2026 marks a significant year in Bhutan's taxation system, as this is the year when this landlocked country in South Asia, located in the Eastern Himalayas between China and India, replaces the sales tax regime with a new GST system. With the new indirect tax system, multiple new rules and requirements also arrived, including those for digital and cross-border services.

In other words, Bhutan not only implemented a completely new indirect tax system, but also joined a global trend of taxing non-resident digital service providers who make taxable supplies to local consumers and users. Therefore, those who were previously outside the scope of sales tax became subject to GST rules and requirements in Bhutan.

From Sales Tax to GST Regime

The story of Bhutan's tax reform is a decades-long transition from a fragmented system based on sales tax, customs duties, and excise duties. The system established in 2000 served as a mechanism for collecting revenue from consumption, but lacked the simplicity and broad coverage typically associated with modern VAT or GST systems. 

By 2017, the sales tax generally applied to non-essential goods, luxury items, and certain services that were easier to monitor, including telecommunications, premium hospitality, restaurants, and entertainment services. The system narrowly focused on taxing consumption associated with higher-income groups and import-intensive activities rather than applying a consistent tax across the economy. Combined with numerous exemptions and multiple tax rates, this reduced the system's effectiveness and limited its ability to generate stable revenue.

To address these issues and weaknesses in the system, Bhutan introduced legislation to implement a GST in 2020. Although initially scheduled for implementation in 2022 with a proposed standard rate of 7%, the GST regime was ultimately introduced on January 1, 2026, with a reduced standard rate of 5%.

Key Features of Bhutan's GST System

One of the key changes introduced with the implementation of the GST system includes the GST registration requirements. While the previous sales tax regime applied only to selected goods and services, GST covers a much broader range of economic activities. Therefore, businesses and individuals who exceed a registration threshold must register for GST.

Another vital improvement is the availability of input tax credits. Under the former sales tax system, taxes could apply at different stages of the supply chain and at different rates, sometimes creating a cascading effect where tax was effectively charged on already-taxed amounts. The GST removes this effect, and allows registered businesses to recover GST paid on eligible business purchases.

Notably, to benefit from input tax credits, GST-registered businesses must fulfill certain requirements, including maintaining proper GST invoices, recording eligible purchases, and calculating the total input GST paid during each tax period.

Finally, unlike sales tax, which had limited coverage of the domestic economy, the GST extended Bhutan's indirect tax framework to digital and cross-border services. Consequently, foreign digital service providers and online platforms may now have GST registration, collection, and compliance obligations in Bhutan.

Bhutan GST Requirements for Non-Resident Digital Service Providers

Non-resident digital service providers must register for GST in Bhutan once they exceed a BTN 5 million (around USD 56,600) registration threshold in the past 12 months. Also, if digital suppliers determine that they will exceed the registration threshold within the next 12 months, they may register for GST if the Department of Revenue & Customs (DRC) approves the registration.

GST Registration Process

Foreign suppliers that exceed the registration threshold must apply for GST registration within 30 days from the day the threshold is exceeded. Non-resident digital service providers who only engage in B2C supplies with local consumers may use the simplified registration form and submit it electronically to the Regional Revenue and Customs Office (RRCO).

The RRCO has a 15-day deadline to review and verify the submitted application. During this period, the RRCO verifies the accuracy and completeness of the information provided, assesses compliance with eligibility criteria, reviews supporting documents, and conducts any necessary background checks.

Once the RRCO verifies all the data and documents, it issues the newly registered foreign suppliers with a Taxpayer Number (TPN), details of their GST obligations and responsibilities, and an official confirmation letter. Under the 2026 GST rules, non-residents are required to appoint a GST representative in Bhutan. The GST rules allow non-resident businesses, upon prior approval of the DRC, to appoint a non-resident representative to file simplified returns and remit GST on their behalf.

Application and GST Returns Filing 

Once registered, non-resident digital service providers are expected to charge and collect 5% GST on the supplies made to Bhutanese customers and remit the due amount to the Bhutanese tax authorities.

As a general rule, GST returns must be filed electronically through the Bhutan Integrated Taxation System (BITS) portal monthly within 30 days after the end of each tax period. GST-registered businesses log into the portal, report their sales and purchase transactions for the relevant tax period, and calculate the net GST liability. 

After reviewing the information, they submit the return and pay any outstanding GST due to the DRC. GST payment must be made through the BITS online portal using mobile banking apps or at bank counters.

GST Invoice Requirements

Generally, a GST invoice is a fundamental document under Bhutan’s GST system, serving both as evidence of a taxable transaction and as the basis for claiming input tax credits. However, it is important to note that non-resident businesses do not have the right to claim input tax. Nonetheless, to be considered GST-compliant, every tax invoice must:

• include the title “TAX INVOICE,”
• the invoice number and date of issue, 
• the supplier’s name, Taxpayer Number (TPN), and address,
• description of the goods or services supplied, including their quantity where applicable, and 
• the relevant pricing details.

Operational Considerations

Taking into account all the key rules for non-residents, there are several operational considerations for all digital suppliers operating in Bhutan. 

The first one is to determine whether the service is considered supplied to a customer located there. Since GST follows the destination principle, determining customer location is essential to establishing whether Bhutan GST applies. The main step to achieve this is developing a customer identification process, which includes evaluation of billing information, payment details, customer registration data, and other indicators.

Additionally, foreign suppliers should review whether their business model, customer base, and transaction volumes create a registration obligation. If GST registration is inevitable, suppliers should update pricing structures, billing systems, and customer communications.

Finally, when appointing a tax representative, non-resident suppliers should sign a formal agreement or Memorandum of Understanding (MoU) with representatives to clearly define roles, responsibilities, and terms of service. 

Overall, foreign businesses supplying online services should proactively review their GST exposure and implement systems capable of supporting cross-border indirect tax compliance.