Tax Structure (Tax System)

Corporate Income Tax and Business Income Tax

Who is liable for CIT & BIT?

Corporate Income Tax (CIT)
All companies incorporated under the Companies Act 19889 and registered with the Ministry of Trade and Industry.

Business Income Tax (BIT)
All business units holding a Trade License issued by the Ministry of Trade & Industry.

What are the Tax Rates?

CIT/BIT is levied at a rate of 30% on the Net Profit of the company or business units in each calendar year.

When to submit tax returns?

All companies and businesses must submit their tax return, between 1st January and 31st March following the tax year.

Where to submit?

To the concerned Regional Revenue & Customs office where the Taxpayer is registered.

What to submit?

The following documents must be submitted:
- Annual Corporate/Business Income
Tax Return (Form IT-10)
- Annual Accounts (Form IT-7)
- Details of taxes paid/deducted at source ( if applicable)

Is there an extension of time limit?

YES. When a taxpayer is unable to submit the Tax Return within the scheduled time due to unavoidable circumstances, the taxpayer must make a provisional tax payment based on the previous year's final tax liability along with a written application requesting an extension of time. These must be submitted before 20th March to the concerned regional Director. The RRCO can extended the time limit till 31st May. Request for further extension should be referred to DRC, HQ.

How do I pay my tax?

Taxes must be paid when you submit your tax returns. However, all notified large and medium CIT and BIT units must pay tax on half-yearly basis as Advance Tax by 31st August of the Tax year.
The Advance Tax should be based on a half-yearly Profit & Loss Account or 50% of the CIT/BIT paid in the previous year. The Advance Tax paid by a unit during the tax year will automatically be adjusted at the time of filling the Annual Tax Returns.

What conditions should be met to avail of the allowable deductions for CIT/BIT?

The following conditions must be met to avail the allowable deductions as mentioned in the Taxation Policy 1992:
- Proper books of account must be maintained.
- The expense must be incurred exclusively for the purpose of the business or company, and must be supported by objective evidence, such as purchase invoices, money receipts or other legally valid documents.

Deductions not Allowed for Tax Purposes 

Private Expenses are not allowable deductions for tax purposes. Examples of each expenses might include:
- Personal expenses
- Personal administration fees
- Payments of dividend, profit distributions, or adjustments of reserves
- Life and health insurance premiums
- Income tax(CIT/BIT)
- Penalties, fines and penal interest
- Capital expenditure
- Renovation or alteration of building/premises

What are the fines and penalties?

Fines and penalties are normally levied when taxpayers do not comply with the taxation rules in force. They are levied on late submission of returns, late payment of taxes due, tax evasion and fraud etc.

Fine rates:

(i) For tax returns not submitted before 31st March.
(ii) A penal interest of 24% per annum on the tax amount assessed or a fine of Nu. 100 per day.
(iii) For late payment of taxes, a penal interest of 24% per annum on the outstanding amount due.
(iv) For tax evasion, a penalty equal to twice the tax amount sought to be evaded. In addition, interest at 24% per annum, on both the additional tax amount and the penalty, will apply from the 1st April till the date of payment.

What is tax deducted at source (TDS)?

Tax deducted at source is a method of tax collection where taxes are deducted at the time of payment by the disbursing authority and deposited to the RGR account on a current basis. It is not a separate form of taxation and adjustments if applicable are made against a taxpayer's final tax liability.

Which category of taxpayers fall under TDS and who is responsible for deductions at source?

The following taxpayers are subject to TDS.

1. Tour Operates: Tour operates approved and registered with the Tourism Authority of Bhutan (TAB).
The Tourism Authority of Bhutan is responsible for ensuring that 2% of the net income is withheld at source from all tour operations after the deduction of 35% royalty and, deposited in a RGR Account on a current basis.

2. National Licensed Contractors : National Licensed Contractors holding a valid Bhutanese License issued by the Ministry of Trade & Industry.
TDS of National Licensed contractors applies to construction and logging activity. 2% Contractors TDS on all disbursements shall be deducted at source by the Contractor Awardees and deposited with the RGR Account. The same will be adjusted their final tax liability when returns are filled.

However, in the case of Petty Contractors, the 2% contractor tax withheld shall be treated as final tax.

3. Non Licensed Foreign Contractors: Foreign Contractors who are non licensed or contractors holding a temporary Bhutanese Trade License.
3% TDS on the bill amount shall be deducted at source by the Contract Awardee and deposited with the RGR account in lieu of Business/Corporate Income Tax. The amount deducted will be considered as the final tax paid. They are not required to submit final accounts or Income Tax Returns.

4. Individuals with salaried income: The employer is responsible for deducting both Salary Tax & Health Contribution from the net salary of all employees and depositing the amount in a RGR Account or at the nearest regional Revenue & Customs office on a monthly basis.

What are the information/documents to be submitted to the tax authorities by the taxpayer?

Proper accounting records as per Taxation Policy 1992 must be maintained and Income Tax Returns filled in the prescribed Form (IT-10)
Documents submitted must include the following:
- Names of all contract awarders.
- Total income and the liable awarders.
- Total amount of advances received, and the amount deducted on those advances.
- Any other receipts, and the amount deducted on those receipts.
- Details of closing work in progress, and the method of valuation used.

What are the Information/documents to be submitted to the tax authorities by the contract awarders/TDS agencies?

All contract awarders must carry out the following:
- Submit copies of all contract agreements to the concerned RRCO within a week of signing the contract.
- Deduct the appropriate rate of taxes from each payment to a contractor, regardless of whether the payment is an advance payment, a stage payment, or of any other nature.
- Deposit the TDS on a current basis, either at the concerned RRCO or directly to RGR Account the next working day following deduction.
- Submit all contractor payment details to the concerned RRCO using Form IT-13.

What are the Fines/Penalties?

The following circumstances would result in fines being applied:
- Where taxes have not been deducted at source.
- Where taxes have not been deducted correctly.
- Where taxes have been deducted correctly but not deposited with RGR Account.