Uldarico Maria Rodrigues National Director Domestic Tax Directorate General of Revenue & Customs Ministry of Finance

1. Taxation in Timor LesteSelected policy options for reducing compliance costs and providing incentives for small businesses in the standard regime. Uldarico Maria Rodrigues National Director Domestic Tax Directorate General of Revenue & Customs Ministry of Finance Democratic Republic of Timor Leste

2. KEY FACTS Population: 1.05 million (2007) Income per person: $460 (non-oil GDP) Religion: Roman Catholic Official Languages: Portuguese and Tetum Official Currency: US Dollar Land Area: 14,900 sq. kms Form of Governance: Parliamentary Democracy Major Exports: Petroleum, Coffee, Candlenut; Potential for vanilla and cattle exports

3. TIMOR LESTE TAX REGIME • System of Self • Assessment • Requires Voluntary • Compliance

4. DOMESTIC TAX LAW Originally based on Indonesian Law on Income Tax, modified by: - UNTAET Regulation 2000/18 - UNTAET Directive 2001/2 UNTAET Directive 2001/2 has now been repealed and UNTAET Regulation 2000/18 has been partially repealed as a result of Phase 1 of tax reform

5. DOMESTIC TAX LAW (cont.) Tax laws are currently being amended. Phase 1 of reform commenced 1 July 2008 when new tax law promulgated Democratic Republic of Timor Leste Taxes and Duties Act (Decree Law 8/2008)

6. DOMESTIC TAX LAW (cont.) • Tax Procedures and Sanctions Laws are currently being drafted • Memorandum of Understanding signed with Portugal to enter into Double Tax Treaty, which will be based on OECD model

7. TAX TYPES • Revenue Service • Income Tax • Withholding Tax • Wage Income Tax • Service Tax • Customs Service • Import Duty • Excise Tax • Sales Tax

8. Income Tax • Income tax is imposed on taxable income in a tax year (01 January – 31 December) Resident Natural PersonTax Rate Taxable Income $0 - $6,000 0% Taxable income in excess of $6,000 10% Others All Taxable income 10%

9. Income Tax Rates - Comparison OLD NEW Resident Natural Person 0 - $6,000 0% $6,001 and above 10% Others All taxable Income 10% Non-Resident Without P/E10% Resident Natural Person 0 - $3,368 10% $3,369 - $6,737 15% $6,738 and above 30% Others All taxable Income 30% Non-Resident Without P/E20%

10. Withholding Tax Income received from:-Rate • Rent, royalties, prizes and lottery winnings 10% • Carrying on building or construction activities* 2% • Providing construction consulting services* 4% • Providing air or sea transportation services*2.64% • Carrying on mining activities/support services*4.5% * (normally final with no further tax liability) Gross Income paid to non-resident10%

11. Withholding Tax – final or further liability? Withholding tax withheld in respect of the following services is final, with no further liability,unlessthe taxpayer makes an irrevocable election to not be final. • Carrying on building or construction activities*2% • Providing construction consulting services* 4% • Providing air or sea transportation services*2.64% • Carrying on mining activities/support services*4.5% If election made then annual tax form lodged, income assessed and credit allowed for withholding tax.

12. Wage Income Tax • Imposed on taxable wages received by employee in respect of employment in Timor Leste Resident Natural PersonRate Monthly taxable wages $0 - $500 0% Monthly taxable wages in excess of $500 10% Non-Resident Natural Person All taxable wages 10%

13. SERVICE TAX • Imposed on Gross Consideration received of $500 or more per month • In respect of Designated Services only • Tax rate is 5% payable monthly

14. DESIGNATED SERVICES • Hotel Services • Restaurant and Bar Services • Telecommunications Services

15. IMPORT DUTY • Most goods imported into Timor Leste • are subject to import duty. • Import duty of 2.5% is imposed on the • “customs value” of the goods. • “customs value” means the fair market • value of the goods including cost, insurance • and freight.

16. EXCISE TAX • Excise tax is imposed on “excisable” goods • imported into Timor Leste or manufactured • in Timor Leste. • The excise value of excisable goods is: • For goods imported into Timor-Leste: • The customs value of the goods; plus • Any import duty imposed on the goods

17. EXCISE TAX (cont.)

18. SALES TAX • Sales tax is imposed on most goods imported • into Timor Leste at a rate of 2.5%: • The sales tax value of taxable goods imported • into Timor-Leste is: • the customs value of the goods, plus • any import duty, plus • any excise tax payable on the importation of • the goods;

19. T H A N K Y O U