The Income Tax Act of Bhutan 2025 will come into force on 1 January 2026, introducing revised tax rates, clearer filing requirements, strengthened withholding tax obligations, and a simplified presumptive taxation regime for small businesses,
The Act, according to the Department of Revenue and Customs (DRC), will apply from Income Year 2026 onwards, and will replace the existing income tax framework and establishes a more structured and comprehensive system covering individuals, businesses, non-individual entities, and digital economic activities.
According to the DRC, the reforms aim to enhance tax fairness, transparency, and revenue sustainability, while ensuring that Bhutan’s tax system remains responsive to a changing economic landscape.“The Income Tax Act 2025 is a major reform designed to create a more equitable, predictable, and transparent tax environment,” a senior DRC official said. “It clarifies obligations for taxpayers and ensures that income—whether earned traditionally or through digital platforms—is treated consistently.”
Under the new Act, individuals, including sole proprietors and partners, will be taxed using progressive income slabs, with those earning below Nu 300,000 remaining exempt from income tax. Tax rates increase gradually, with incomes above Nu 3.5 million taxed at 30 percent, reflecting the government’s intention to protect low-income earners while ensuring higher earners contribute proportionately.
“The exemption threshold is reassuring for people like us,” said a civil servant in Thimphu. “At the same time, the progressive structure feels fair because it places a higher responsibility on those who earn more.”
Non-individual entities will be taxed at flat rates, with companies and bodies of persons taxed at 22 percent, while trusts will be taxed at 30 percent. The Act also introduces taxation for entities with Significant Economic Presence (SEP), enabling non-resident digital businesses to either file income tax returns or pay five percent tax on turnover. “This provision is important to ensure that digital and cross-border businesses benefiting from Bhutan’s market also contribute to national revenue,” an official from the Ministry of Finance (MoF) said.
The Act reinforces withholding tax (TDS) requirements, mandating government agencies, companies, NGOs, businesses, and individuals to deduct and deposit taxes within 10 days after the end of each calendar month.
Withholding rates vary by income type, ranging from two percent on certain resident services to 20 percent on winnings from lotteries, betting, and gambling, with dividends and interest income also subject to TDS.
Welcoming the clarity, a private contractor in Phuentsholing said, “Previously, there was confusion about TDS on different income streams. Clear rules help businesses plan better and reduce the risk of penalties.”
From Income Year 2026 onwards, all persons with taxable income will be required to file income tax returns unless exempted. The Act explicitly includes: non-residents operating through Bhutan Permanent Establishments; minors earning taxable income; non-residents meeting Significant Economic Presence thresholds; and individuals engaged in unlicensed businesses, including digital creators such as YouTubers, influencers, and online sellers.
“Income generation has diversified significantly in recent years,” a DRC official said. “This Act ensures that all economic activities are brought under a common and fair tax framework.”
To ease compliance for small entrepreneurs, the Act introduces a presumptive taxation regime for eligible resident businesses.
Under this simplified system, businesses qualify if their annual turnover does not exceed Nu 5 million, income is derived solely from business within Bhutan, the business is not registered for GST, does not involve professional qualifications or partnerships, and the individual has not previously opted for another taxation method under the Act.
Assessable income under this regime will be calculated at 15 percent of annual turnover and taxed according to the individual progressive income slabs.
“Presumptive taxation is intended to reduce compliance burdens for small businesses while encouraging them to formalise and remain within the tax system,” a senior DRC official explained.
A small shop owner in Babesa, Thimphu said the provision could be helpful.
“Many small businesses struggle with complex filing. A simplified system will make it easier for us to comply without fear,” she said.
By Tashi Namgyal
