Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

BHUTAN

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article XIVYes.
Exchange Measures
Restrictions and/or multiple currency practicesInformation is not publicly available.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Banking institutions have been instructed to freeze all capital transfers and financial assets of individuals, groups, and organizations associated with terrorism, pursuant to the relevant UN Security Council resolutions. In addition, financial institutions are required to report to the Royal Monetary Authority (RMA) any financial transactions linked to terrorist groups.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Bhutan is the Bhutanese ngultrum.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe ngultrum is pegged to the Indian rupee at par. The rates for currencies other than the Indian rupee are determined on the basis of the prevailing exchange rates of the Indian rupee (average rate) against the currencies concerned. Indian rupee banknotes and coins circulate freely in Bhutan.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsTrade transactions between Bhutan and India may be conducted only in ngultrum or Indian rupees.
Use of foreign exchange among residentsExcept for payments for duty-free goods, handicraft items, and purchases of Druk Air (Royal Bhutan Airlines) tickets by foreigners, all payments in Bhutan must be made in local currency.
Payments arrangements
Bilateral payments arrangements
OperativeThe Agreement on Trade and Commerce with India requires that all transactions between Bhutan and India be made in ngultrum or Indian rupees.
Clearing agreementsBhutan is a member of the ACU.
Administration of controlThe MOF has delegated to the RMA the authority to release foreign exchange (other than Indian rupees) for current transactions. The RMA is responsible for approving the use of foreign exchange for payments for current transactions and implementing the surrender requirements for proceeds from merchandise exports.
Payments and transfers by residents to nonresidents other than in cash and traveler’s checks must be channeled through authorized banks in Bhutan.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On external tradeImports of gold and silver by Bhutanese citizens require authorization from the RMA.
Controls on exports and imports of banknotesThe importation and exportation of cash and securities above a certain limit are subject to a declaration of value at the customs point of entry into and departure from Bhutan.
On exports
Domestic currencyExports exceeding Nu 5,000 require permission from the RMA.
Foreign currencyExports of convertible foreign currency legally imported or purchased from authorized banks are allowed freely. Exports of Indian rupees are allowed except for Rs 500 and Rs 1,000 banknotes.
On imports
Domestic currencyImports exceeding Nu 5,000 require approval by the RMA.
Foreign currencyImports of convertible foreign currencies are permitted freely, but amounts exceeding the equivalent of $10,000 are subject to customs declaration. Imports of Indian rupees are allowed except for Rs 500 and Rs 1,000 banknotes.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyThe following categories of persons are permitted to open and maintain dollar-denominated foreign currency accounts with authorized banks in Bhutan: (1) diplomatic missions in Bhutan and their expatriate employees, (2) representative offices of donor agencies and their expatriate employees, (3) third-country contracting firms and their expatriate employees engaged in executing projects financed by donor agencies, (4) any person who is a national of a third country and resides in Bhutan, (5) foreign direct investment companies incorporated in Bhutan under the 2002 Foreign Direct Investment Policy, and (6) local industries approved by the Ministry of Trade and Industry.
Approval requiredYes.
Held abroadBhutanese nationals are not permitted to hold foreign exchange accounts abroad. These accounts are permitted only for residents who are foreign nationals.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyThese accounts are permitted, but only for nonresidents who are foreign nationals.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementYes.
Letters of creditYes.
Import licenses used as exchange licensesYes.
Import licenses and other nontariff measuresAn import license is required for the importation of capital and intermediate goods from countries other than India. Such licenses are governed by the Rules and Procedures for Imports of Goods from Third Countries issued by the Department of Trade of the Ministry of Trade and Industry. Foreign exchange for all payments related to licensed merchandise imports is automatically made available by authorized banks against import licenses. Capital imports from third countries by foreign direct investors must be financed by their own convertible foreign exchange resources.
Negative listYes.
Import taxes and/or tariffsImports from countries other than India are subject to tariffs. Imports from India are subject only to Bhutanese sales tax.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsProceeds in currencies other than the Indian rupee must be surrendered to authorized banks in Bhutan.
Surrender to authorized dealersYes.
Financing requirementsNo.
Documentation requirements
Letters of creditYes.
GuaranteesYes.
DomiciliationYes.
Preshipment inspectionYes.
OtherYes.
Export licenses
Without quotasYes.
With quotasYes.
Export taxesExports to countries other than India receive an export tax rebate at rates ranging from 5% to 20% of the c.i.f. value, with the lowest rate applying to unprocessed primary products and the highest rate applying to processed products.
Collected through the exchange systemn.a.
Other export taxesn.a.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersAll invisible payments, other than those made in Indian rupees, must be approved by the RMA. The RMA is authorized to set limits on foreign exchange for payments for invisible transactions.
Trade-related payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Investment-related paymentsUnder the 2002 Foreign Direct Investment Policy, foreign direct investors may remit profits and dividends from net earnings only in convertible foreign currency.
Prior approvalYes.
Indicative limits/bona fide testYes.
Payments for travel
Prior approvalYes.
Quantitative limitsTravel allowances are limited to the equivalent of $1,500 a ticketed passenger a calendar year. In the case of business travel, a country-specific per diem covering accommodation is provided to travelers. There are no time limits for business travel.
Indicative limits/bona fide testYes.
Personal paymentsAllowances for education fees and tuition are given based on the statements provided by the institutions. Students may also purchase foreign exchange for a monthly stipend of $900 and a onetime settling-in allowance of $1,500 or the equivalents. The settling-in allowance and three monthly stipends may be purchased in advance.
For medical expenses, subject to referral by a local physician for treatment abroad, foreign exchange may be purchased to cover the cost of treatment and medicine and for living expenses abroad.
Prior approvalYes.
Quantitative limitsA citizen of Bhutan, who under the recommendation of a medical specialist travels to a country other than India for medical treatment, is permitted to purchase foreign exchange from authorized banks within the limit prescribed by the RMA for the cost of treatment and medicine and for living expenses.
Foreign workers’ wages
Prior approvalForeign nationals employed directly by a public or private organization in Bhutan, with prior approval of the Royal Government of Bhutan, are permitted to remit their salary and savings in foreign exchange through an authorized bank.
Quantitative limitsThe RMA may set limits on any or all such remittances as it deems necessary.
Credit card use abroad
Prior approvalYes.
Quantitative limitsThe RMA may set limits on any or all such remittances as it deems necessary.
Indicative limits/bona fide testYes.
Other payments
Prior approvalYes.
Quantitative limitsThe RMA may set limits on any or all such remittances as it deems necessary.
Indicative limits/bona fide testYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsForeign exchange proceeds of any receipts or holdings by Bhutanese citizens and companies should be repatriated to Bhutan by transferring such claims and funds to authorized banks in Bhutan.
Surrender requirements
Surrender to authorized dealersAll receipts from invisible transactions in currencies other than the Indian rupee must be surrendered to ADs.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsAll capital transactions must be approved by the RMA. Resident individuals are not allowed to acquire or engage in capital transactions abroad.
Repatriation requirementsYes.
Surrender requirements
Surrender to authorized dealersYes.
Controls on capital and money market instrumentsControls apply to all transactions in capital and money market instruments.
Controls on derivatives and other instrumentsControls apply to all these transactions.
Controls on credit operationsAll transactions in credit operations are subject to controls.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentUnder the 2002 Foreign Direct Investment Policy, direct investment in convertible foreign exchange may be made in (1) manufacturing, with a minimum investment of $1 million of which 20% to 70% may be foreign investor equity; and (2) services, with a minimum investment of $500,000, of which 20% to 70% may be foreign investor equity. Other collaboration in different forms, such as technical and marketing collaboration, and franchises for use of trade names, patents, and trademarks, are allowed with prior permission of the Ministry of Trade and Industry.
Controls on liquidation of direct investmentYes.
Controls on real estate transactionsControls apply to all real estate transactions.
Controls on personal capital transactions
LoansControls apply to all these transactions.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsYes.
Settlements of debts abroad by immigrantsYes.
Transfer of assetsControls apply to all these transactions.
Transfer of gambling and prize earningsYes.
References to legal instruments and hyperlinksForeign Direct Investment Policy, 2002.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadBorrowing abroad requires prior authorization from the RMA.
Maintenance of accounts abroadYes.
Investment regulations
Abroad by banksYes.
In banks by nonresidentsDirect investment in convertible foreign exchange may be made in services with a minimum investment of $500,000, of which 20% to 70% may be foreign investor equity.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on investment portfolio held abroadYes.
References to legal instruments and hyperlinksn.a.
Changes during 2006
No significant changes occurred in the exchange and trade system.

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