The tax system in the country is aimed at business profits and passive income. Business profits such as capital gains and passive incomes such as royalties, and rental and dividend income. The usual income tax rates for local companies and individuals are 10% on the first $3,368; 15% on the next $3,368; and 30% on income over $6,737. Taxes are important in improving the quality and standard of living of citizens of a nation. Thus, everyone has to pay them.
Who is liable to pay Tax?
Timor-Leste citizens have to pay income tax on global taxable income. This income is the difference between gross income and permissible deductions. Non-residents, have to pay income tax on income made within the nation, credited to a permanent organization (PO). However, those without a permanent establishment may be subjected to a 10% Withholding tax.
Types of Taxes
The revenue generated annually by companies is liable to a corporate income tax (CIT) with a rate of 10%. The rate for oil and gas companies is 30%, while sub-suppliers have to pay CIT at a 6% tax rate. This is known as industry-specific tax. Supplemental Petroleum Tax (SPT) applies to oil and gas contractors and is levied on accrued net receipts. SPT is usually deducted when calculating CIT. Petroleum activities in the Joint Petroleum Development Area (JPDA) are subjected to separate tax arrangements. Individuals pay income tax while wage income tax is paid for taxable wages made by an employee while working in Timor-Leste. Persons working in the Joint Petroleum Development Area have to pay taxes under any of the four distinct petroleum tax regimes.
Residents and Non-residents (with PE)
A permanent establishment is a fixed place of business where the business is entirely or partially carried out, such as an office, factory, or workshop. The forms of income and appropriate rates of tax for residents of Timor-Leste and Timor-Leste permanent establishments of non-residents are shown below.
| Type of income | Rate |
| Royalties | 10% |
| Fee from land and buildings | 10% |
| Income from prizes and raffles | 10% |
| Income from production and building activities | 2% |
| Construction consulting services revenue including project management, engineering design, and site monitoring services. | 4% |
| Revenue derived from the supply of air and maritime transportation services | 2.64% |
| Income from mining and mining support services | 4.5% |
Non-residents with no permanent establishment here, have to pay a withholding tax for income earned. The withholding tax rate is 10%. An individual is a resident if such a person is present in Timor-Leste for at least 183 days during a calendar year and has a permanent place of residence in or is an employee of the government of Timor-Leste. All taxpayers must file a separate tax return.
Taxable income/Rates
Included in taxable income are earnings from jobs and property income. Property income consists of dividends, interest, royalties, annuities, rent, and other sums resulting from the provision, use, or exploitation of property. Individuals living here are levied a wage income tax (WIT) at 10% on incomes having an extra $500, the first $500 is, however, not levied. For non-residents, a standard rate of 10% is taxed on all revenue. The obligation to withhold WIT lies with the employer.
Tax year
The tax year is also known as the calendar year. The income tax return has to be filed for each tax year. All income tax must be duly paid by 31 March after the end of the tax year. An individual does not have to file a tax return if a part of his only taxable income has been withheld by the employer.
Value-added tax (VAT)
There is no VAT or special taxes in Timor-Leste.
