Bhutan Income Tax Rates & Rules: a Guide for US Expats

With pristine landscapes, endless outdoor activities, stunning Buddhist temples, and a well-preserved cultural heritage, Bhutan is an excellent under-the-radar option for aspiring expats. Before moving there, of course, it’s important to think of practical matters, like the Bhutan income tax rates. 

If you’re considering a move to the Land of the Thunder Dragon, let us guide you through the tax implications of doing so. Below, we’ve put together a guide on taxes in Bhutan for US expats. Read on to learn how Bhutan taxes income, what its tax rates are, how to navigate and reduce your US taxes, and more.

Snapshot of taxes for Americans living in Bhutan

• Primary tax form(s): Form PIT-1 (individuals), Form BIT-1 (small and medium businesses), Form CIT-1 (corporations)
• Tax deadline: Last day of February (individuals); last day of March (businesses and corporations)
• Reporting website: Department of Revenue and Customs’ RAMIS platform
• Administrative language(s): English
• US-Bhutan tax treaty? No
• US-Bhutan totalization agreement? No

Understanding Bhutan’s tax system & deadlines

Bhutan’s governing tax body is the Department of Revenue and Customs (DRC), part of the Ministry of Finance. The DRC is responsible for making recommendations on tax policy and planning, enforcing tax code, collecting taxes, and assisting taxpayers, among other tasks.

The DRC requires those who meet the following criteria to file and pay taxes in Bhutan:

• Bhutanese citizens
• Bhutanese residents
• Those who earn more than Nu. 300,000 (~$3,543) in Bhutan-sourced salary income, rental income, dividend income, or income from other sources 

Individual income taxes are due on the last day of February: either February 28th or February 29th in leap years. Businesses and corporations, on the other hand, must have their taxes in by March 31st. 

The easiest way to file is usually online, although you can also complete and submit paper forms at your local tax office.

Determining Bhutan tax residency

Bhutan determines tax residency based on physical presence in the country. Anyone who spends 183 days or more in the country in a given tax year qualifies as a tax resident of Bhutan. Bhutan tax residents are subject to taxation on their worldwide income, while non-residents only face Bhutanese taxes on their Bhutan-sourced income.

Taxation of income in Bhutan

Tax residents

Bhutan uses a progressive, marginal tax structure that levies taxes on ordinary earned income at the following rates:

Bhutan tax rates, 2024

Net income (BTN)	Net income (USD)	Tax rate
Up to Nu. 300,000	Up to ~$3,544	0%
Nu.300,001 – Nu. 400,000	~$3,545 – ~$4,725	10%
Nu. 400,001 – Nu. 650,000	~$4,725 – ~$7,678	15%
Nu. 650,001 – Nu. 1,000,000	~$7,679 – ~$11,813	20%
Nu. 1,000,001 – Nu. 1,500,000	~$11,814 – ~$17,719	25%
Nu. 1,500,001+	~$17,720+	30%

In addition, a surcharge of 10% is added to any income over 1,000,000 BTN (~$11,813) per year.

Non-tax residents

Non-Bhutanese tax residents are required to pay taxes at the following rates:

• Employment income: PIT rates (0% to 30%)
• Rental income: 5% (or 0% if renting to an individual) 
• Dividend income: 10%
• Income from other sources: 5%

Deductions & allowances

Bhutan allows the following deductions and allowances:

• Education allowance: Up to 350,000 BTN (~$4,135) per individual, child, or sponsored child
• Life insurance premiums: 100%
• Donations: Up to 5% of adjusted gross income (AGI)
• Group Pension Fund (GPF): 100%
• Group Insurance Scheme (GIS): 100%
• Rental income: 20% of repairs and maintenance, interest payments, urban taxes, and insurance premiums
• Dividend income: Up to 30,000 BTN (~$354) plus interest on loans for shareholding
• Other income: 30%

Other taxes in Bhutan

Capital gains taxes

Bhutan has no specific tax on capital gains.

Social security taxes

Bhutan has two types of social security taxes:

• Group Pension Fund (GPF): 10% employees, 15% employers
• General Insurance Scheme (GIS): Vary widely depending on employer and income

Both of these taxes are mandatory for government workers and civil servants. Others can opt into GIS to receive benefits, but not GPF.

Corporate taxes

There are two different corporate tax rates in Bhutan: the Business Income Tax (BIT) and the Corporate Income Tax (CIT). BIT applies to sole proprietorships, single-member businesses, and partnerships. CIT applies to any business that does not fall into one of those categories.

• Business Income Tax (BIT): 30% of net profit for resident businesses, 3% to 30% for non-resident businesses (depending on business type)
• Corporate Income Tax (CIT): 25% of net profit for private enterprises, 30% for state-owned enterprises

Property taxes

Property taxes in Bhutan include the:

• Land Tax: .1%
• Building tax: .1% 
• Vacant land tax: 15% on undeveloped urban land
• Transfer tax: 3%

VAT

Bhutan currently levies a tax of 7% on the sale of most goods and services, appropriately called the Goods and Services Tax (GST). GST is typically already incorporated in the cost of goods sold. Certain items are exempt from GST, including exported goods, telecommunication services, and international transportation services (among others). 

Businesses that earn more than 5,000,000 BTN (~$59,064) must register for GST, charge it to customers/clients, and remit the proceeds to tax authorities. 

Gift, inheritance, & estate taxes

Bhutan has no gift, inheritance, or estate taxes.

US taxes for expats in Bhutan

The vast majority of American expats living in Bhutan will have to file US taxes. This is because the US has a citizenship-based taxation system, under which all American citizens and permanent residents are subject to US taxes. 

Any American earning above a certain threshold — even if they live abroad — must file (and potentially pay) federal income taxes. In certain cases, US expats may even need to file and pay state income taxes.

Rather than the typical April 15th tax return deadline, expats receive an automatic extension to June 15th. If you need more time, you can receive a four-month extension to October 15th by filing Form 4868. If that’s still not enough, you can write to the IRS to receive an additional extension until December 15th.

No matter when you file, though, you must still make an estimated payment by April 15th if you expect to owe taxes. Otherwise, you risk facing penalties and interest.

Because all Americans are subject to US taxes, those who are also subject to taxes in Bhutan face double taxation. The good news is that you can often reduce or eliminate your US tax burden with one of the following tax breaks:

Foreign Tax Credit (FTC)

The Foreign Tax Credit is a tax break that gives Americans dollar-for-dollar US tax credits on their foreign income taxes, provided that they’re legal and legally assessed in your name. This essentially lets you subtract your foreign income tax liability from your US tax liability. 

This is especially valuable for expats who pay higher tax rates abroad than they do in the US. When this happens, the FTC typically not only eliminates their US tax liability, but also gives them surplus tax credits for future bills.

You can claim the FTC by filing Form 1116.

Foreign Earned Income Exclusion (FEIE)

The FEIE is the other main tax break for US expats. With the FEIE, you can exclude up to $126,500 of your foreign-earned income from taxation in tax year 2024. This limit increases slightly each year due to inflation. Note that you can only apply the FEIE to foreign-earned income, not US-sourced or passive income.

Those who meet at least one of the following tests are eligible for the FEIE:

• The Physical Presence Test: Spend at least 330 days — consecutive or not — outside of the US in any 365-day period overlapping the tax year 
• The Bona Fide Residence Test: Be an official resident of another country for a full tax year
  • Note: You may need to prove your foreign residence with documentation (e.g. residence permit, foreign tax return, rental contract, etc.) in the event of an audit

As a bonus, passing either one of these tests also lets you claim the Foreign Housing Exclusion or Deduction (FHE/FHD). The FHE/FHD effectively increases the FEIE limit by allowing you to exclude income based on your foreign housing expenses (e.g. rent, utilities, occupancy taxes, etc.).

You can claim the FEIE by filing Form 2555.

Reporting obligations

Moving abroad can add to or change your reporting obligations. US expats often have to file the following reports:

• The Foreign Bank Account Report (FBAR): A mandatory report for Americans whose foreign financial accounts total over $10,000 at any point in the year
• The Statement of Specified Foreign Assets (Form 8938): A mandatory report for Americans with certain foreign assets that exceed $200,000 on the last day of — or $300,000 at any point during — the tax year
  • Note: Reporting thresholds differ for married couples filing jointly and US-based filers

Resources: 

1. Department of Revenue & Customs
2. Personal Income Tax (PIT)
3. RULES ON THE INCOME TAX ACT OF THE KINGDOM OF BHUTAN 2001: FIFTH EDITION (2020)
4. TDS Guidelines: Third Edition
5. PROPERTY TAX ACT OF BHUTAN 2022
6. Sustainable Development Fee
7. GREEN TAX RULES AND REGULATIONS OF BHUTAN 2024