGHTS
Bhutan is a member of the World Intellectual Property Organization (WIPO) Convention and a signatory to the
Paris Convention, the Madrid Agreement, and the Protocol to the Madrid Agreement.
The rights to the national protection of intellectual property are stipulated in the Industrial Property Act of the
Kingdom of Bhutan, 2001, and the Copyright Act of the Kingdom of Bhutan, 2001. The Intellectual Property
Division under the Ministry of Trade and Industry is responsible for implementing intellectual property
policies.
Under the Copyright Act, original works under protection include literary, dramatic, musical and artistic works,
audiovisual works, computer programmes, databases, sound recordings, performances of artistic and
programmes of broadcasting organizations. Authors are not required to register their original works for
protection. Intellectual property protection starts from the date of the first publication of the works, or after the
life of the creator, and lasts for an average of 50 years.
The Industrial Property Act requires that trademarks, including service marks, should be registered with the
Registry of Industrial Property in the Ministry of Trade and Industry for protection. The duration of protection is
10 years from the date of the filing of application, and can be renewed indefinitely. Industrial designs, in order
to be registered with the Registry of Industrial Property, must be new and not contrary to public order or
morality. The protection of industrial designs is five years starting from the date of filing, and can be renewed
for two successive terms of five years each.
In order to be patented and protected, matters should be registered with the Registry of Industrial Property.
Protection lasts 20 years from the date of filing and must be renewed annually. The right to a patent may be
assigned or transferred by succession. Matters excluded from being patented are (i) discoveries, scientific
theories and mathematical methods, (ii) schemes, rules, or methods for doing business, performing purely
metal acts or playing games, and (iii) methods of treatment and diagnostic methods for treating humans and
animals.
References for part four: Investing in Bhutan
Ministry of Finance. Notification: Tax Incentive and Rules Thereof, 13 September 2002.
http://www.mof.gov.bt/drc/taxation.html
Ministry of Finance. 2000. Sales Tax, Customs and Excise Act of the Kingdom of Bhutan.
http://www.mof.gov.bt/drc/excise.html
Ministry of Trade and Industry. Foreign Direct Investment Policy 2002. Royal Monetary Authority of Bhutan.
Monthly Statistical Bulletin, January and March 2003.
http://www.rma.org.bt/mcpJanuary2003.asp#FDI
http://www.rma.org.bt/mcpMarch2003.asp#BhutanPublicLTDProfile