| 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.
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.
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 automechanical 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 reinvestment,
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:
-
Mineral processing;
- 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. |
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.
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