The New Form of SAR: How GMC Differs from a Free Zone

Ask most investors what the Gelephu Mindfulness City is and you will hear "a free zone in Bhutan". The comparison is understandable and wrong, and the difference is not one of degree. A free zone is a carve-out from tax and customs rules inside a host country's legal system. The courts, the company law, the contract law and the final appellate authority all remain the host state's. GMC does not sit inside Bhutan's legal system in that way. Royal Charter No. 1 of 2024, granted by the Druk Gyalpo on 10 February 2024, describes GMC as a fully independent and autonomous region within the Kingdom of Bhutan, with executive, legislative and independent judicial authority, including final adjudication.

In short

• A free zone changes the price of doing business. GMC changes the law that governs it.
• The Royal Charter grants GMC its own executive, legislative and judicial authority, including final adjudication, and directs the establishment of a central bank and an independent legal system based on common law principles.
• GMC has enacted its own company law, tax law, financial services law, employment law, customs law, partnership law and sale of goods law, in its own currency, the United States dollar.
• Where GMC has not legislated, the Application of Laws Act 2024 applies the common law and equity of established common law jurisdictions, a schedule of applied statutes and a schedule of applied financial services rules.
• The Charter can only be amended by Royal Decree, which is a different order of stability from an incentive scheme set by ministerial order.
• The institutions are real: the Gelephu Corporate Registration Office, the Gelephu Financial Services Office with its rulebooks and the Economic Development Group are operating, and companies are already being formed.

What a free zone is, and is not

The free zone model is well understood. A state designates a geographic area, suspends or reduces import duty and corporate tax inside it, streamlines a licensing counter, and often permits full foreign ownership where the wider economy does not. Everything else stays as it was before. The contract you sign is governed by national contract law. The company you form is a creature of national company law, or of a zone-level companies regulation that sits beneath national law. When you sue, you end up, sooner or later, in the national court hierarchy, and the national supreme court has the last word.

That model delivers a cost advantage and little else. It does not deliver legal system change, and the two are routinely confused by people pricing jurisdictions.

The practical consequence is that a free zone's promises are only as durable as the host state's willingness to keep them. Tax holidays are granted by decree and can be revised by decree. A zone regulation can be overridden by a later national statute. None of this makes free zones bad. It makes them a fiscal instrument rather than a legal foundation.

What the Royal Charter grants

The Charter is short and its operative provisions are specific.

It establishes GMC as a fully independent and autonomous region in the Kingdom of Bhutan, vested with executive, legislative and independent judicial authority, including final adjudication. Final adjudication is the load-bearing phrase. It means the appellate path ends inside GMC.

It constitutes the GMC Authority as the highest decision-making body, with corporate legal personality, chaired by the Druk Gyalpo.

It directs the GMC Authority to establish administrative and regulatory bodies, including a central bank, an independent judiciary and a legal system based on common law principles, and confers the power to enact laws, which require Royal Assent.

It sets out powers including fiscal, customs and tariff benefits, licensing, entering free trade agreements, establishing funds and dealing in digital assets. Security is provided under the Armed Forces of Bhutan.

And it provides that the Charter may be amended only by Royal Decree.

Every GMC Act carries the same enacting formula, recording that it is made in exercise of the powers under the Charter and with the assent of the Druk Gyalpo. This is not a zone regulation issued under a delegated power. It is primary legislation of a jurisdiction, made under a constitutional instrument.

What has been built

Charters are promises about what will be done. Statutes are evidence of what has been done. Since December 2024, GMC has enacted and brought into operation a functioning commercial code.

Alongside the statutes there are institutions. The Gelephu Corporate Registration Office administers company and entity registration through a digital portal. The Gelephu Financial Services Office is described as the independent regulator of all financial services and virtual asset activities in GMC, with its own rulebooks covering anti-money laundering and sanctions, conduct of business, funds, general requirements, market infrastructure and prudential standards. The Economic Development Group operates as a single point of contact for land, leasing, incorporation and regulatory coordination.

The currency point is easy to miss and tells you a great deal. The Companies Act, the Income Tax Act, the Customs Act, the employment statutes and the partnership statutes each contain a provision stating that references to the dollar sign mean United States dollars. A free zone does not usually redenominate its statute book.

Why this changes the risk calculation

Three things change for a commercial counterparty, and they compound over time.

Enforceability. In a free zone you assess the host state's courts, because that is where you will end up. In GMC the assessment is of GMC's own judicial authority, applying GMC statutes and, where they are silent, the received common law and equity. The chain of authority runs from the Charter, not from a national enabling act that a later national statute could amend.

Contractual certainty. A commercial contract governed by GMC law now sits on a known body of rules. The Sale of Goods Act 2026 and the Unfair Contract Terms Act 2026 came into operation on 15 June 2026, with the Unfair Contract Terms Act expressly not applying to contracts made before that date. Third party rights are available through an applied enactment. Insolvency and restructuring are governed by an applied statute. The parties are not improvising.

Durability. The Charter is amendable only by Royal Decree. GMC statutes are amended by GMC statutes, enacted with Royal Assent. Compare that with a tax holiday granted by administrative decision, and the difference in a fifteen-year investment model is substantial. This matters most to the parties who commit capital furthest out: infrastructure lenders, long-lease tenants, insurers writing long-tail risk and funds with a decade-long horizon.

There is also a corollary that investors should understand as a discipline rather than a benefit. Because GMC is a legal system and not a fiscal carve-out, it has the full apparatus of one. The Income Tax Act contains a general anti-avoidance rule with a surcharge, arm's length rules, transfer pricing documentation obligations and a transfer pricing surcharge, and parts dealing with exchange of information and international tax compliance agreements. The financial services statute contains a misleading statements regime. The foreign workforce statute contains criminal offences, including offences by bodies corporate. Real jurisdictions have real enforcement.

The tax position, because it is always the next question

The widely repeated claim that GMC offers 0% corporate tax is not what the Income Tax Act 2025 says. The Act levies tax on every company or body of persons at 15% on every dollar of chargeable income. Beneath that sit two approval-based regimes. An approved founders company, operating in an industry the designated officer has approved as a founders industry because it is not carried on in GMC at adequate scale and has favourable prospects, has its income from that qualifying business exempt, for a period which with all extensions cannot exceed fifteen years, with no new approvals after 31 December 2030. An approved strategic and development company pays a concessionary rate of not less than 5% for a relief period capped at twenty years, again with no approvals after 31 December 2030.

Individuals who are not citizens of Bhutan pay 0% on chargeable income derived on or before 31 December 2030. Bhutanese citizens resident in GMC pay a progressive scale topping out at 15%. Dividends paid by a GMC-resident company are exempt income.

This is the regime as it has been enacted. It is also, notably, a regime set by statute rather than by concession letter, which is itself the point of this article.

Frequently asked questions

Is GMC part of Bhutan?

Yes. GMC is a Special Administrative Region within the Kingdom of Bhutan, operating on a one country, two systems basis, with its security provided under the Armed Forces of Bhutan. It is autonomous in its legal and economic system, not a separate state.

Does Bhutanese law apply in GMC?

Only where GMC law and the applied common law framework do not cover the matter, and in the specific areas GMC has adopted. The Application of Laws Act applies Bhutan's sales tax, customs and excise laws in GMC through its own schedule, and provides that Bhutan law applies generally to matters not otherwise covered.

Can a company incorporated in GMC contract under English or Singapore law?

Parties remain free to choose a governing law. Most commercial matters in GMC are already governed by the received common law and equity as applied by the Application of Laws Act, which is why GMC-law contracts feel familiar to anyone who has worked in a common law framework.

How is this different from Abu Dhabi Global Market or a Dubai free zone?

Financial centres of that type operate within a host constitutional structure and typically derive their courts and their authority from it. GMC's authority derives from a Royal Charter granting it legislative, executive and judicial power including final adjudication, together with its own body of enacted law. GMC's financial services rules were modelled on those of an established international financial centre as a starting point, which is a deliberate borrowing rather than a structural similarity.

Can the incentives be withdrawn?

The incentives are in statute, and statutes can be amended by later statutes. The same applies in every jurisdiction. The relevant point is that they are not administrative concessions, and that the Charter underpinning the system may be amended only by Royal Decree.

The bottom line

Calling GMC a free zone understates it by an order of magnitude and, for a general counsel, in the wrong direction. A free zone changes what you pay. GMC changes what law you are under, which court finally decides your dispute, which registrar holds your company, which regulator supervises your licence, and which currency your statute book is written in. That is a structural proposition and it deserves structural diligence, not a tax memo. The institutions stand on that law, companies are already being formed under it, and the whole rests on a foundation that is difficult to unwind.

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.

Sources

• Royal Charter No. 1 of 2024, granted 10 February 2024: Articles 1, 3, 4, 5, 6 and 7.
• Application of Laws Act 2024 (Law No. 1 of 2024), as amended by Law No. 7 of 2025 and Law No. 7 of 2026: ss. 3, 4, 5, 5A, 6, 7, 11 and Schedules A, B and C.
• Companies Act 2025 (Law No. 1 of 2025), ss. 4A and 8.
• Financial Services Act 2025 (Law No. 5 of 2025), Schedule 1 and Part 9.
• Income Tax Act 2025 (Law No. 6 of 2025): ss. 1(3), 2AA, 13(1)(za), 13Y, 33, 33A, 34D, 34E, 34F, 43(1)(a), 43(1)(ba), 43D; Second Schedule Part A.
• Customs Act 2025 (Law No. 2 of 2025); Employment Act 2025 (Law No. 3 of 2025); Employment of Foreign Workforce Act 2025 (Law No. 4 of 2025).
• Sale of Goods Act 2026 (Law No. 5 of 2026), s. 63; Unfair Contract Terms Act 2026 (Law No. 6 of 2026), s. 30.