Summary

• Trusts are recognised in the Gelephu Mindfulness City Special Administrative Region (GMC) through the received common law and equity (Application of Laws Act 2024, s. 3).
• A trustee is taxed at 15% on chargeable income (Income Tax Act 2025, s. 43(1)(c)), but where a beneficiary is entitled to a share of the trust income the Comptroller may charge that share at a lower rate or not at all (s. 43(2)); the beneficiary's statutory income is the corresponding share of the trustee's (s. 35(15)).
• Sections 13Q and 43M pass exemptions and concessionary rates through to GMC-resident beneficiaries; ss. 13QA and 43MA do the same for estates.
• Three trust exemptions apply to foreign trusts (s. 13F), the foreign account of a philanthropic purpose trust (s. 13L) and prescribed locally-administered trusts (s. 13N).
• All three require administration by a "trustee company" in GMC and do not apply to trusts constituted, or companies incorporated, on or after 1 January 2028 (ss. 13F(6), 13L(5), 13N(4)).
• Non-Bhutanese individuals, resident or not, pay tax at 0% on chargeable income derived on or before 31 December 2030 (s. 43(1)(ba)).

Trust law in GMC

GMC trust law is the received common law and equity. Section 3 of the Application of Laws Act 2024 applies the common law and equity of established common law jurisdictions, so far as suited to GMC's circumstances and subject to GMC enactments. Trusts, being creatures of equity, are therefore recognised and enforceable in GMC on ordinary principles, and GMC courts can draw on the trust precedents of every common law jurisdiction.

The Income Tax Act 2025 takes trusts as it finds them, lays down how trustees and beneficiaries are taxed, and adds three exemptions for particular kinds of trust. "$" in GMC legislation means United States dollars (s. 2AA).

How trustees and beneficiaries are taxed

The trustee

A trustee (other than the trustee of an incapacitated person) is a taxable person in its own right, charged at 15% on every dollar of chargeable income (s. 43(1)(c)). Its statutory income is computed under the ordinary rules (s. 35(11)). Co-trustees may be charged jointly or severally and are jointly and severally liable (s. 60).

Section 52 deals with a different case: a trustee, receiver, guardian, curator or committee managing property for an "incapacitated person" (an individual under 21 or lacking capacity, s. 2(1)) is chargeable "in like manner and to the like amount" as that person would be (s. 52(1)), and never for more (s. 52(2)). A non-resident may also be assessed in the name of a trustee or other agent (s. 53(1)).

The beneficiary and the s. 43(2) determination

Where a beneficiary is entitled to a share of the trust income, s. 35(15) treats the beneficiary's statutory income as the corresponding share of the trustee's statutory income. For a trust other than a real estate investment trust, the trustee's trading income is excluded from that computation (s. 35(16)(c)).

The corresponding relief at trustee level is discretionary. Under s. 43(2), where a trustee "proves to the Comptroller's satisfaction" that a beneficiary is entitled to a share of the trust income, the corresponding share of the trustee's statutory income "may be charged at a lower rate or not charged with any tax, as the Comptroller determines". The trustee must make the case; the outcome is a determination, not an automatic entitlement.

Pass-through of exemptions and concessions

Sections 13Q and 43M ensure that a GMC-resident beneficiary is not worse off for receiving income through a trust. Under s. 13Q(1), the beneficiary's share is exempt "if it would have been exempt from tax under any provision of this Part had it been derived or received directly by the beneficiary rather than the trustee". Section 43M(1) applies the same logic to concessionary rates. Sections 13QA and 43MA extend both rules to a GMC-resident beneficiary of an estate administered in GMC.

Both rules are switched off for trusts with their own regime: real estate investment trusts, s. 13F foreign trusts, s. 13N locally-administered trusts, trusts whose trustee is a s. 13D prescribed person, and s. 13U trust funds (ss. 13Q(2), 43M(2)).

The individual rates

For international families the individual rates are decisive. An individual who is not a citizen of Bhutan, resident in GMC or not, is taxed at 0% on chargeable income derived on or before 31 December 2030 (s. 43(1)(ba)); a non-resident Bhutanese citizen likewise (s. 43(1)(b)). Foreign-source income received in GMC by a non-resident individual is exempt (s. 13(7A)(a)).

The three trust exemptions

Sections 13F, 13L and 13N share three features.

First, each requires administration by a "trustee company" in GMC, defined in s. 13F(5) as a licensed trust company within the meaning of any written laws regulating trust companies or trust business, or a company exempted under such laws from holding a licence. The Financial Services Act 2025 lists "Acting as the Trustee of an Investment Trust" as a regulated activity (Schedule 1, para 61).

Second, each depends on regulations prescribing the exempt income and, for ss. 13F and 13N, the qualifying trusts.

Third, each has a 1 January 2028 cut-off. The exemption does not apply to "a trust that is constituted on or after 1 January 2028" or a company incorporated on or after that date, nor to a trust or company that was not a qualifying one in the basis period in which 31 December 2027 falls (ss. 13F(6), 13L(5), 13N(4)). From basis periods beginning on or after 1 January 2028, a failure to meet the requirements, or a trustee company's failure to comply with the regulations, ends the exemption permanently (ss. 13F(7), 13L(6), (8), 13N(5), (7)). A trust intending to use these provisions must therefore be constituted before 2028.

Foreign trusts: section 13F

Section 13F(1) exempts "such income as the designated officer may by regulations prescribe" of a foreign trust, or of an eligible holding company established for it, as specified in regulations or approved by the designated officer or an authorised body, and administered by a trustee company in GMC. The definition of "foreign trust" is left to those regulations.

The exemption flows to beneficiaries. Under s. 13F(2), a beneficiary's share of exempt income is itself exempt if the beneficiary is an individual who is neither a Bhutanese citizen nor GMC resident; a company neither incorporated nor resident in GMC whose shares (all of them with 50 or fewer shareholders, or at least 95% with more) are beneficially owned by such persons; any other person neither resident in GMC nor constituted under GMC law; or the trustee of another specified foreign trust. A share to which a foreign account of a philanthropic purpose trust is entitled is also exempt (s. 13F(3)). The Comptroller may assess income that "ought not to have been exempted", subject to s. 74 (s. 13F(4)).

Philanthropic purpose trusts: section 13L

Section 13L(1) exempts prescribed income from funds or assets in "any foreign account of a philanthropic purpose trust administered by a trustee company in GMC", and from assets of an eligible holding company held for that account.

A "philanthropic purpose trust" is a trust established in writing under any law for a purpose "for the public benefit" within eleven listed descriptions: the prevention or relief of poverty; the advancement of education, religion, health, citizenship or community development, the arts, heritage or science, environmental protection, animal welfare, or sport involving physical skill and exertion; the relief of those in need by reason of youth, age, ill health, disability, financial hardship or other disadvantage; and any other purpose beneficial to the community (s. 13L(3)).

A "foreign account" is an account into which funds are injected solely by settlors who are non-Bhutanese non-resident individuals; foreign companies meeting a set of tests (not incorporated or resident in GMC, no GMC permanent establishment other than the trustee company, not carrying on business, not owning more than 20% of a GMC company, and foreign-owned on the 50-shareholder / 95% basis); foreign trusts; other philanthropic purpose trusts; or other persons neither resident in nor registered under GMC law (s. 13L(3)). Some of the company tests may be waived in a particular case (s. 13L(4)).

An "eligible holding company" must be incorporated outside GMC, set up to hold the trust's assets, engaged solely in trading or investing for the trust, wholly owned by the trustees or their nominee, and must not claim relief under s. 49 or s. 50A (s. 13L(3)).

Locally-administered trusts: section 13N

Section 13N exempts "all relevant income" of a prescribed locally-administered trust and of a prescribed holding company established for it (s. 13N(1)), and the beneficiaries' shares of that income (s. 13N(2)).

A "locally-administered trust" is a trust administered by a trustee company in GMC where every settlor is an individual, every beneficiary is an individual or a body established for charitable purposes only, and at least one beneficiary is not a settlor (s. 13N(3)). The last condition excludes purely self-settled arrangements.

"Relevant income" is the same list used in s. 13T for family-owned investment holding companies: GMC-source income of the kinds in s. 13(1)(zd), (ze), (zh), (zi), (zj), (zk) and (zl) (bank deposit interest, debt securities income, certain unit trust and REIT distributions, structured product income and related items), plus foreign-source income received in GMC of the kind covered by s. 13(7A) (s. 13N(3)). Trading income and GMC rental income remain taxable.

Which structure for which family

For a family whose members are neither Bhutanese citizens nor GMC residents, s. 13F is the natural fit. For a family with GMC-resident members, s. 13N is the relevant provision, and its income categories track those of a s. 13T family-owned investment holding company (see our guide to setting up a family office in GMC). Section 13L serves philanthropic capital from outside GMC.

Practical checklist / Next steps

1. Decide the objective: succession, philanthropy or investment holding. The three exemptions serve different purposes.
2. Test settlors and beneficiaries against the residence and citizenship conditions of the relevant section.
3. Constitute the trust before 1 January 2028 if any of ss. 13F, 13L or 13N is the goal (ss. 13F(6), 13L(5), 13N(4)).
4. Plan for a GMC trustee that qualifies as a "trustee company" (s. 13F(5)).
5. For any holding company, check the incorporation place and ownership tests: outside GMC for s. 13L; as prescribed for ss. 13F and 13N.
6. Outside the three exemptions, the general rules apply: 15% at trustee level (s. 43(1)(c)), a s. 43(2) determination for beneficiary shares, and 0% for non-Bhutanese individuals to 31 December 2030 (s. 43(1)(ba)).
7. Keep accounts that separate trading from investment income; s. 35(16)(c) and the "relevant income" definitions turn on that distinction.
8. Check the regulations made under the relevant section for the prescribed income and qualifying trusts.

Frequently asked questions

Are trusts recognised in GMC?

Yes. Section 3 of the Application of Laws Act 2024 applies the received common law and equity in GMC, subject to GMC enactments, so trusts are enforceable on ordinary equitable principles, with the precedents of the common law world available to GMC courts.

How is a trust taxed in GMC?

The trustee is taxed at 15% (s. 43(1)(c)). Where a beneficiary is entitled to a share of the income, the Comptroller may charge that share at a lower rate or not at all (s. 43(2)), and the beneficiary is taxed on the corresponding share (s. 35(15)), keeping any exemption or concessionary rate that would have applied to direct receipt (ss. 13Q, 43M).

Can I set up a section 13F foreign trust?

Yes. The trust is constituted under the general law, and the s. 13F exemption covers the income prescribed by regulations for a foreign trust administered by a trustee company in GMC.

Why does 1 January 2028 matter?

Each of ss. 13F, 13L and 13N excludes trusts constituted, and companies incorporated, on or after that date (ss. 13F(6), 13L(5), 13N(4)). A trust intended to use these provisions must exist before then.

Key takeaways

• GMC trust law is the received common law and equity; the Income Tax Act 2025 supplies the tax rules.
• A trustee pays 15% subject to a s. 43(2) determination, beneficiaries are taxed on their entitled share, and non-Bhutanese individuals pay 0% until 31 December 2030.
• The foreign trust, philanthropic purpose trust and locally-administered trust exemptions in ss. 13F, 13L and 13N require administration by a GMC trustee company, operate through regulations, and exclude trusts constituted on or after 1 January 2028.
• Sections 13Q and 43M pass exemptions and concessionary rates through to GMC-resident beneficiaries, but not for trusts within the special regimes.
• Constitute early and keep investment and trading income separate.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Income Tax Act 2025 (Law No. 6 of 2025), ss. 2(1), 2AA, 13(1)(zd)–(zl), 13(7A), 13F, 13L, 13N, 13Q, 13QA, 13T, 35(11), 35(15), 35(16), 43(1), 43(2), 43M, 43MA, 52, 53, 60, 74
• Application of Laws Act 2024 (Law No. 1 of 2024), s. 3, Schedule A
• Financial Services Act 2025 (Law No. 5 of 2025), Schedule 1, paras 61, 74