Bhutan has introduced a major tax incentive package to accelerate renewable energy development, as the government moves to attract investment and expand the country’s clean energy capacity towards its ambitious target of 25 gigawatts (GW). The Ministry of Finance (MoF) has issued the implementation framework for the Renewable Energy Tax Exemption Act of Bhutan 2026, providing time-bound tax relief for approved renewable energy projects. The Act, which came into force on 15 May 2026, is aimed at reducing project costs, improving investment viability and speeding up the development of renewable energy infrastructure.
The new framework is a key part of Bhutan’s strategy to diversify its energy portfolio beyond hydropower while strengthening long-term energy security and supporting sustainable economic growth.
Under the Act, approved renewable energy developers will receive exemptions from Customs Duty, Excise Tax and Goods and Services Tax (GST) on direct inputs required for the construction, installation and establishment of renewable energy projects. Eligible developers will also be exempted from Property Ownership Transfer Tax (POTT) on qualifying ownership transfers linked to approved renewable energy investments.
The MoF said the incentives are designed to reduce upfront capital costs and encourage greater participation from both domestic and foreign investors in Bhutan’s renewable energy sector.
The tax exemptions cover a broad range of renewable energy activities, including the generation, storage, transmission, conversion and production of energy from hydropower, solar, wind, biomass, geothermal energy, biofuels and green hydrogen. Other renewable technologies may also be included if designated by the Ministry of Energy and Natural Resources (MoENR) in the future.
To access the incentives, project developers must complete a two-stage approval process.
First, companies must obtain recognition from the MoENR, which will determine whether the proposed activity qualifies as an approved renewable energy project under the Act.
However, recognition by the MoENR only confirms the nature of the project and does not automatically grant tax exemptions.
In the second stage, approved developers must apply to the Department of Revenue and Customs (DRC) for certification as an entity eligible for tax benefits.
The MoF will then assess whether the goods and services for which exemptions are requested are direct project inputs used exclusively for renewable energy development. The approved scope and extent of tax exemptions will be determined based on this assessment.
The government has also introduced safeguards to ensure that the incentives are used only for their intended purpose.
Tax exemptions will apply only to goods and services directly incorporated into or exclusively used for the construction and establishment of renewable energy projects. Administrative, residential and commercial items unrelated to project development will not qualify.
The exemptions will end once the renewable energy project begins commercial operation.
Approved entities must maintain detailed financial records, accounts and supporting documents for at least five years from the date of each transaction. Companies are also prohibited from selling, transferring or disposing of tax-exempt goods without prior written approval from the Ministry of Finance.
Any unauthorised disposal of exempted goods will result in recovery of waived taxes along with applicable penalties. The DRC has been empowered to conduct post-clearance audits to verify compliance.
The Act also introduces strict penalties against misuse of the incentive programme. Diversion of imported goods obtained through tax exemptions is considered a criminal offence, with violators facing penalties of up to 150 percent of the customs value of the goods, in addition to possible criminal proceedings.
The Ministry clarified that while the Act provides tax relief, developers must continue to comply with all requirements under existing legislation, including the Customs Act, Excise Tax Act, Goods and Services Tax Act and other applicable regulations.
The incentives will remain effective until either Bhutan achieves its national target of 25 GW of renewable energy capacity or 31 December 2040, whichever comes earlier.
Tashi Namgyal, Thimphu
