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Timor-LesteTax Obligations Detailed

Discover employer and employee tax responsibilities in Timor-Leste

Employer tax responsibilities

In Timor-Leste, employers face various tax obligations, including wage income tax, social security contributions, and income tax installments.

Employer Obligations

  • Wage Income Tax (WIT): Employers withhold WIT from employee wages. For residents, the rate is 0% for monthly taxable wages up to $500, and 10% on the amount exceeding $500. Non-residents are taxed at a flat rate of 10% regardless of income. WIT is remitted monthly by the 15th of the following month. An annual WIT return is due by March 31st of the following year.
  • Social Security Contributions: Employers contribute 6% of the employee's "contributory incidence basis" monthly. This is also due by the 10th of the following month, along with a declaration for each employee and a summary declaration.
  • Income Tax Installments: Businesses pay income tax installments, either monthly (0.5% of turnover if annual turnover exceeds $1 million) or quarterly (0.5% of turnover if annual turnover is $1 million or less). Monthly payments are due by the 15th of each month. Quarterly payments are due on April 15th, July 15th, October 15th, and January 15th. The final income tax payment is due with the annual return by March 31st.

Employee Obligations

  • Wage Income Tax (WIT): Employees earning above $500 per month are subject to WIT which is withheld by employers. They may request a statement from the employer annually or after employment terminates.
  • Social Security Contributions: Employees contribute 4% of their "contributory incidence basis." This amount is withheld by the employer.

Other Taxes

  • Service Tax: A 5% service tax applies to businesses whose monthly turnover from specific services (hotel, restaurant/bar, and telecommunications) exceeds $500.
  • Sales Tax: A 2.5% sales tax applies to imported goods.

Filing and Payment Deadlines

  • Annual Income Tax Return: Due by March 31st of the following year.
  • Monthly Taxes (including WIT and Income Tax Installments): Due by the 15th of the following month.
  • Social Security Contributions and Declarations: Due by the 10th of the following month.

Record Keeping

  • Employers must maintain employment records (contracts, payroll, etc.) for at least five years after employment termination.
  • Businesses must keep tax-related documents for at least five years.

Note: This information is based on available data as of February 5, 2025, and may be subject to change. Consulting with a tax professional is recommended for personalized advice.

Employee tax deductions

In Timor-Leste, employee tax deductions primarily consist of social security contributions and wage income tax, impacting both residents and non-residents.

Social Security Contributions

  • Employee Contribution: 4% of gross salary
  • Employer Contribution: 6% of gross salary

Wage Income Tax (WIT)

Residents

  • Tax-Free Threshold: Up to USD 500 per month
  • Tax Rate (above threshold): 10% of the amount exceeding USD 500

Example: A resident employee earning USD 700 per month would pay WIT on USD 200 (700 - 500), resulting in a tax of USD 20 (200 x 0.10).

Non-Residents

  • Tax Rate: Flat rate of 10% of total monthly salary
  • Tax-Free Threshold: None

Example: A non-resident employee earning USD 700 per month would pay WIT of USD 70 (700 x 0.10).

Other Deductions and Considerations

  • Other Taxes: Timor-Leste does not have a Value-Added Tax (VAT) system as of 2025.
  • 13th-Month Pay: Not mandatory under the Labour Code.
  • Data Protection: No general data protection law exists in Timor-Leste as of 2025. However, the Labour Code mandates employers to maintain employee records for a certain period.
  • Minimum Wage: USD 115 per month (as of June 1, 2012).

Payment and Filing

  • WIT Payment: Due by the 15th of the following month. Employers submit monthly tax forms to the Banco Nacional Ultramarino (BNU).
  • Annual WIT Return: Employers must submit an annual Employer Wage Income Tax Withholding Form by March 31st of the following year.

It's crucial to remember that tax laws and regulations can change. The information above is based on the available data as of February 5, 2025. Consulting with a tax professional or the Timor-Leste Revenue Service for the most current regulations is advisable. The Timor-Leste Revenue Service can be contacted via email at [email protected], or by telephone (+670)74962772 or (+670)74962763.

VAT

Timor-Leste currently utilizes a sales tax and services tax system instead of a Value Added Tax (VAT) or Goods and Services Tax (GST). While a VAT system has been proposed, as of February 2025, it has not yet been implemented.

Sales Tax

  • A 2.5% sales tax applies to imported taxable goods.
  • Taxable goods and services sold domestically within Timor-Leste are subject to a 0% sales tax rate.

Services Tax

  • A 5% services tax applies to gross monthly revenue exceeding USD 500 generated from:
    • Hospitality services (hotels)
    • Restaurants and bars
    • Telecommunications services

Other Taxes

  • Company Income Tax: 10%
  • Personal Income Tax: Progressive rate from 0% to 10%
  • Wage Income Tax: Progressive rate from 0% to 10%
  • Withholding Tax: Varies between 2% to 10% depending on the nature of the payment.
  • Customs Duties: A 2.5% rate applies to the value of imported goods (with some exemptions).

Tax Filing and Payment Deadlines (Monthly Taxes)

Monthly tax returns (for service tax, sales tax, and withholding tax) are generally due by the 15th day of the following month. Payments for these taxes are typically due by the 15th day after the end of the following month. The final annual corporate income tax return is due by the last day of the third month following the year-end. The final CIT payment is generally due on the 25th day of the third month after the end of the company's fiscal year.

Proposed VAT

Although Timor-Leste does not currently have a VAT system, proposals have been discussed to implement one. The precise details of the proposed VAT, such as the rate, thresholds for registration, and exemptions, have not been finalized as of February 2025. Further updates will be necessary as this information becomes available. It is important to note that these details are not publicly available as of today and might change.

Tax incentives

Timor-Leste offers a range of tax incentives to encourage both domestic and foreign investment, contributing to the nation's socio-economic development.

Investment Incentives

  • Eligibility: Incentives target national and foreign investors contributing to Timor-Leste's socio-economic growth. State and public entity investments, along with those from legal persons with over 50% state-owned capital, are excluded.
  • Tax Incentives: Qualified investment projects can receive exemptions of up to 100% on income tax, sales tax, and services tax.
  • Customs Incentives: A 100% exemption on import duties may apply to all capital goods and equipment necessary for construction or management of the investment project.
  • Additional Benefits: Investors may be granted a minimum of five working visas for qualified employees in directing or technical roles. State property leases for investment projects can extend up to 50 years, renewable for 25-year periods up to a maximum of 100 years.

Zone-Specific Benefits

  • Zone A (Dili): Tax exemptions up to 5 years.
  • Zone B (Outside Dili): Tax exemptions up to 8 years.
  • Zone C (Oecusse and Atauro): Tax exemptions up to 10 years.

General Tax Framework

  • Corporate Income Tax: A flat rate of 10%.
  • Personal Income Tax: Progressive rates from 0% to 10%, with a monthly exemption threshold of USD 500 for wage income. An annual exemption of USD 6,000 applies to other income. Non-residents are taxed at a flat rate of 10% on all income.
  • Withholding Tax (WIT): Rates vary based on income type (2% to 10%). Employers withhold WIT from employee wages.
  • Sales Tax: 2.5% on imported taxable goods. Locally sold goods and services are subject to a 0% rate.
  • Services Tax: 5% on hospitality, restaurant, bar, and telecommunication services with monthly turnovers exceeding USD 500.
  • Customs Duties: 2.5% on imported goods.
  • Capital Gains Tax: 10%.
  • Foreign Tax Credit: Available for residents on foreign-sourced income, up to the amount of Timor-Leste tax payable on that income.

Mining Royalties

  • Precious Metals/Minerals: 8% (unprocessed), 3.5% (processed).
  • Common Metals: 7% (unprocessed), 2.5% (processed).
  • Gems: 8% (unprocessed), 3.5% (processed).
  • Radioactive Minerals: 8%.
  • Rare Earth Minerals: 15%.
  • Ornamental Stones: USD 10 per ton (unprocessed), USD 1 per ton (processed).

Application Procedure

Applications for investment incentives are submitted through TradeInvest Timor-Leste. Required documentation includes:

  • Completed application form.
  • Personal identification documents.
  • Commercial registration certificates.
  • Visa documents.
  • A detailed business plan.

The application review typically takes up to 18 working days, including technical assessments by government departments facilitated by TradeInvest. Approved projects have 12 months from the issuance of the Declaration of Benefits to commence the investment.

This information is current as of February 5, 2025, and might be subject to change. Consulting official government resources or legal advisors is recommended for the most up-to-date information.

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