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All You Need to Know As An Indian Resident Investing In Bhutan

Author: Gaurav Shanker, Managing Partner And Yamini Mishra, Associate |

Article by Business Law Chamber

Foreign Direct Investment (“FDI”) plays a pivotal role in transforming the economy of any country, especially the developing ones. Bhutan, being a slow developing country actively encourages FDI to strengthen their economy. Hence, towards making the Foreign Direct Investment policy, 2019 (“FDI Policy”) more relevant and investor-friendly, the policy was periodically revised by the Bhutanese/Royal Government. FDI is allowed in both manufacturing and service sectors in Bhutan, except for those as listed in the ‘Negative List’ in the FDI policy. As per the FDI policy, the term ‘Foreign Investor’ includes a person who is a citizen of a country other than Bhutan; and/or an entity which is incorporated or registered outside Bhutan.

FDI Registration

Every foreign investor willing to invest in Bhutan is required to obtain a registration for FDI from the Department of Industry, FDI Division. However, the issuance of a Foreign Direct Investment Registration Certificate (“FDIRC”) does not construe approval of the project proposed by the foreign investor. Registered foreign investors are required to seek and gain all appropriate and necessary approvals, permits, licenses or registrations that any investor, foreign or citizen, wishing to commence operations in Bhutan, must acquire. In seeking these approvals, permits, licenses or registrations, the foreign investors shall be required to produce the FDIRC.

Investment in an existing domestic company vs. FDI company

As per the FDI policy, in case of investment through an existing domestic entity, FDI shall be allowed subject to the same terms and conditions as applicable to new entities with maximum foreign investor’s shareholding of 74%

However, in case of investment through a new FDI company, the FDI company shall be a business incorporated or registered in the country for the purpose of undertaking commercial activity in which 20% or more (upto 100%) of the equity in the business is owned by foreign investors. Except for in case of Foreign Institutional Investors, a FDI company shall be one in which 10% or more of the equity is owned by foreign institutional investor. An individual foreign investor shall own a minimum of 10 % (maximum upto 100%) of the equity.

It must be noted that all FDI businesses shall incorporate under the Companies Act of Bhutan, 2016 and amendments thereto upon issuance of FDIRC.

The FDI shall be made in convertible currency. However, Indian investors may be allowed to invest in Indian currency, except for the small-scale activities listed in schedule III of the FDI policy. The convertible currency requirement and Indian Rupee requirement for the establishment and operation of the business must be met from the company’s own sources.

FDI businesses are required to obtain approval for the proposed business activity and a business license prior to commencing project establishment and operations

The FDI policy also imposes a lock-in period on the FDI companies, the FDI companies are required to retain 100% of the foreign equity invested in the company for a minimum of three years from the date of start of commercial operations of the FDI Business.

For ease of investors, the Bhutan Government issues multiple entry visas and route permits to foreign investor, board of directors of the FDI company, and expatriate workers (professional/non-professional).

As far as incentives and exemptions are concerned the FDI companies are entitled to the incentives and exemptions similar to as provided to domestic investments under the Fiscal Incentives Act of Bhutan, 2017 and amendments thereto, unless specified otherwise in the FDI policy.

Booming sectors and the Negative List

The booming sectors for FDI in Bhutan includes agriculture & forestry; services sector including health & herbal medicine, transport and logistics, information and communication technology, media and entertainment, etc.; livestock industry; hydropower plants, etc.

Following are the sectors under the ‘Negative List’, which are prohibited from FDI in Bhutan:

  • News Media
  • Distribution services including wholesale, retail and micro trade
  • Mining for sale of minerals in primary or raw form
  • Hotel 3 star and below
  • General Health Services
  • Industries that do not meet the Certificate of Origin requirements
  • Activities in the Prohibited List of the Royal Government

Further, as much as the Bhutan Government ensures development of the country, it keeps in mind the rights of the investors as well by providing guarantee vis-à-vis equal treatment, nationalization & expropriation, repatriation of dividend, repatriation of capital, freedom of disposal, dispute settlement and intellectual property rights.

Apart from the registration requirements and other conditions required to be fulfilled under the laws of Bhutan as stated above, an Indian resident must be mindful of the compliances and requirements under the Indian laws including compliance with the Foreign Exchange Management Act, 1999 and the rules and regulations made thereto, the overseas direct investment (ODI) regulations, ODI thresholds, filing requirements, etc.

For details on ODI and other regulations applicable on investment by an Indian resident outside India, please refer to our article titled ‘Investment by an Indian resident outside India’