Are you a tax resident in Timor-Leste?

The issue of residency is of paramount importance. A resident of Timor-Leste for taxation purpose is assessed on their worldwide income, whilst a non-resident is assessed only on income derived from Timorese sources. To work out your tax residency, you should not use the legal definition of resident (resident as Timorese citizen or Timorese passport holder). This means that:

• You can be a Timorese tax resident without being a Timorese citizen or permanent resident

• Must have a visa to enter into Timor-Leste

Below explains how the taxation law in Timor-Leste determines tax residency for individual and corporate entities.

Individual

Under the Tax and Duties Act (TDA), an individual is considered as a resident for tax purpose in Timor-Leste if the individual meets the following conditions:

• The individual is present in Timor-Leste for a period of, or periods amounting in aggregate to, 183 days in any 12-month period that commences or ends during the year, unless the individual’s permanent place of abode is not in Timor-Leste, or

• The individual is an employee of the government of Timor-Leste posted abroad at any time during the year.

If you plan to settle in Timor-Leste for a significant amount of time, you should gather evidence to prove your permeant placeof abode is in Timor. This will allow you to enjoy the low tax rate environment in Timor-Leste (top marginal tax of 10% for individual).

Resident or non-resident?

Gordon is a doctor who comes to Timor-Leste from Australia to assist and train the local doctors for seven months. He actually stays for more than 183 days to complete the training project in Timor-Leste. Gordon’s wife and children do not accompany him to Timor-Leste. They stay in their home in Australia. From Timor-Leste, he assists her wife in running the family business. While in Timor-Leste, Gordon stays in a hotel. He uses credit cards to meet day-to-day expenses which are reimbursed by his employer.

Despite the fact that Gordon was in Timor-Leste for a considerable amount of time during the year, all the factors relating to his presence in Timor-Leste suggests that his permanent place of abode is not in Timor-Leste. Therefore, Gordon is not a tax resident in Timor-Leste.

Chen is an engineer from China who comes to Timor-Leste to work for a civil engineering company in Timor-Leste. Chen lives in a rental accommodation near the company with his friends. There is no intention for Chen to return to China, and he would like to live in Timor-Leste permanently .

As Chen is living in Timor-Leste permanently, it is sufficient to conclude that Chen’s permanent place of abode being in Timor-Leste despite he is a Chinese citizen. Chen will be assessed on his worldwide income under the taxation law in Timor.

Corporate entities

Under the Tax and Duties Act (TDA), corporate residence for tax purpose in Timor-Leste refer to a wide range of entities, such as companies, partnerships, trusts, governmental institutions, and unincorporated associations incorporated, formed, organised, or established in Timor-Leste.

If you are a non-resident, but have a “permanent establishment” in Timor-Leste, you would generally be subject to income tax on Timor-Leste-source income attributed to a permanent establishment (PE). Non-resident without a PE may be subject to a 10% withholding tax. Permanent establishment means a fixed place of business through which the business of a person is wholly or partly carried on, including:

1. a place of management;

2. a branch;

3. a representative office;

4. an office;

5. a factory;

6. a workshop;

7. a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources, including any place of drilling for mineral exploration;

8. a fishery, place where animal husbandry is conducted, farm, plantation, or forest;

9. a construction, installation, or assembly project;

10. the furnishing of services through employees or other personnel, if conducted for more than sixty days in any 12-month period;

11. a natural or legal person acting as dependent agent; or

12. an agent or employee of a non-resident insurance company, if the agent or employee collects premiums, or insures risks, in Timor-Leste;

Implication

A resident company is assessed on its total ordinary and statutory income from Timorese and non-Timorese sources. This means that a resident company is taxed at a tax rate of 10% on its worldwide income. Furthermore, dividend is tax exempt in the hands of Timor-Leste residents.