The Bhutanese Leading the way.
The Double Taxation Avoidance Agreement between the Kingdom of Bhutan and the Republic of Singapore was introduced as an urgent Bill in the National Assembly on 18th May by Finance Minister Lyonpo Lekey Dorji.
The agreement outlines how different types of income will be taxed in both countries to prevent double taxation and clarify taxation rights.
Under the agreement, salaries and wages earned by residents working in the other country will generally be taxed in the country where the work is performed. However, short-term workers may continue to be taxed only in their home country if they stay in the other country for less than 183 days, their employer is not based there, and the salary is not paid through a permanent establishment in that country.
The agreement also states that directors’ fees paid to individuals serving on company boards may be taxed in the country where the company is based.
Income earned by entertainers and sportspersons from performances or sporting activities in the other country may also be taxed in the country where the activities take place. This applies even if the income is paid to another entity on behalf of the entertainer or athlete. However, if the visit is primarily supported by public funds from either government, the income will only be taxed in the individual’s country of residence.
On pensions, the agreement states that pensions and similar payments arising in one country and paid to a resident of the other country, in consideration of past employment, shall generally be taxable only in the country where the pension originates.
Special provisions are also included for government service. Salaries, wages, pensions, and similar payments made by a government, local authority, or statutory body are generally taxable only in the paying country. However, taxation may shift to the other country if the services are performed there and the recipient is a resident or national of that country.
The agreement further provides tax relief for students and business apprentices studying or training in the other country. Payments received from sources outside the host country for maintenance, education, or training will not be taxed in the country of study.
For types of income not specifically addressed in other sections of the agreement, taxation rights generally remain with the country of residence. However, if the income is connected to a business or fixed base in the other country, that country may also tax it.
The agreement also grants tax exemptions to certain government institutions. In Bhutan’s case, the exemption applies to entities including the Royal Monetary Authority, Druk Holding and Investments, the National Pension and Provident Fund, and the Gelephu Investment and Development Corporation.
The Member of Parliament (MP) for Gangzur Minjey Constituency, Loday Tsheten, said the Opposition Party fully supports the initiative, noting that it could help attract more investors to the Gelephu Mindfulness City (GMC). He urged the government to pursue similar agreements with more countries, given the potential for wider international investment.
In response, Lyonpo Lekey Dorji said Singapore is a global investment hub, and investors from other countries such as Australia and Malaysia who invest in Singapore may also invest in GMC. He added that a similar agreement with the United Arab Emirates had been scheduled for early May but was postponed due to the global conflict situation. He further said the government is in discussions with other countries for similar agreements.
The Bill has been referred to the Legislative Committee for review and report ahead of the third reading scheduled for 26th May.
