Summary
- Sections 13O, 13OA and 13U of the Income Tax Act 2025 exempt prescribed income of approved fund vehicles where the funds are "managed in GMC by a fund manager": a GMC-incorporated and resident company (s. 13O), partners of a registered limited partnership (s. 13OA), and approved persons or master-feeder, master-feeder-SPV and master fund-SPV structures (s. 13U).
- A "fund manager" is a company licensed to carry on fund management under GMC's securities laws, or exempted from that licence (s. 2(1)).
- Approval is granted by the designated officer or an "authorised body", subject to conditions that can be added, varied or deleted at any time (ss. 13O(1A)–(1C), 13OA(2)–(4), 13U(2F)–(2H)).
- No approval may be granted under s. 13O or s. 13OA after 31 December 2029 (ss. 13O(2), 13OA(5)); s. 13U approvals run from its commencement to 31 December 2029 (s. 13U(2)).
- All three sections, and the related s. 13D, are enacted but commence only on a date appointed by Gazette notification (s. 1(3)(f), (k), (l), (o)).
- Sections 13O and 13OA impose a penalty on investors who, with associates, hold more than a prescribed percentage of the vehicle (ss. 13O(3), 13OA(6)).
What these exemptions are
The Income Tax Act 2025 of the Gelephu Mindfulness City Special Administrative Region (GMC) taxes companies and most other persons at 15% on chargeable income (s. 43(1)(a), (c)). Without a specific exemption, a GMC fund would pay tax on its investment income before distributing it to investors.
Sections 13O, 13OA and 13U remove that layer of tax for approved vehicles; s. 13D does the same for "prescribed persons" without individual approval. Their common thread is that the exemption is available only where the fund is "managed in GMC by a fund manager", which ties the tax benefit to a licensed manager in GMC.
None of the four sections is yet in operation. Each is listed in s. 1(3), which provides that they "come into operation on a date that the designated officer appoints by notification in the Gazette".
"$" in GMC legislation means United States dollars (s. 2AA).
The common concepts
Fund manager in GMC
"Fund manager" is defined in s. 2(1) as "a company holding a licence to carry on a business in fund management under any written laws providing for the regulation of activities and institutions in the securities and derivatives industry, or a company exempted under those laws from holding such a licence". Financial services in GMC are regulated by the Gelephu Financial Services Office (GFSO) under the Financial Services Act 2025, whose Schedule 1 regulated activities include "Managing Assets" (para 56) and "Managing a Collective Investment Fund" (para 59). A GMC fund manager for tax purposes will in practice be a Licensed Firm holding a Financial Services Permission from GFSO (see our guide to fund manager licensing in GMC).
Designated officer and authorised body
Approvals are given by "the designated officer or an authorised body". The designated officer is the person appointed by the Druk Gyalpo for the purposes of the Act (s. 2(1)). An authorised body is a public body to which the designated officer has assigned a function under an incentive provision by Gazette notification (s. 3A); the Act does not name it.
Conditions that can change
Under each section, the exemption is subject to conditions prescribed by regulations, specified in the letter of approval, or "specified from time to time" by the approving authority and notified or published (ss. 13O(1), 13OA(1), 13U(1)). The authority may "at any time add, vary or delete a condition" (ss. 13O(1B), 13OA(3), 13U(2G)). Fund documents should anticipate this.
Regulations define the exempt income
In each case the exemption applies to "such income as the designated officer may by regulations prescribe" (ss. 13O(7)(a), 13OA(13)(a), 13U(4)(a), (b)). Those regulations have not been published.
Section 13O: the GMC company fund
Section 13O exempts prescribed income of "a company incorporated and resident in GMC" that is approved by the designated officer or an authorised body, "arising from funds managed (a) in GMC by a fund manager; or (b) by a person approved by the designated officer or authorised body" (s. 13O(1)). A company is resident in GMC if the control and management of its business is exercised in GMC (s. 2(1)).
The vehicle must be both incorporated and resident in GMC, so this is the exemption for a GMC-domiciled corporate fund. The manager may be a GMC fund manager or a person approved for the purpose.
No approval may be granted after 31 December 2029 (s. 13O(2)).
The ownership penalty
Section 13O(3) targets funds that are in substance owned by one investor. Where a "relevant owner", alone or with associates, beneficially owns on the "relevant day" issued securities worth more than "the prescribed percentage" of the total, it must pay a penalty computed from its percentage holding (A), the company's income per its audited accounts (B) and the tax rate in s. 43(1)(a) (C). The prescribed percentage is left to regulations.
The penalty is avoided if the Comptroller permits the owner to reduce the holding within no more than three months from the relevant day (s. 13O(4)). Where the direct holder is a "non-bona fide entity" (a non-resident set up solely to avoid tax or without substantial business activity for a genuine commercial reason), the penalty falls on the person behind it (ss. 13O(5), (5A), (8)), with a look-through rule for multi-tier holdings (s. 13O(6)). The penalty may be remitted or refunded (s. 13O(6A)).
Revocation and suspension
Regulations may provide for revocation or suspension of an approval for non-compliance with a condition, with revocation taking effect from a date before the non-compliance where just and reasonable (s. 13O(7)(ca)). After a backdated revocation the Comptroller may assess under s. 74 (s. 13O(7A)), and a suspended company is treated as not approved (s. 13O(7B)).
Section 13OA: the limited partnership fund
Section 13OA is the partnership counterpart. It exempts prescribed income "of a partner of a limited partnership registered under any written laws providing for the establishment and regulation of limited partnerships, and approved by the designated officer or an authorised body", arising from funds managed in GMC by a fund manager or by an approved person (s. 13OA(1)). In GMC, that means a limited partnership registered under the Limited Partnerships Act 2026 (see our guide to limited partnerships in GMC).
The exemption applies to the partner, not the partnership, but approval attaches to the limited partnership (s. 13OA(2)). No approval may be granted after 31 December 2029 (s. 13OA(5)).
The ownership penalty, the three-month cure period, the non-bona fide entity look-through, the remission power and the revocation and suspension rules mirror s. 13O (ss. 13OA(6)–(15)). One drafting difference: the income element of the penalty formula is the partnership's income per its "certified statement of accounts", meaning accounts certified as true and correct by its precedent partner, and an "equity interest" in a partnership is a share in its profits (s. 13OA(16)).
Section 13U: approved persons and fund structures
Section 13U is the widest of the three. It exempts prescribed income of four categories of person or structure, in each case "arising from funds ... managed in GMC by a fund manager" (s. 13U(1)):
| Category | Provision | Who is exempt |
|---|---|---|
| Approved person | s. 13U(1)(a) | An approved person that is not an individual, a body of persons or a Hindu joint family; a partner of an approved partnership; a trustee of an approved trust fund; or the taxable entity of an approved vehicle that is not a legal entity (s. 13U(5)) |
| Master-feeder fund structure | s. 13U(1)(b) | The approved master fund and feeder funds, or their partners, trustees or taxable entities |
| Master-feeder fund-SPV structure | s. 13U(1)(c) | The master fund, feeder funds and approved eligible SPVs, or their partners, trustees or taxable entities |
| Master fund-SPV structure | s. 13U(1)(d) | The master fund and approved eligible SPVs, or their partners, trustees or taxable entities |
The definitions in s. 13U(5) are precise. A "feeder fund" invests "substantially and directly through a single master fund". A "master fund" enables investors to invest in underlying investments "managed by a fund manager". An "SPV" is a vehicle "whose only activity is the holding of investments" for the structure. An "eligible SPV" is one whose net gains go to the master fund, alone or with a listed class of qualifying persons that includes s. 13D, 13O, 13OA and 13V entities and certain non-residents with substantial business outside GMC and no GMC permanent establishment other than a fund manager.
Unlike ss. 13O and 13OA, s. 13U is not confined to GMC-incorporated vehicles; a foreign master or feeder fund can qualify if the funds are managed in GMC by a fund manager and the structure is approved.
Approvals "may be granted during the period from the date of commencement of this section to 31 December 2029 (both dates inclusive)" (s. 13U(2)). Because the section has not commenced, that window has not yet opened.
Section 13U contains no ownership penalty equivalent to ss. 13O(3) and 13OA(6). It does, however, contain a priority rule: where income of a person or vehicle within s. 13U(1)(b), (c) or (d) is not exempt under s. 13U, "sections 13D, 13O and 13OA do not apply to that income" (s. 13U(3)). A structure that has opted into s. 13U cannot fall back on the other exemptions for the same income.
Regulations may provide for recovery of tax from partners, trustees, taxable entities and SPVs where a condition on the structure is breached (s. 13U(4)(c)–(cb)), and for revocation or suspension with retrospective effect (s. 13U(4)(cc), (4A), (4B)).
Section 13D: prescribed persons
Section 13D exempts prescribed income of "any prescribed person" arising from funds managed in GMC by a fund manager "that satisfies the prescribed requirements" (s. 13D(1)(b)). Qualification is by regulation rather than individual approval. It does not apply to income exempt under s. 13U (s. 13D(1A)(d)), carries an ownership penalty for corporate prescribed persons (s. 13D(2)), and awaits commencement (s. 1(3)(f)).
Related provisions
- Section 37AA allows an approved donor related to a s. 13O company, s. 13OA limited partnership or s. 13U vehicle to deduct donations of money to approved recipients, capped at 40% of statutory income (s. 37AA(2), (4)). Section 37AA is in force but depends on approvals under the three fund sections.
- Section 43V provides a 5% rate on fees derived by an approved fund management company from managing an approved venture company under s. 13G. It is not yet commenced (s. 1(3)(u)), and its approval window is expressed to close on 31 December 2025 (s. 43V(2)), a date which has passed.
- Sections 13Q and 43M exclude income of approved s. 13U trust funds and s. 13D trusts from the beneficiary-level exemptions and concessions, so the fund provisions operate as a self-contained code for those vehicles (ss. 13Q(2)(g), (h), 43M(2)(g), (h)).
Practical checklist / Next steps
- Obtain the licence first. A "fund manager" is a licensed company (s. 2(1)). Engage with GFSO on a Financial Services Permission for Managing Assets or Managing a Collective Investment Fund; the application steps are set out on gmc.bt/GFSO.
- Choose the vehicle. A GMC company (s. 13O), a GMC limited partnership (s. 13OA) or a wider structure, possibly including foreign feeders and SPVs (s. 13U).
- Design the investor base with the ownership penalty in mind. For s. 13O and s. 13OA vehicles, no investor group should exceed the prescribed percentage once regulations set it (ss. 13O(3), 13OA(6)).
- Build flexibility into fund documents for conditions that may be added, varied or deleted (ss. 13O(1B), 13OA(3), 13U(2G)).
- Prepare for audited accounts (s. 13O) or a certified statement of accounts by the precedent partner (s. 13OA(16)).
- Diarise 31 December 2029 for approvals under all three sections.
- Watch the Gazette for the commencement notification and the regulations that will prescribe the exempt income, the prescribed percentage and any other conditions.
Frequently asked questions
Can a fund apply for approval under s. 13O, 13OA or 13U now?
No. All three sections commence on a date appointed by the designated officer by Gazette notification (s. 1(3)(k), (l), (o)). Until then no approval can be granted. Managers can nonetheless obtain their GFSO licence and prepare the vehicle.
What does "managed in GMC by a fund manager" require?
A fund manager is a company licensed to carry on fund management under GMC's securities laws, or exempted from that licence (s. 2(1)). The funds must be managed in GMC. Under ss. 13O and 13OA the manager may alternatively be a person approved by the designated officer or authorised body (ss. 13O(1)(b), 13OA(1)(e)).
What is the difference between s. 13O and s. 13U?
Section 13O is for a single company incorporated and resident in GMC. Section 13U covers approved persons of any form (other than individuals, bodies of persons and Hindu joint families) and master-feeder and SPV structures, which need not be GMC-incorporated. Section 13U has no ownership penalty, but income that fails s. 13U cannot fall back on ss. 13D, 13O or 13OA (s. 13U(3)).
Is there a deadline?
Yes. No approval may be granted under s. 13O or s. 13OA after 31 December 2029 (ss. 13O(2), 13OA(5)), and s. 13U approvals may be granted only up to that date (s. 13U(2)).
Key takeaways
- Sections 13O, 13OA and 13U are the tax foundation for funds managed in GMC, but they are not yet in force and their key parameters await regulations.
- Every exemption depends on a licensed GMC fund manager, so GFSO licensing comes first.
- Section 13O suits a GMC corporate fund, s. 13OA a GMC limited partnership, and s. 13U approved persons and master-feeder or SPV structures that may include foreign vehicles.
- Investor concentration above a prescribed percentage triggers a penalty under ss. 13O and 13OA.
- Approvals under all three sections close on 31 December 2029.
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, 3A, 13D, 13O, 13OA, 13Q, 13U, 37AA, 43(1), 43M, 43V, 74
- Financial Services Act 2025 (Law No. 5 of 2025), Schedule 1, Part 2 paras 56, 59
- Limited Partnerships Act 2026 (Law No. 3 of 2026)
