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4.1. Domestic PE of a Foreign Entity

A PE is defined under the Income Tax Act of Bhutan as a fixed place of business through which the business of the company is wholly or partly carried on. The foreign entity may conduct activities/operations through PE like letting of business, consultancy services, technical assistance or similar activities, activities related to preliminary surveys, exploration and extraction of mineral resources, etc.

When a foreign entity is deemed to have PE in Bhutan, income from its activities conducted through the PE will be subject to tax in Bhutan. The following income shall be deemed to be sourced from Bhutan:

  • Interest paid or borne on loan in connection with the PE in Bhutan;
  • Royalties paid by the PE in Bhutan for its own use;
  • Technical services or consultant fees paid by the PE for services rendered; or
  • Income from immovable property in Bhutan.

The Bhutanese domestic law does not include in its PE definition the constitution of service PE on the completion of a specified number of days. However, some tax treaties (e.g. the tax treaty between Bhutan and India) provide specifically for service PEs, which require the physical presence of employee or personnel of the non-resident company for a prescribed period (ranging between 6 and 12 months) within any 12-month period in Bhutan. Certain tax treaties (e.g. those with Nepal, Sri Lanka, Maldives, Pakistan) do not contain a specific service PE clause.