Bhutan: Investing
The share of FDI in Bhutan's GDP remains relatively low compared to other developing countries. According to UNCTAD 2021 World Investment Report, the total stock was estimated at USD 139 million in 2020. After turning negative in 2017 ( USD -9 million), FDI inflows recovered in 2018 when they reached USD 7 million. However, they declined to USD 3 million in 2019 and 2020, partly due to the global economic crisis triggered by the Covid-19 pandemic. Despite the recent rise in FDI inflows, Bhutan still is the Asian country attracting the least FDI, partially due to its small size. India is the largest investor (mainly in the manufacturing industry), followed by Singapore and Thailand.
Bhutan recorded a 40 per cent decline in foreign direct investment (FDI) in 2021. In 2021 65% of FDIs came from Asia, 22% from Europe, 10% from America, and around 3% from the Oceania region. Most of the FDI projects are located in the capital Thimphu. The service sector dominates the overall FDI composition with a 78 per cent share. The hotel sector has the highest number of FDI projects, accounting for 38 per cent in 2021. The share of FDI in the information technology (IT) or IT-enabled service sector increased to 21% in 2021 from 19% in 2019. Forty per cent of the FDI projects are concentrated in the capital Thimphu and the remaining are located in the dzongkhags, or districts, of Paro and Chukha. A total of 4,747 Bhutanese were directly employed by 57 operating FDI projects as of December 2020 (Department of Industry, Bhutan & Phnom Penh Post, 2022).
The Government of Bhutan has been among the most active in South Asia in terms of introducing reforms, creating a public information and credit register and simplifying the procedures necessary for business establishment. In 2015, the Government relaxed FDI regulations and foreign investors are now able to buy land and can invest in Bhutan with a minimum stake of 10%. In selected sectors, ownership is permitted up to 100%, and the pharmaceutical sector is now open to FDI. A measure has been introduced which makes it easier to exchange local currency into foreign currencies. However, outside of concerns to protect its culture and environment, geographical factors hold back the region: the country has a small territory, is landlocked and very mountainous, thus making infrastructure construction very difficult and costly. In addition, FDI development is limited by a substantially controlled system and an inadequate policy in the areas of industrial license, trade, work and finance. The shortage of skilled labour is also a hindrance to development. Furthermore, the government of Bhutan wishes to continue restricting FDI in certain sectors in order to avoid competition with local traders. Bhutan is ranked 89th out of 190 countries in the last World Bank's 2020 Doing Business Report, eight spots lower than a year earlier. However, the score is relatively high for the country's income category (lower middle income) and region (south Asia).
| Bhutan | South Asia | United States | Germany | |
|---|---|---|---|---|
| Index of Transaction Transparency* | 4.0 | 5.8 | 7.0 | 5.0 |
| Index of Manager’s Responsibility** | 4.0 | 5.0 | 9.0 | 5.0 |
| Index of Shareholders’ Power*** | 6.0 | 7.4 | 9.0 | 5.0 |
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
| Foreign Direct Investment | 2019 | 2020 | 2021 |
|---|---|---|---|
| FDI Inward Flow (million USD) | 3 | 1 | 2 |
| FDI Stock (million USD) | 580.4 | 553.7 | 408.6 |
| Number of Greenfield Investments* | 0.0 | 1.0 | 1.0 |
| Value of Greenfield Investments (million USD) | 0 | 83 | 117 |
Source: UNCTAD - Latest available data
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
| Personal Income Tax | |
| Up to BTN 300,000 | 0% |
| From BTN 300,001 to BTN 400,000 | 10% |
| From BTN 400,001 to BTN 650,000 | 15% |
| From BTN 650,001 to BTN 1,000,000 | 20% |
| From BTN 1,000,000 to BTN 1,500,000 | 25% |
| From BTN 1,500,001 and above | 30% |
| Surcharge (applies if the annual PIT is equal to or more than BTN 1,000,000) | 10% |
| Bhutan | South Asia | United States | Germany | |
|---|---|---|---|---|
| Number of Payments of Taxes per Year | 18.0 | 26.7 | 10.6 | 9.0 |
| Time Taken For Administrative Formalities (Hours) | 52.0 | 273.5 | 175.0 | 218.0 |
| Total Share of Taxes (% of Profit) | 35.3 | 43.9 | 36.6 | 48.8 |
Source: Doing Business - Latest available data.
| Setting Up a Company | Bhutan | South Asia |
|---|---|---|
| Procedures (number) | 8.00 | 7.12 |
| Time (days) | 12.00 | 14.56 |
Source: Doing Business.
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Latest Update: February 2023
