RENUKA RAI | Thimphu
The National Assembly on May 29 endorsed a bilateral tax treaty between Bhutan and Singapore, paving the way for closer economic cooperation and providing a major boost to efforts to attract international investment into the Gelephu Mindfulness City (GMC).
The agreement between the Kingdom of Bhutan and the Republic of Singapore on the Elimination of Double Taxation was endorsed during its third reading, with lawmakers describing it as an important step in strengthening Bhutan’s international economic and investment framework.
The treaty is expected to remove tax-related obstacles for businesses and investors operating across the two jurisdictions by ensuring that the same income is not taxed twice. Members of Parliament said the agreement would create greater certainty for investors while supporting Bhutan’s broader ambitions to expand foreign investment and international partnerships.
Speaking during the deliberations, MP for Nyisho-Sephu constituency Kuenga Kuenga said “the treaty would provide a strong legal and fiscal foundation for economic engagement between Bhutan and Singapore”.
He said “the agreement carries added significance because of its role in supporting GMC, a flagship development initiative envisioned as a regional centre for sustainable investment, innovation, finance, and professional services”.
According to lawmakers, predictable tax arrangements are increasingly important for attracting international businesses, financial institutions, and investors. The treaty is expected to enhance Bhutan’s competitiveness by reducing tax uncertainty and providing a clearer framework for cross-border economic activities.
One of the key features of the agreement is the mechanism that allows taxes paid in one jurisdiction to be credited against tax obligations in the other. This means that income earned across borders will not be subject to double taxation, a factor often considered crucial by foreign investors when making investment decisions.
The treaty also outlines how taxing rights will be shared between Bhutan and Singapore and introduces safeguards aimed at improving transparency and preventing tax abuse.
In line with international standards, the agreement includes provisions for the exchange of tax information between authorities and measures designed to combat tax evasion and treaty misuse.
The treaty sets preferential withholding tax rates on several categories of income. Dividend payments to qualifying companies will be exempt from withholding tax, while other dividend income will be subject to a maximum rate of five percent. Interest and royalty payments will also generally face withholding taxes capped at five percent.
The agreement further establishes rules governing Permanent Establishment (PE), which determine when a company becomes liable for taxation in another jurisdiction.
Under these provisions, construction-related projects would generally become taxable after six months of activity. However, projects operating within GMC will benefit from a longer threshold of 12 months before a permanent establishment is created.
For service providers, a permanent establishment will arise when services are provided for 120 days within any 12-month period.
Lawmakers also highlighted the treaty’s recognition of the GMC Special Administrative Region, making it one of the most distinctive aspects of the agreement.
The inclusion of GMC ensures that the city’s unique fiscal and regulatory arrangements are incorporated into the treaty framework while remaining part of Bhutan’s overall international tax cooperation system. Officials believe this will help GMC establish the institutional foundations needed to attract high-quality international investors and businesses.
The agreement also incorporates measures addressing Base Erosion and Profit Shifting (BEPS), an international concern involving the movement of profits across jurisdictions to minimize tax liabilities.
Under the treaty, Bhutanese residents earning income in Singapore will be able to claim credits for taxes paid in Singapore against their tax obligations in Bhutan, subject to domestic tax laws. The credit, however, cannot exceed the amount of Bhutanese tax attributable to that income.
Equivalent provisions apply to residents of GMC who earn income in Singapore, as well as to Singapore residents generating income in Bhutan or GMC. Singapore will similarly allow credits for taxes paid in Bhutan or GMC against Singaporean tax liabilities.
Additional provisions cover dividend income involving companies that hold at least a 10 percent ownership stake in entities operating across the jurisdictions.
The agreement is expected to support Bhutan’s efforts to diversify its economy and attract greater foreign direct investment at a time when the country is pursuing large-scale development initiatives and seeking stronger integration with global markets.
With Singapore regarded as one of Asia’s leading financial and investment hubs, lawmakers said the treaty could enhance Bhutan’s attractiveness to international investors seeking stable and predictable tax arrangements.
The agreement was signed on 12 May by Lyonpo Lekey Dorji, Finance Minister, on behalf of the Royal Government of Bhutan and Gelephu Mindfulness City, SAR, and by Jeffrey Siow, Acting Minister for Transport and Senior Minister of State for Finance, on behalf of the Government of the Republic of Singapore.
