Corporate income tax in Timor-Leste: rates, returns, and what to file

The corporate income tax rate in Timor-Leste is 10% — a single flat rate on net taxable income, applied uniformly across most sectors and across both resident and non-resident companies for the headline figure. There's no progressive scale, no separate small-business band, and no surcharge layered on top.

There are two notable carve-outs. Oil and gas contractors are taxed at 30% and are subject to a Supplemental Petroleum Tax under a separate formula. Oil and gas sub-contractors pay CIT at a flat 6%. These exist because the petroleum sector operates under a parallel tax regime — for most non-petroleum businesses, the 10% rate is the only number that matters.

CIT applies to legal entities deriving income from business activities in Timor-Leste — companies (Lda or anonymous), branches of foreign companies, partnerships in some configurations, and other legal forms recognised under the Commercial Code.

Sole traders aren't subject to CIT — they file as natural persons under the personal income tax regime. The dividing line is the legal form of the business, not its size.

Non-resident companies that derive Timor-Leste-source income are also liable for CIT on that income, at the flat 10% rate. In practice, much non-resident income is collected via Withholding Tax at source rather than via a full CIT filing — but that's a collection mechanism, not an exemption.

A company is resident in Timor-Leste for tax purposes if it's incorporated in Timor-Leste, or if it has its principal place of business or effective management here. Resident companies pay CIT on worldwide income; non-resident companies pay only on their Timor-Leste-source income.

In practice, given the country's still-developing network of double-tax treaties, most resident companies have their entire economic activity inside Timor-Leste — so the resident/non-resident distinction matters less than in larger economies. But the rule is the rule, and it shapes how non-resident-owned branches plan around their dividend remittances.

The petroleum tax regime sits parallel to general CIT. It governs upstream oil and gas activities — exploration, development, and production — under contracts with the relevant petroleum authority.

Contractors pay CIT at 30%, plus a Supplemental Petroleum Tax calculated on accumulated net receipts under a formula set out in the petroleum-specific tax law. Sub-contractors pay CIT at 6%, with no SPT.

If you aren't a contractor or sub-contractor in upstream oil and gas, the petroleum regime doesn't touch you. If you are, it's a specialist area, and the rest of this guide gets you part of the way there — but the petroleum-side filings need specialist advice on top.

CIT is paid on net taxable income — gross income minus allowable deductions, with non-deductible items added back.

Gross income, broadly, is the total income earned during the tax year from business activities: operating revenue, gains on the sale of assets, lottery prizes and awards, and refunds of tax payments previously deducted as expenses. Capital gains are taxed at the same 10% as ordinary income — there is no separate capital-gains rate that applies a different number to disposals.

Dividends paid by one Timor-Leste resident company to another are tax-exempt in the receiving company's hands — so the receiving company doesn't add inter-corporate dividends to its taxable income.

The annual CIT framework recognises three principal categories of deductible expense.

Inventory and stock purchases — the cost of goods purchased for resale or for use in producing the business output.

Depreciation — the cost of buildings and other depreciable assets, written down over their useful life under the schedules in the tax law.

Amortisation — the cost of intangibles (rights, licences, certain configurations of goodwill) written down over their useful life.

Outside these explicit categories, ordinary operating expenses incurred in earning the business income are generally deductible, subject to the non-deductible exclusions in the next section and the timing rule that follows.

A critical rule on long-lived expenses: if an expense useful life exceeds one year, you cannot deduct it directly in the year incurred. You have to depreciate or amortise it. The classic mistake is treating a multi-year software licence or office fit-out as a one-shot expense — ATTL will reclassify it on audit and disallow the immediate deduction.

Article 31 of Law 8/2008 sets out the categories of expense that are explicitly NOT deductible from corporate income, regardless of how they are treated in the accounts.

Profit distributions of any kind — dividends, returns of capital, drawings — regardless of the label used. If money is going out to shareholders, partners, or members in their capacity as owners, it's not a business expense.

Expenses incurred or contracted for the personal benefit of shareholders, partners, or members. Personal phone bills, personal travel, household expenses paid through the company — disallowed.

Reserves — with limited exceptions. Setting money aside as a reserve does not reduce taxable income.

Health, accident, life, or education insurance premiums paid by an individual — except where they are paid by an employer for a dependent worker and treated as income to that worker.

Excessive compensation paid by a legal entity to a member or among associates as remuneration for work — ATTL can recharacterise excess compensation as a profit distribution rather than a deductible salary expense.

These exclusions are mechanical, not judgmental. They apply regardless of intent or how the transaction was documented internally.

This is the rule that quietly catches the most businesses.

When a CIT taxpayer is obligated to withhold tax on a payment — say, paying a subcontractor where WHT should have been deducted — the expense is only deductible after the withheld tax has been delivered to ATTL.

In plain terms: if you paid a contractor gross without withholding, and you haven't remitted the WHT to ATTL, you can't deduct the contractor's invoice on your CIT return. Even if the invoice was a perfectly legitimate business expense. Even if you have the receipt. The deduction waits for the WHT to be paid.

The practical implication is that month-to-month WHT discipline directly affects year-end CIT. Letting WHT obligations drift creates two problems at once — the WHT liability itself, and the disallowance of the underlying deductions until that WHT is settled.

Gains on the disposal of business assets are taxed as ordinary income at 10% — the same rate as the business operating profit. There is no separate capital-gains rate, and no concessional treatment for long-held assets. The gain calculation is straightforward: sale price minus the asset tax basis (typically its original cost, less any depreciation already taken).

Dividends paid by a Timor-Leste resident company to another Timor-Leste resident company are tax-exempt in the receiving company's hands. The receiving entity does not add them to taxable income.

Dividends paid to non-resident shareholders are subject to Withholding Tax at 10% on payments of Timor-Leste-source income to non-residents, withheld at the time of the dividend distribution.

Larger businesses — those above a CIT-liability threshold set under Law 8/2008 — pay CIT in quarterly instalments rather than as one annual lump.

Instalment due dates fall at the end of each fiscal quarter, with the final reconciliation in the annual return on 31 March (for calendar-year companies). The instalment calculation is anchored to the prior year tax position, adjusted as the current year develops.

For smaller businesses below the instalment threshold, no quarterly payments are required — CIT settles entirely in the 31 March return.

The CIT annual return is filed on the Annual Income Tax Form, due by the last day of the third month after year-end — 31 March for a calendar-year company.

The return covers: total gross income for the tax year, the deductions claimed broken down by category, additions for non-deductible items, the net taxable income, the CIT due at 10%, any quarterly instalments already paid, and the balance owing (or refundable).

Supporting documentation should be retained for the standard statutory retention period and made available if ATTL queries any line item. Returns filed without retained supporting documentation are fragile — at audit, unsupported deductions can be disallowed and the tax bill grows.

Three patterns turn up at audit again and again.

Treating long-lived expenses as one-shot deductions. A two-year software subscription, an office fit-out, a multi-year insurance prepayment — these should be depreciated or amortised, not deducted immediately. ATTL reclassifies them on review and disallows the immediate deduction.

Personal expenses paid through the company that find their way into the deductions schedule. Petrol for personal use, family travel, household expenses — these fall under Article 31 personal-benefit exclusion and are not deductible.

Deductions claimed for payments where WHT should have been withheld but was not remitted. Those deductions only land after the WHT is settled with ATTL — they are held in suspension until then. Watching the WHT schedule is half of getting CIT right.

CIT is one of the obligations our team handles every year for clients across Dili — return preparation, deductions analysis, instalment calculation, and the audit-readiness work that makes the annual return defensible.

If your business is approaching its first 31 March return, or if last year's return left you uncertain, book a free 30-minute consultation. We'll look at the year-to-date position, point out anything that's likely to surprise you at year-end, and lay out what filing would look like with Primos Bo'ot.