The Bhutanese Leading the way.
The Draft FDI Rules and Regulations 2024 has major changes in various areas from labour to land and in between compared to its predecessors the 2019 FDI regulations (amended in 2020) which itself had been more liberalized compared to the 2012 FDI Regulations (amended in 2014).
This is part of a major push to bring in much higher levels of FDI investments than ever before.
Investor Cards
Under the new draft FDI regulations there is an entire new facility for investors called Investor Cards.
Under this foreign investors or their authorized representatives making investments above Nu 20 mn will be given investor cards upon the start of the business.
The card will allow the investor to stay in the country for one year and further extensions can be given on an annual basis.
The stay will be without the SDF fee and will be extended to the spouse and dependents of the investor. The spouse can even take up work in the country after getting a work permit.
To allow for flexibility for movement within the country route permits for investors will be facilitated for a maximum of three months and it can be renewed after that.
The spouse and dependents can also take up studies in the country with no requirement for a separate visa. Until the business starts the investor can use business guest visas.
Labour
The new draft FDI regulations has removed some sections from the 2019 FDI regulations when it comes to work permit limits allowing FDI companies much more flexibility in hiring professionals.
The 2019 FDI regulations said that a FDI company shall be entitled to five work permits for professional and non-professional expatriates during the business establishment phase upon issuance of FDI Registration Certificate. Any additional requirements shall be permitted with due approval of the Ministry of Labour and Human Resources provided the requirement cannot be met from the domestic market.
This whole section has been removed.
Another section, which has been removed, is one, which says, “The Company shall employ five regular Bhutanese employees for every expatriate employed by the fifth year of commercial operations.”
The 2019 FDI regulations said that the FDI Company engaged in Research and Development, health, education, head office services and similar other operations shall be allowed additional work permits for expatriate personnel. However, the company shall not be allowed to employ expatriate personnel in support positions.
This section has been removed too.
Only two sections are retained from the old regulation. It says, “FDI company shall be entitled to work permits for professional and non-professional expatriates as are required for the business during the business operation phase provided that qualified and experienced Bhutanese personnel are not available.”
Another is that all FDI Companies shall institute programs to foster transfer of skills to Bhutanese and progressively increase employment of Bhutanese personnel.
Land
Getting land for FDI ventures is important and here too some changes has been made.
Under the 2019 FDI Rules when it comes to land, it says, “FDI Companies shall have access to land in accordance with the Land Act of Bhutan and Land Lease Rules & Regulations.”
The new draft FDI rules while retaining the above says the FDI Company may be provided with state land on lease or land in the industrial park for establishing businesses.
It also says, “State land shall be made available on lease for an initial duration of 30 years extendable up to 99 years.”
The Land Act currently allows only a 30-year lease at a time.
The provision says that the Royal Government shall improve land service delivery, promoting transparency and clarity in land governance to fosters investments and access to updated land information for investors shall be made available.
Foreign Exchange
Apart from labour and land a major issue for FDI companies in Bhutan is access to foreign exchange.
The 2019 regulations says “Foreign exchange requirements of the FDI business shall be: (1) Arranged by the company from its own sources for capital investment; (2) Met from the foreign exchange receipts of the FDI business and sources approved as per External Commercial Borrowing Guidelines and applicable laws.”
This entire section has been removed denoting a more liberalized access to foreign exchange.
The old rules allowed FDI companies to purchase convertible currency from the Royal Monetary Authority “for purchase of capital goods in convertible currency where the foreign investor’s share of equity is insufficient to meet the total requirement provided that: (a) The convertible currency amount shall not exceed the local investor’s share of equity; (b) The foreign investor shall deposit the total foreign equity in convertible currency in the foreign currency account of the company prior to availing the local shareholder’s share of the convertible currency; and (c) The local shareholders shall not decrease their shareholding for three years from the date of availing this facility.”
All three sub sections of a,b and c have been removed which makes access to convertible currency easier and simpler.
Repatriation of Dividend
In the 2019 FDI regulations the repatriation of dividends came with various restrictions and conditions.
Under the older regulations repatriation of dividend by the foreign investor was to be in the currency of earnings of the business on the basis of net currency earnings which shall be accumulated during the preceding three successive years.
Another condition earlier was that the Royal Government shall allow FDI Companies to purchase convertible currency for the purpose of repatriation of dividend up to US$ 5 million per annum for investments made in Priority Activities in the service sector, where the investment was in convertible currency and the earnings are in currencies other than convertible currencies.
In the 2024 regulations both of the above sections have been removed and instead a simple line says ‘Foreign Investors shall have the right to repatriate dividends in the currency of investment without any restrictions.”
Lock-in-Period removed
The 2019 regulations policy had a lock-in-period where a FDI Company shall retain 100% of the foreign equity invested in the company for a minimum of three years from the date of commercial operations of the FDI Business. However, this shall not restrict change in the foreign investors provided there is no withdrawal of the invested foreign equity.
This clause is no longer there in the new draft regulations.
Sweat Equity
A new clause meant to benefit enterprising Bhutanese who may not have much capital but can run around and work hard is on ‘Sweat Equity.’
It says, “The FDI Company may issue sweat equity shares to the local promoters of the FDI business. Where sweat equity shares are issued, the FDI company shall submit documentary evidence substantiating the value of such shares.”
Investment in Downstream projects
Investment into a downstream project shall be considered as a new project. Downstream project is one that is related to an existing business or one, which adds a new process to it.
Here investment in a project involving value addition to existing activities maybe exempted from the minimum project cost requirement.
Transfer of pro-rated equity or dividend in foreign currency shall be permitted from the foreign currency account of the FDI Company to the foreign currency account of the downstream project.
Where existing FDI business is jointly owned by local and foreign investors, reinvesting into a different business with additional investors shall be permitted, provided investors of the existing FDI business subscribe to the equity individually and not as the existing FDI company.
Transfer of equity from the foreign investor’s share of the dividend to the new business shall be allowed in foreign currency.
Business Approval
Earlier the Department of Industry was to issue FDI Registration Certificate (FDIRC) within five working days after receiving a completed registration application, which is now decreased to three days, provided everything is in order.
The registered FDIs shall be facilitated by the Department in obtaining all clearances or permits.
A new feature of business approval is that the Department shall review and approve FDI projects within five working days from the date of submission of the complete documents along with Sectoral clearances.
To expedite approval of priority sector projects the Department shall delegate the authority to decide in such projects to the Invest Bhutan Division and such approvals will be given in three days from the date of submission of the complete documents along with Sectoral clearances.
EDB to replace FDI Facilitation Committee
In the 2019 FDI Regulations there was a FDI Facilitation Committee chaired by the then MoEA Minister and with 6 Secretaries, RMA Governor, two Department heads and BCCI SG.
This is now replaced by the Economic Development Board chaired by the Prime Minister which shall be the apex body for the facilitation and promotion of FDI and enhancement of coordination among stakeholders. The Department will serve as the secretariat to the EDB.
Disputes
In case of disputes apart from using the local judicial system if both parties agree they can purse arbitration at recognized international arbitration institutions.
Venture Capital
A new feature is that an FDI may be made by establishing a Venture Capital Fund for the purpose of investing in impact startups. Venture capital funds will be allowed to support startups in all the sectors except for those listed in the negative list.
Such investments to startups will not be treated as FDI.
New investment limits in some sectors
The liberalization is not only in the rules but also the sectors that have opened up more.
The sectors of Floriculture, Horticulture, Animal husbandry (including poultry, piggery and dairy), aquaculture, apiculture and seeds production, which restricted foreign investment at 74% is now 100%. The minimum project size is Nu 20 mn.
Fruit and vegetable processing and Food processing, non-wood based forest production, which was at 49% foreign investment is now 74% with minimum project size at Nu 10 mn.
A new category of investment is Technical and Vocational Education with minimum 30 mn project size and maximum 74% foreign investment. Another new category is multispecialty hospital services with Nu 500 mn minimum project size and 100% FDI allowed.
The minimum project size for Specialized Dental Services has been dropped from Nu 200 mn to Nu 100 mn and for Specialized Traditional Medical Services from Nu 200 mn to Nu 50 mn with both allowing 100% FDI.
The Hotel Sector gets some protection as 5-star hotels and the above is no longer 100% FDI but it is 76% FDI.
Four star hotels have been opened up to FDI of 76% and minimum project size of Nu 50 mn when it was not there earlier
Air Transport Services is open to FDI of 100% with airplane and helicopter operations requiring Nu 200 mn minimum project size, gliders/para-gliders and hot air balloons requiring Nu 50 mn and maintenance and training needing Nu 100 mn minimum.
100% FDI with minimal Nu 300 mn investment is welcome in Industrial Parks, Airport Infrastructure, township and regional level infrastructure.
Consultancy Services is missing in the FDI list.
The negative list where FDI is not allowed has the old ones like news, trade, raw minerals but the new additions are the Real Estate Business and the Tour Operation Business.
The FDI policy is being presented to the Cabinet and final approval is awaited.
