Thukten Zangpo

To make Bhutan more investment-friendly, the government has drafted new Foreign Direct Investment (FDI) Rules and Regulations, targeting an ambitious Nu 500 billion inflow by 2029. The draft is currently awaiting cabinet approval.

This reform is particularly critical as Bhutan’s FDI inflow has remained low over the years. Last year, the country’s FDI was worth Nu 48.61 billion, a slight increase from Nu 43.62 billion in 2022 and Nu 43.31 billion in 2021.

The new FDI rules have made major changes concerning land, labour, equity, foreign currency, repatriation, and new investments. One key change allows local shareholders to capitalise freehold land as part of their equity contribution. State land will be available on lease for an initial period of 30 years, extendable up to 99 years.

The new FDI rules also offer ‘investor cards’ to foreign investors or their authorised representatives making investments over Nu 20 million.

This card grants a one-year residency approval, which can be extended annually without the sustainable development fee, including provisions for spouses and dependents.

The investor’s spouse can also obtain a work permit and the family can study in Bhutan without separate visas. Investors can hold business guest visas while their ventures are being established.

The regulations also encourage the establishment of venture capital funds to invest in impact startups, with 100 percent equity permitted. However, investments in startups will not be classified as FDI if they fall outside the negative list.

Under the new foreign exchange clause, foreign companies can access convertible currencies and Indian Rupees from the Royal Monetary Authority, unlike the previous FDI regulations from 2019.

This currency can be used for purchasing capital goods, importing raw materials, and remitting salaries, provided that transactions go through a local bank.

To enhance the repatriation of dividends, foreign investors can repatriate profits in their investment currency without restrictions.

The new rules also introduce sweat equity shares, allowing local promoters to contribute non-monetary resources such as labor and expertise to the business. Sweat equity refers to a person or company’s contribution toward a business venture or other project. It is not monetary and comes in the form of physical labour, mental effort, and time.

Unlike the FDI regulations 2019 which came with limited work permits, the FDI company would be entitled to obtain work permits for professional expatriates during the business establishment and operation phase.

The regulations have also included the investment into a downstream project which can be considered as a new project.

If the dispute arises between parties, it would be resolved first mutually or as per the provisions of the joint venture agreement, and next, as per Alternative Dispute Resolution Act or the court of Bhutan.

“Parties have the option to pursue arbitration at recognised international arbitration institutions, contingent upon mutual agreement from both parties,” the rules state.

Investments and equity

in various sectors

The revised rules permit 100 percent foreign equity in agriculture and animal husbandry, up from 74 percent. The minimum project costs are set at Nu 20 million, covering areas like floriculture, horticulture, aquaculture, and animal husbandry.

For sectors such as fruit and vegetable processing and wood-based production, foreign equity remains at 74 percent, with minimum investments ranging from Nu 10 million to Nu 50 million. The alternative renewable energy sector also has a minimum investment of Nu 20 million, following sector policy guidelines.

In the manufacturing sector, which includes pharmaceuticals and electronics, the maximum foreign equity is 74 percent with a minimum investment of Nu 50 million.

The education sector allows for 74 percent foreign equity with a minimum investment of Nu 300 million, while healthcare services may attract 100 percent foreign equity with investments ranging from Nu 100 million to Nu 500 million.

For hotels and resorts rated four stars and above, the minimum investment is Nu 200 million with 74 percent foreign equity, while investments for wellness centers and other hospitality ventures have lower thresholds.

In the IT sector, investors can hold 100 percent equity with a minimum investment of Nu 3 million, provided they operate outside designated IT parks.

The negative list of sectors barred from FDI includes news media, retail distribution, standalone mineral mines, and three-star or lower hotels, among others, ensuring that certain critical industries remain restricted from foreign ownership.