Terms And Conditions for Business in Bhutan

Establishing a Business in Bhutan: Understanding the Terms and Conditions

Starting a business in Bhutan offers a unique blend of opportunities and challenges. With its rich cultural heritage, stunning landscapes, and a government that actively promotes entrepreneurship, Bhutan is an attractive destination for both local and foreign investors. However, before diving into the Bhutanese market, it is crucial to understand the terms and conditions that govern business establishment in the country. This blog aims to provide a comprehensive overview to help you navigate the process smoothly.

1. Legal Framework and Business Entities

In Bhutan, businesses can be established under various legal entities such as sole proprietorships, partnerships, private limited companies, and public limited companies. The Companies Act of Bhutan, 2016, primarily governs these entities, ensuring transparency and accountability in business operations.

Key Points to Note:

• Sole Proprietorship: Owned and managed by a single individual. Easy to set up but involves unlimited liability.

• Partnership: Formed by two or more individuals sharing profits and liabilities. Governed by a partnership deed.

• Private Limited Company: Requires a minimum of two shareholders and two directors. Offers limited liability protection.

• Public Limited Company: Suitable for larger businesses. Requires a minimum of seven shareholders and three directors.

2. Registration and Licensing

All businesses in Bhutan must be registered with the Ministry of Economic Affairs (MoEA). The registration process involves submitting an application form along with necessary documents such as identity proof, business plan, and details of shareholders and directors.

Steps to Register:

1. Choose a Business Name: Ensure it is unique and not already in use.

2. Prepare Required Documents: Including identity proof, business plan, and details of shareholders and directors.

3. Submit Application: Apply online through the MoEA website or visit their office.

4. Obtain Licenses: Depending on your business type, you may need additional licenses from relevant authorities (e.g., trade license, environmental clearance).

3. Foreign Direct Investment (FDI) Regulations

Bhutan encourages foreign direct investment (FDI) to boost economic growth. The FDI Policy 2019 outlines the procedures and incentives for foreign investors. However, certain sectors are restricted or prohibited for foreign investment.

Important Considerations:

• Permitted Sectors: Includes manufacturing, information technology, tourism, and agriculture.

• Restricted Sectors: Includes media, mining, and sectors affecting national security.

• Minimum Investment Requirement: Varies by sector. For instance, USD 250,000 for manufacturing and USD 500,000 for services.

• Joint Ventures: Encouraged, with at least 51% local ownership in certain sectors.

4. Taxation and Financial Regulations

Businesses in Bhutan are subject to various taxes, including corporate tax, business income tax, and sales tax. The tax rates and compliance requirements are outlined by the Department of Revenue and Customs (DRC).

Key Tax Obligations:

• Corporate Tax: Generally 30% for most businesses.

• Business Income Tax: Varies based on business type and income.

• Sales Tax: Imposed on goods and services at varying rates.

• Filing Requirements: Annual tax returns must be filed with the DRC.

5. Labor Laws and Employment Regulations

Bhutan’s labor laws aim to protect employees’ rights while promoting fair labor practices. The Labor and Employment Act of Bhutan, 2007, provides guidelines on employment contracts, working hours, wages, and dispute resolution.

Key Labor Provisions:

• Employment Contracts: Must be in writing and clearly outline terms and conditions.

• Working Hours: Standard working hours are 8 hours per day and 48 hours per week.

• Wages and Benefits: Minimum wage rates are set by the government. Employers must provide mandatory benefits such as leave entitlements and social security.

• Dispute Resolution: Labor disputes can be resolved through mediation or adjudication by the Labor Tribunal.

6. Environmental and Social Responsibility

Businesses in Bhutan are encouraged to adopt environmentally sustainable practices. The Environmental Assessment Act of Bhutan, 2000, requires businesses to conduct environmental impact assessments (EIAs) for certain projects.

Environmental Compliance:

• Environmental Clearance: Required for projects with potential environmental impacts.

• Sustainable Practices: Encouraged to minimize ecological footprint.

Conclusion

Establishing a business in Bhutan involves understanding and complying with various terms and conditions set forth by the government. From choosing the right business entity to adhering to labor laws and environmental regulations, each step is crucial for a successful venture. By familiarizing yourself with these requirements, you can ensure a smooth and compliant business setup in this beautiful and dynamic country.

For more detailed information, visit the Ministry of Economic Affairs website or consult with a legal advisor specializing in Bhutanese business law.