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Hiring in Bhutan
Bhutan, officially known as the Kingdom of Bhutan, is a country in South Asia. Thimphu is the capital and the largest city of Bhutan. Bhutan has one of the world’s smallest economies. Agriculture, forestry and tourism are the main industries of Bhutan. Its main trading partner is India. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Bhutan’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. The Labor Code stipulates that employees are entitled to 18 days of paid annual leave. Bhutanese citizens, residents and any other persons earning gross income exceeding Nu. 200,000 per annum in Bhutan shall be liable to pay personal income tax. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Bhutan’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- An employee who is employed for one year or more shall be on probation for 6 months days within which period either party may terminate the contract by giving the other party notice of 7 days.
Annual Leave
- Employees who work for 6 months or more in continuous employment are entitled to paid annual leave.
- Annual leave entitlements accrue at a minimum rate of 1.5 days per month, or a minimum of 18 working days per year, such accrual to commence after the employee has completed 6 months of service.
Public Holidays
- Nyilo (2nd January)
- Traditional Day of Offering (25th January)
- Birth Anniversary of His Majesty the King (21st to 23rd February)
- Losar
- Birth Anniversary of 3rd Druk Gyalpo (2nd May)
- Lord Buddha's Parinirvana
- Birth Anniversary of Guru Rinpoche
- The First Sermon of Lord Buddha
- Blessed Rainy Day
- Dashain
- Druk Gyalpo Coronation Anniversary (1st November)
- Lhabab Duchen
- Anniversary of the 4th Druk (11th November)
- National Day (17th December)
Maternity Leave
- A female employee shall be entitled to three months’ maternity leave in addition to other leaves on production of a medical certificate duly signed by a recognized medical practitioner in Bhutan
- A female employee shall be entitled to maternity leave with salary subject to three confinements during the entire service of the employee.
- In the event of miscarriage, a maximum leave of four weeks shall be granted on the production of a medical certificate from a recognized medical practitioner in Bhutan
Paternity Leave
- Male employees are entitled to 10 working days of paid paternity leave
Sick Leave
- Employees who work for 6 months or more in continuous employment are entitled to be paid sick leave.
- For full-time employees, sick leave entitlements accrue at a minimum rate of 5 working days per year, such accrual to commence after the employee has completed 6 months of service
Work Hours
- The normal working hours for an employee of shall be:
-
- 8 hours a day
- 48 hours a week
- 6 days a week
Overtime
- An employee working overtime shall be paid overtime pay for the number of hours worked:
-
- Normal rate of pay calculated on hourly basis for work other than between 10’O’ clock at night and 8’O’ clock in the following morning
- 1.5 times the normal rate of pay calculated on hourly basis for work between 10’O’ clock at night and 8’O’ clock in the following morning
Notice Period
- A minimum of one month's notice shall be issued by the party intending to terminate the contract before expiry of the term.
- However, in the case of lecturers/teachers, three months’ notice shall be required.
Severance
- An employee who retires on superannuation or after completion of 5 years’ service shall be eligible for receiving gratuity and other benefits
- The amount of gratuity payable to an employee shall be an amount equivalent to one month’s last basic pay of the employee for every completed year of service with the employer times the number of years of his active service with the employer.
13th / 14th Month Pay
- No
- There is no statutory requirement to pay the 13th or 14th month salary.
- However, the employee can accumulate the holidays for a period of three years.
- Additionally, upon satisfactory completion of one year of work the employee is entitled to a Gratuity payment.
income tax
- Bhutanese citizens, residents and any other persons earning gross income exceeding Nu. 200,000 per annum in Bhutan from one or more of the six sources mentioned below shall be liable to pay PIT.
- The six sources of income are:
- Employment Income
-
- monthly basic salary allowances
- fees & remuneration
- bonus
- commission
- leave encashment
- share of profits received by an employee
- consultancy income by an non licensed consultant and
- other benefits received free or at a concessional rate.
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- land(s)
- building(s)
- house(s)
- factory building(s)
- warehouse(s) and
- any other structures generating income.
-
- Income received from holding of shares in a company registered in Bhutan.
- However, dividend income does not include dividends received in the form of bonus shares.
- Dividend income exceeding Nu. 10,000 shall be subjected to TDS @ 10% on the whole amount.
- Dividend income shall be taxed on receipt basis.
-
- Exempted from year 2016.
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- Income from cash crop means income earned in a year from sale of apple, orange and cardamom.
- The income shall be taxed on accrual basis
-
- Income from other sources shall be taxed on accrual basis and its income is derived from any of the following sources:
-
- Income from hire of privately owned vehicles, plants and machinery but excluding trucks and taxis;
- Income from intellectual property rights such as copy rights, patent, trademark, design, model or any artistic work or scientific work.
|
Taxable Income |
Tax Rate |
|
Up to Nu. 200,000 |
0% |
|
Nu. 200,001 to Nu. 250,000 |
10% |
|
Nu. 250,001 to Nu. 500,000 |
15% |
|
Nu. 500,001 to Nu. 1,000,000 |
20% |
|
Above 1,000,000 |
25% |
deductible expenses
Specific deductions/exemptions
- Income Sources Specific Deductions/Exemptions are as follows: -
Salary Income
-
- Less PF and GIS contributions.
Rental Income
-
- Less 20% on repairs and maintenance, interest payments, urban taxes and insurance premium.
Dividend Income
-
- Less Nu. 10,000 specific exemptions and interest on loans for shareholding.
Cash Crop Income
-
- Less 30% on Gross Cash Crop Income.
Other Income
-
- Less 30% on Gross Other Income.
General Deductions
- In addition, the following general deductions are given
- Education allowance up to a max of Nu. 150,000 per child.
- Life insurance premium.
- Self-education allowances up to a max Nu. 150,000 p.a.
- Donations up to a max of 5% of the total adjusted gross income.
|
Deductible Expenses |
|
|
Specific deductions/exemptions |
|
|
General Deductions |
|
immigration
- Only skilled persons and technicians not available amongst Bhutanese will be approved for recruitment and employment by the Labor Recruitment Committee.
- Permit to recruit foreign worker will not be approved if the category of workforce requested is locally available.
- A foreigner who is between 20–50 years old only will be permitted for employment and will be issued with work permit.
- A Work Permit will be issued for a maximum period of 12 months at a time and should be produced for inspection by the Labor and Immigration Inspectors.
- The Work Permit will have information such as the foreign worker’s Name, Work Permit Number, Activity, and Validity of the Permit, the occupation in which the foreign worker is permitted to work, as well as the Employer’s Name and Address.
- The foreign worker is only allowed to work for the employer at a specific work site and in the occupation as stated in the Work Permit.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Work Permit |
|
12 months |
|
value added tax
- In Bhutan, the sales tax rate is a tax charged to consumers based on the purchase price of certain goods and services.
- The Sales Tax Rate in Bhutan stands at 50 percent.
|
VAT |
|
|
Standard Rate |
50% |
withholding tax
- 10% withholding tax applies on Dividends
- 5% withholding tax applies on royalties’
- Interest income is not subject to withholding tax.
|
WHT |
|
|
Dividends |
10% |
|
Royalties |
5% |
|
Interest |
0% |
termination
- A minimum of one month's notice shall be issued by the Employer/Employee intending to terminate the contract before expiry of the term.
- However, in the case of lecturers/teachers, three months’ notice shall be required.
- In the event of failure to serve the notice in advance of the required period, the defaulting party shall pay to the other, the basic pay of the employee for the stipulated notice period.
- A contract employee shall not be indispensable to the Government of Bhutan and hence shall be liable to be removed from service at any time when the Government finds his services redundant or on violation of any of these provisions.
- An employee who retires on superannuation or after completion of 5 years’ service shall be eligible for receiving gratuity and other benefits
- The amount of gratuity payable to an employee shall be an amount equivalent to one month’s last basic pay of the employee for every completed year of service with the employer times the number of years of his active service with the employer.
- If at any time during his employment, the employee shall be tried for gross misconduct or breach or non-observance of any of the stipulation herein.
- The employee shall, at the option and discretion of the employer, forfeit the gratuity.
- In addition to such forfeiture, the employer may terminate the services of the employee forthwith and without any notice or payment in lieu thereof.
- Upon such termination, the employee shall not be entitled to claim any compensation or damages.
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Maternity Leave |
|
Paternity Leave |
|
Sick Leave |
|
Overtime Pay |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- All citizens above 18 years of age and residents having personal income from one or more of the six sources during an income year shall register either online or by submitting the registration FORM PIT-1.
- In case of manual registration, the registration form must be submitted to the RRCO where you prefer to be registered as the taxpayer along with a copy of your Citizenship ID card.
- All incomes falling within the purview of BIT, CIT, and PIT under the Income Tax Act of the Kingdom of Bhutan 2001, are subject to Tax Deducted at Source (TDS).
- Tax Deducted at Source (TDS) is:
-
- a preliminary estimate of tax liability payable on a Pay As You Earn (PAYE) basis.
- deducted at source from the payments made to a taxpayer by a withholding agent and deposited to the nearest RRCO.
- adjusted against the final tax liability.
- not a separate or new form of tax, but a mode of collection on a current income basis.
- intended to ease the taxpayers from the burden of having to pay tax at one time during the time of filing.
- an important source of information for ascertaining income and expenditure of a taxpayer during assessments.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Bhutan ranked 91st in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% | 0% |
| Christmas Bonus Over Vacations % | 0% |
| Severance per Year % | Applicable if under 5 years you will receive the amount on individual provident account (calculations based on one year - contribution of employee 5% and 5% from employer) 10% |
| Vacations % | Annual leave entitlements accrue at a minimum rate of 1.5 days per month, or a minimum of 18 working days per year (4.94% of annual salary) |
| Notice % | Employees are entitled to 30 days of notice period for one year of service or more (8.24%) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | Gratuity to be paid to employees that are retiring or leaving the job after 10 years. For the equivalent of one month salary per completed year. 0% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 23.8% |
employer accruals
Additional information (Country Accruals)
| Provident Fund |
12.00% |
| Vacations |
2.45% |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Annual leave entitlements accrue at a minimum rate of 1.5 days per month, or a minimum of 18 working days per year, such accrual to commence after the employee has completed 6 months of service. | This equals 4.93% (18/365 days) of annual income |
| Maternity Leave | A female employee shall be entitled to three months’ maternity leave in addition to other leaves on production of a medical certificate duly signed by a recognized medical practitioner in Bhutan | This equals 25% (3/12 months) of annual income |
| Paternity Leave | Male employees are entitled to 10 working days of paid paternity leave | This equals 2.7% (10/365 days) of annual income |
| Sick Leave | For full-time employees, sick leave entitlements accrue at a minimum rate of 5 working days per year, such accrual to commence after the employee has completed 6 months of service. | This equals 1.36% (5/365 days) of annual income |
| Overtime | An employee working overtime shall be paid overtime pay for the number of hours worked: • 1.5 times the normal rate of pay calculated on hourly basis for work between 10’O’ clock at night and 8’O’ clock in the following morning |
Normal hourly rate is around 232 BTN. Overtime is paid at an additional 116 BTN. |
| Severance | The amount of gratuity payable to an employee shall be an amount equivalent to one month’s last basic pay of the employee for every completed year of service with the employer times the number of years of his active service with the employer. | This equals 8.33% (1/12 months) of annual income |
| Social Security | Employers must contribute at least 5% of monthly basic earnings. | This equals 5% of monthly salary (multiply this by 12 to obtain annual amount) |
