flag East-Timor East-Timor: Investing

FDI in Figures

According to the 2021 World Investment Report published by UNCTAD, FDI flows to Timor-Leste decreased by 3% from USD 75 million in 2019 to USD 72 million in 2020, mainly due to the global health and economic crisis triggered by the Covid-19 pandemic. The total stock of FDI reached USD 468 million in 2020. The bulk of these inflows targeted the oil and gas sector, in which a new bidding round for production-sharing contracts was opened in October 2019. The original deadline for offers was set in October 2020 but was postponed by one year because of the pandemic. Traditionally, the main sector attracting FDI is the oil and gas sector, but there are also opportunities in the services, tourism and agriculture (timber, coffee and vanilla) sectors. The main investing countries are Indonesia, the United States and Australia. A foreign investment law was passed by the Timor-Lesteese Parliament, which aims to simplify business registration for foreign investors. The government established a Registry and Verification of Enterprises Service (SERVE) for one-stop registration of businesses and an agency to promote foreign investment and assist investors called TradeInvest Timor-Leste. The International Finance Corporation (IFC) provides advice on the process of starting and running a business in Timor-Leste in its Doing Business report (Austrade, 2022).

Timor-Leste has coped comparatively well with the effects of COVID-19, largely due to its sovereign wealth Petroleum Fund. Unfortunately, however, the longevity of the Petroleum Fund is now in question and, while a restructuring of the governing coalition spurred on by COVID-19 has brought some respite from high levels of political instability, it is still likely only to offer temporary relief. Some of the factors that discourage FDI are bureaucratic burdens, low possibilities for financing, land insecurity, haphazard legal enforcement, lack of a skilled workforce and corruption. Foreign ownership of land is not allowed, and investment in many sectors of the economy is screened. The minimum capital necessary to start a business is quite high (USD 50,000). The weak judicial system suffers from a severe shortage of qualified personnel and has failed to demonstrate independence. Corruption and nepotism continue to be serious problems. The lack of consistency in enforcing regulations continues to discourage private-sector development. According to the government’s Strategic Development Plan, key investment areas include oil and gas, agro-industry, forestry and livestock, fisheries, civil construction, coffee, spices, transportation and tourism, energy, and infrastructure. The autonomous agency called National Petroleum and Minerals Authority (ANPM) contracts with foreign firms to explore and develop offshore oil and gas deposits.

Overall, the business climate remains unfavourable, as evidenced by the last 2020 Doing Business report of the World Bank, which ranks East Timor 181st out of 190 countries (three spots down compared to the previous year’s edition). The COVID-19 pandemic puts Small island developing economies in dire straits. A small and narrow economic base, high degree of openness and significant dependence on few large developed countries make small island economies extremely vulnerable to global economic shocks. These economies are often at the receiving end of global crises, as they are highly dependent on external flows—trade, remittances and external capital and borrowing—compared to other groups of developing countries (United Nations, 2021). The collapse in tourist arrivals not only directly affects income and employment in airlines, ground transport and hotels, but also adversely affects the rest of the economy, including agriculture and construction. Falling tourism, and subsequently, reducing tax revenues, will exacerbate fiscal balances of many small island economies and also reduce the flow of foreign direct investment (FDI), as the tourism sector is typically the largest recipient of FDI.

 

Country Comparison For the Protection of Investors

  East-Timor East Asia & Pacific United States Germany
Index of Transaction Transparency* 5.0 5.9 7.0 5.0
Index of Manager’s Responsibility** 4.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 5.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 757285
FDI Stock (million USD) 395.8468.2553.5
Number of Greenfield Investments* 1.00.00.0
Value of Greenfield Investments (million USD) 100

Source: UNCTAD - Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

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Tax Rates

Sales Tax
Sales Tax is 2.5% of the customs value of the goods imported into Timor-Leste and 0% for the sale of taxable goods and provision of taxable services in the country.
A Services tax is imposed at 5% on any gross consideration exceeding USD 500 received by a taxpayer for the provision of hotel, restaurant and bar, or telecommunication services.
Company Tax
10%
Withholding Taxes
Dividends: 0% (resident)/10% (non-resident), Interests: 0% (resident)/10% (non-resident), Royalties: 10% (resident and non-resident).
Social Security Contributions Paid By Employers
6%
Other Domestic Resources
Timor-Leste Tax Authority
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 
 

Individual Taxes

Wage income tax
USD 0 - 500 0% (residents only, 10% for non-residents)
Above USD 500 10%
Personal income tax (wage income excluded)
USD 0 - 6,000 0
Above USD 6,000 10%
 
 

Country Comparison For Corporate Taxation

  East-Timor East Asia & Pacific United States Germany
Number of Payments of Taxes per Year 18.0 23.4 10.6 9.0
Time Taken For Administrative Formalities (Hours) 234.0 195.1 175.0 218.0
Total Share of Taxes (% of Profit) 17.3 33.8 36.6 48.8

Source: Doing Business - Latest available data.

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Investment Opportunities

Tenders, Projects and Public Procurement
Asian Developement Bank, Proposed Projects in Asia
DgMarket, Tenders Worldwide
Setting Up a Company
Consult Doing Business Website, to know about procedures to start a Business in East Timor.
Useful Resources
National Inward Investment Agency
Asia Trade Hub
 

Business Setup Procedures

Setting Up a Company East-Timor East Asia & Pacific
Procedures (number) 6.00 7.25
Time (days) 13.00 29.73

Source: Doing Business.

 
 
 

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Latest Update: October 2022