Annual Income Tax Return
Tax on other income is calculated when you complete an Annual Income Tax Form, which details your assessable income and any expenditure you can deduct against income.
Who Must Lodge an Annual Income Tax Return?
Each tax subject that derives income from conducting business activities must lodge an annual income tax return.
The exception is if that income was covered by a final withholding tax, such as when the recipient required to withhold tax is an individual (including individual enterprises).
Individual employees do not lodge tax return forms, but individuals who operate a business are required to.
While the final amount of income tax payable is not calculated until after the end of the tax year, income tax installments are payable by business enterprises throughout the year.
Tax Year
The period covered by the annual return is from 1 January to 31 December.
Income Tax Rates
Resident natural person
Where the taxpayer is a resident natural person:
| Annual taxable income | Tax on this income |
|---|---|
| $0 – $6,000 | 0% |
| More than $6,000 | 10% |
A resident natural person is an individual who is:
- present in Timor-Leste for a period of, or periods amounting in total to, one hundred and eighty-three (183) days in any twelve month period that starts or ends during the year, unless the person’s permanent place of abode is not in Timor-Leste, or
- an employee of the Government of the Democratic Republic of Timor-Leste posted abroad at any time during the year.
Non-resident natural person
Where the taxpayer is a non-resident natural person (i.e. individual business enterprises):
| Annual taxable income | Tax on this income |
|---|---|
| All taxable income | 10% |
Legal person
Where the taxpayer is a legal person (i.e. non-individual business enterprises):
| Annual taxable income | Tax on this income |
|---|---|
| All taxable income | 10% |
A legal person means:
- any limited liability company, joint stock company, general partnership, limited partnership, or other unincorporated association or body of persons, whether incorporated, formed, organised, or established in Timor-Leste or elsewhere
- any trust, undivided estate of a deceased natural person, or foundation, or
- a government, a political or administrative subdivision of a government in whatever name or form, or public international organisation, or any entity, organisation, association, or business form owned by a government, political subdivision of a government, or public international organisation.
Previous tax years
For the years between 1 January 2002 and 31 December 2007 the rates of tax were as follows:
Where the taxpayer is a natural person (i.e. individual business enterprises):
| Annual taxable income | Tax on this income |
|---|---|
| $0 – $3,368 | 10% of each $1 |
| $3,369 – $6,737 | $336.80 plus 15% of each $1 over $3,368 |
| $6,738 and over | $842.15 plus 30% of each $1 over $6,737 |
Where the taxpayer is a legal person (i.e. non-individual business enterprises):
| Annual taxable income | Tax on this income |
|---|---|
| All taxable income | 30% |
Deductions
Determining gross income and deductions is based on net profit for financial accounting purposes, prepared in accordance with International Financial Reporting Standards, and subject to modifications in the Act.
This means taxpayers may claim additional deductions allowed by the Act including:
- inventory and stock purchases (section 35of the Taxes and Duties Act 2008)
- depreciation for buildings and depreciable assets (section 36 of the Taxes and Duties Act 2008), and
- amortisation of the taxpayer’s intangibles during a tax year (section 37 of the Taxes and Duties Act 2008).
The Taxes and Duties Act 2008 (section 31) lists deductions which are not allowable. Any ‘not allowable’ deduction will need to be excluded from the calculation of profit and from determining the taxable income of an income taxpayer.
How to pay Annual Income Tax Return
Complete an Annual Income Tax Form. See How to pay taxes and Due date for payments for further details.