Summary
- Section 13Y of the Income Tax Act 2025 exempts from tax the income of an "approved founders company" derived from a qualifying business in a "founders industry" (s. 13Y(1)).
- A founders industry is one that the designated officer approves because it is not carried on in GMC "on a scale adequate to the economic needs of GMC" and has favourable prospects for development (s. 13Y(2)).
- The exemption period, its start date and the qualifying business are fixed in a letter of approval (s. 13Y(6)); the total period, including all extensions, cannot exceed 15 years (s. 13Y(8)).
- No company may be approved as a founders company after 31 December 2030 (s. 13Y(5)). The application window is therefore finite.
- Section 13Y is in operation now.
- Approval can be revoked for breach of the Act or of any condition, and the Comptroller can then assess the previously exempt income (ss. 13Y(12), (13)).
What the founders company exemption is
The Gelephu Mindfulness City Special Administrative Region (GMC) taxes companies at 15% on every dollar of chargeable income (Income Tax Act 2025, s. 43(1)(a)). In GMC legislation, "$" means United States dollars (s. 2AA). Against that headline rate, the Income Tax Act 2025 offers a small number of discretionary incentives. Section 13Y is the most generous of them: a complete exemption from income tax on the income of a qualifying business, for a period that can run to 15 years.
The provision is aimed at businesses that bring a new industry to GMC. The statutory label is "founders company", and the industry it operates in must have been approved as a "founders industry". Both approvals rest with the designated officer, the person appointed by the Druk Gyalpo as the officer designated for the purposes of the Act (s. 2(1)).
Who it applies to
The company
Section 13Y(3) allows "any company carrying on a qualifying business" to apply. "Company" is defined broadly in s. 2(1) as any company incorporated or registered under any law in force in GMC or elsewhere. The section does not itself require the applicant to be incorporated in GMC, although in practice a business operating in GMC will usually be a GMC company or a foreign company registered under the Companies Act 2025 (see our guide to incorporating a company in GMC).
The founders industry
Under s. 13Y(2), the designated officer may approve an industry as a founders industry if, in the officer's opinion:
- it is expedient in the public interest to do so;
- the industry "is not being carried on in GMC on a scale adequate to the economic needs of GMC"; and
- there are "favourable prospects for development" of that industry.
Founders industries are approved case by case. The Gelephu Mindfulness City Authority identifies eight priority sectors for GMC (spiritual; health and wellness; education and knowledge; agri-tech and forestry; green energy and technologies; finance and digital assets; aviation and logistics; tourism), but priority-sector status and founders-industry status are different things. The statutory test is whether the industry is under-supplied in GMC and has good prospects. An industry already operating in GMC at an adequate scale will not qualify, even in a priority sector.
The qualifying business
Once an industry is approved, the company's trade or business in that industry is its "qualifying business" (s. 13Y(1)). Only income from the qualifying business is exempt. Income from any other trade or business the company carries on remains fully taxable (ss. 13Y(10), (11)).
How the approval works
Step 1: written application
A company applies in writing to the designated officer "in such form and with such particulars as may be prescribed" (s. 13Y(3)). The Act leaves the form and content of the application to regulations.
Step 2: public interest assessment
The designated officer may approve the company "where the designated officer is satisfied that it is expedient in the public interest to do so" (s. 13Y(4)). This is a discretionary judgment. The public-interest test in s. 13Y(4) sits alongside the industry-level test in s. 13Y(2), so an applicant should expect to show how its business will develop an industry that GMC currently lacks.
Step 3: conditions and letter of approval
Approval may be granted "subject to such conditions as the designated officer thinks fit" (s. 13Y(4)). In addition, s. 13Y(1) makes the exemption itself subject to "such conditions as may be prescribed by regulations". Conditions may therefore come from two sources: general regulations and the company's own letter of approval.
The letter of approval must specify three things (s. 13Y(6)):
| Item | Provision | Comment |
|---|---|---|
| The qualifying business | s. 13Y(6)(a) | Defines the ring-fence for exempt income |
| The date of commencement of the exemption | s. 13Y(6)(b) | May be earlier or later than the date of the letter |
| The period of exemption | s. 13Y(6)(c) | Set by the designated officer; subject to the 15-year cap |
The exemption period and the 15-year cap
Each letter of approval sets its own period. The Act fixes the ceiling: "The total period of exemption of a founders company for a qualifying business, together with all extensions, must not in total exceed 15 years" (s. 13Y(8)).
Three features of this cap matter in practice. First, it is per qualifying business: the 15 years attaches to the business named in the letter, not to the company as such. Second, extensions count: an initial period of, say, ten years can be extended under s. 13Y(7)(c), but only to a total of 15. Third, the start date can move: s. 13Y(7)(b) allows the officer to substitute "such earlier or later date", which matters where trading begins earlier or later than planned.
Amendment of the letter of approval
Section 13Y(7) lets the designated officer, on the officer's own initiative or on the company's application, amend a letter of approval by redefining the qualifying business (s. 13Y(7)(a)), substituting an earlier or later commencement date (s. 13Y(7)(b)) or extending the exemption period within the 15-year cap (s. 13Y(7)(c)). Because the officer can act unprompted, the scope of the exemption is not immutable. An amendment that narrows the qualifying business may bring income into charge; s. 13Y(13)(b) expressly permits the Comptroller to assess income "following an amendment of the letter of approval".
Computing the exempt income
Two technical rules shape how much income is actually exempt.
Capital allowances are deemed claimed
Section 13Y(9) provides that the capital allowances in ss. 16 to 22 (including ss. 19A and 19B) "must be taken into account even though no claim for such allowances has been made". A founders company cannot park its capital allowances until the exemption ends; they are consumed against exempt income whether or not claimed.
Separate accounts for separate businesses
If the company carries on any other trade or business, s. 13Y(10) requires separate accounts for that "separate trade or business" for the same accounting period, and its income is ascertained and taxed under the ordinary rules (s. 13Y(11)). A founders company therefore needs an accounting framework that can defend the allocation of revenue, costs and shared overheads between exempt and non-exempt activities. Where related parties are involved, the arm's length rule in s. 34D and the documentation requirement in s. 34F apply.
Revocation and clawback
Approval is not permanent. Under s. 13Y(12), the designated officer may revoke an approval, "with effect from a date determined by the designated officer", if satisfied that the founders company has contravened any provision of the Act or any condition of its approval.
Revocation has teeth because of s. 13Y(13). Despite the exemption in s. 13Y(1), the Comptroller may make an assessment or additional assessment on a founders company:
- if it appears that any exempted income "ought not to have been exempted" (s. 13Y(13)(a));
- to bring to tax income following an amendment of the letter of approval (s. 13Y(13)(b)); or
- to bring to tax income following revocation (s. 13Y(13)(c)).
These powers are "subject to section 74", which allows assessment within the year of assessment or four years after it (s. 74(1)) and at any time where there is fraud or wilful default (s. 74(2)). Revocation may also be backdated: s. 13Y(12) does not confine the officer to a prospective date.
The 31 December 2030 deadline
Section 13Y(5) is short: "No company may be approved as a founders company after 31 December 2030." The deadline applies to the grant of approval, not to the exemption period itself. A company approved in 2030 with a 15-year period would enjoy the exemption until 2045.
Any company considering this incentive therefore needs approval in hand before the end of 2030. Two discretionary judgments (industry and company) are involved, so prudent planning treats 2030 as a hard cut-off and works backwards from it.
Interaction with the strategic and development company concession
The Act contains a second discretionary incentive, the strategic and development company concession in s. 43D, which provides for a concessionary rate "of not less than 5%" (see our guide to the section 43D concession). The two provisions are drafted in parallel: a written application, a public-interest finding, a letter of approval naming the qualifying business and period, separate accounts for other businesses (ss. 13Y(10), 43D(9)), and no new approvals after 31 December 2030 (ss. 13Y(5), 43D(4)).
Each letter is tied to a specified qualifying business, so the question of holding both approvals would arise only for different businesses, and it is for the designated officer to decide. Section 13Y is the more valuable relief but has the narrower gateway: it requires a founders industry, whereas s. 43D requires only a public-interest finding.
Practical checklist / Next steps
- Confirm the industry. Assess whether your industry is one "not being carried on in GMC on a scale adequate to the economic needs of GMC" with favourable prospects (s. 13Y(2)). If it is already established in GMC, s. 13Y is unlikely to be available.
- Establish the vehicle. Incorporate or register the company that will carry on the qualifying business (see our guide to incorporating a company in GMC), and ensure it has at least one director ordinarily resident in GMC (Companies Act 2025, s. 145(1)).
- Prepare the application in the prescribed form with the prescribed particulars (s. 13Y(3)). The Act leaves the form to regulations; confirm the current requirements before filing.
- Build the public-interest case. Explain how the business develops the founders industry and why that serves GMC's economic needs (ss. 13Y(2), (4)).
- Review the letter of approval carefully. Check the description of the qualifying business, the commencement date and the exemption period (s. 13Y(6)), and every condition attached.
- Set up separate accounts from day one if any non-qualifying activity is contemplated (s. 13Y(10)).
- Model capital allowances on the basis that they are deemed claimed during the exemption period (s. 13Y(9)).
- Diarise the 15-year cap and any extension application (ss. 13Y(7)(c), (8)).
- Monitor compliance with every condition, because revocation and clawback follow contravention (ss. 13Y(12), (13)).
- File before 31 December 2030 (s. 13Y(5)).
Frequently asked questions
Is the founders company exemption in force now?
Yes. The Income Tax Act 2025 is deemed to have come into operation on 26 December 2024. The detailed application form and any general conditions are left to regulations under ss. 13Y(1) and (3).
How long does the exemption last?
The period is set in the letter of approval (s. 13Y(6)(c)) and may be extended (s. 13Y(7)(c)). The total period for a qualifying business, including all extensions, cannot exceed 15 years (s. 13Y(8)).
Does the exemption cover all of the company's income?
No. It covers income "derived from the trade or business carried on by that company in a founders industry" (s. 13Y(1)). Any other trade or business must be accounted for separately and is taxed under the ordinary rules (ss. 13Y(10), (11)).
Can approval be taken away?
Yes. The designated officer may revoke approval for contravention of the Act or of any condition, with effect from a date the officer determines (s. 13Y(12)). The Comptroller may then assess the income that was exempted, subject to the time limits in s. 74 (s. 13Y(13)).
What is the deadline for applying?
No company may be approved after 31 December 2030 (s. 13Y(5)). Applications should be lodged well before that date, because approval depends on discretionary decisions by the designated officer at both the industry and the company level.
Key takeaways
- Section 13Y is a full income tax exemption, not a reduced rate, for income from a qualifying business in an approved founders industry.
- The exemption is discretionary at two levels: the industry must be approved under s. 13Y(2), and the company under s. 13Y(4).
- The letter of approval fixes the business, the start date and the period; the total period, including extensions, is capped at 15 years (s. 13Y(8)).
- Separate accounts, deemed capital allowances and the clawback powers in ss. 13Y(9), (10) and (13) make ongoing compliance as important as the initial approval.
- The window closes on 31 December 2030 (s. 13Y(5)).
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. 1(3), 2(1), 2AA, 13Y, 34D, 34F, 43(1)(a), 43D, 74
- Companies Act 2025 (Law No. 1 of 2025), s. 145(1)
