Timor-Leste

Bureau of Economic and Business Affairs
June 29, 2017

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Executive SummaryShare    

Since gaining independence in 2002, the government of Timor-Leste has welcomed foreign investment and business development opportunities. Plagued by conflict and turmoil in the first decade of its formative period, Timor-Leste has experienced sustained peace and stability since 2008. Peaceful presidential elections in 2017 are a further signal of the country’s readiness to move forward. Parliamentary elections will occur later in 2017. The government is making a concerted effort to improve the country’s basic infrastructure, including roads, airports, electricity, and telecommunications. The government is also implementing a fiscal and economic reform process that will bring its system into compliance with best practices, as it seeks to join the Association of Southeast Asian Nations (ASEAN). However, challenges remain as the country is still struggling with incomplete and unclear legislation, inadequate regulatory mechanisms, corruption, insufficient personnel capacity, and deficient infrastructure. The private sector is weak and primarily dependent on government contracts, and government’s ability to regulate industry is limited. The government offers investment incentives to offset some of these challenges including five-, eight-, or ten-year tax holidays depending on the location and nature of the investment. Investment opportunities outside of the oil and gas sector are increasing, with interest growing in the agricultural, construction, telecommunications, and tourism sectors. The government is also working on a major petroleum sector infrastructure project along the country’s southern coast and has created Special Economic Zones in Oecusse exclave and Atauro Island.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2016

101 of 176

http://www.transparency.org/
research/cpi/overview

World Bank’s Doing Business Report “Ease of Doing Business”

2016

175 of 190

doingbusiness.org/rankings

Global Innovation Index

2016

N/A

https://www.globalinnovationindex.org/
analysis-indicator

U.S. FDI in partner country ($M USD, stock positions)

2015

USD $10.0 million

http://www.bea.gov/
international/factsheet/

World Bank GNI per capita

2015

USD 2,180

http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Policies Towards Foreign Direct Investment

As a relatively new country in Southeast Asia, Timor-Leste has made considerable effort to establish effective legislative, executive, and judicial institutions, draft laws and regulations, and build government personnel capacity. Despite instability and periods of violent upheaval in the early years of its independence, the political and social environment in Timor-Leste has been generally calm since 2008. In 2011, the government’s National Strategic Development Plan was approved unanimously by the National Parliament. The plan focuses on using petroleum revenues to support non-petroleum economic development and help the country to become a middle-income country by 2030. A peaceful presidential election in March 2017 is indicative of the country’s political maturity and its readiness to focus on economic development issues. Parliamentary elections will follow later in 2017. In June 2016, Timor-Leste successfully held “The Timor-Leste International Investment Conference” with a packed program intended to showcase Timor-Leste’s potential across a range of industries. During the conference, the government noted that international investment and business partnership are a key part of developing a diversified and sustainable economy in Timor-Leste.

The government, through its autonomous agency, the National Petroleum and Minerals Authority (ANPM), has contracted with foreign firms to explore and develop offshore oil and gas deposits. Taxes and royalties collected by the government and its agency are deposited in a sovereign petroleum fund, which held about USD $16.09 billion in January 2017. Government expenditures are mostly dependent on this fund. Besides the oil and gas sector, government spending, small-scale retail activities, and subsistence agriculture are the primary sources of employment and contributors to GDP. With a population of approximately 1.2 million, Timor-Leste has one of the world’s most rapidly growing populations, with sixty percent of the population under the age of 25 and a birth rate of 5.2. Timorese authorities are intent on expanding private sector economic activities to provide employment for new labor market entrants.

Timor-Leste is applying for full membership to the Association of Southeast Asian Nations (ASEAN) and served as President of the Community of Portuguese Speaking Countries from 2014-2016. The government views building these international ties as part of its effort to increase investment opportunities within the country. Timor-Leste is also pursuing trilateral economic cooperation opportunities with Indonesia and Australia to boost cross-country investment.

There are no laws or practices in the country that U.S. investors allege discriminate against foreign investors by prohibiting, limiting or conditioning foreign investment in a sector of the economy. Under the constitution, only citizens may own land. However, article fourteen of the Private Investment Law No.14/2011 states that foreigners can be granted the right to private property for investment and reinvestment projects subject to the limits set out in the Constitution and in legislation on land and commercial companies.

TradeInvest Timor-Leste, I.P. is Timor-Leste’s investment and export promotion agency. The organization’s goal is to facilitate and support potential investors in Timor-Leste and assist foreign companies in identifying projects among the array of business opportunities that are emerging in Timor-Leste. TradeInvest is a one-stop-shop that provides services such as: licensing, taxes, investment opportunities, permits, tariffs, or linking importer with the right procedures. The agency’s official website is www.investtimor-leste.com.

As outlined in the government’s Strategic Development Plan, key investment areas are oil and gas, agro-industry, forestry and livestock, fisheries, tourism, energy, infrastructure, civil construction, and transportation. Information as to opportunities in the country has been disseminated both in domestic and international expositions and business and economic forums.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors may invest in any sector other than postal services, public communications, protected natural areas, and weapons production and distribution, as these are specifically reserved for the state. Investors are also prohibited from investing in sectors otherwise restricted by law (such as criminal activities).

Section 54 of Timor-Leste’s constitution grants the right of land ownership exclusively to Timorese nationals, either individuals or corporate entities; however, foreigners may conclude long-term (up to 50-year) leases. There is no comprehensive national legislation governing land ownership and investors who wish to lease property must often sort through competing claims from the Portuguese colonial administration, the Indonesian occupation era, and the post-independence period.

TradeInvest, the government’s investment promotion agency, reviews foreign investment applications which are then presented to the Private Investment Commission for further study and evaluation. The Executive Director of TradeInvest chairs the Private Investment Commission which is composed of directors general or equivalent from the relevant government ministries in the areas of taxation, customs, land and properties, economic activities of licensing, professional training, labor, immigration, building and housing, territorial planning and the environment. Other ad-hoc members may also be called upon to be present during the meeting.

The Private Investment Commission evaluates applications for foreign investment permits, verifying the following:

  • Compliance of the application with requirements established in the National Development Plan, in the Procedural Regulation for Foreign Investment and other applicable legislation;
  • Suitability, capacity, experience, and availability of financial resources necessary for implementation and operation of the proposed investment enterprise;
  • Capacity, experience, and business or technical characteristics of the promoter or its managers in order to guarantee implementation and operation of the enterprise;
  • Positive operational balance of the business, according to the project proposal;
  • Environmental, infrastructural, and social implications which could condition the viability of the enterprise or that can result from its implementation;
  • Guaranteeing availability of necessary land for installation and functioning of the investment enterprise;
  • Ensuring consistency of the expected new jobs to be created in the short and medium term;
  • Establishing interconnection with other economic sectors.

The documents required for investments include:

  • TradeInvest application form
  • Descriptive project summary (project briefs, technical plans)
  • Identification of promoters, professional CV/Firm Corporate Capability
  • Bank credentials (bank statement, bank reference)
  • Business plan
  • Documents of Land Ownership
  • Lot location
  • Budget for construction/remodeling
  • Environmental Impact Assessment (Environmental Licensing)
  • Criminal Records (Original/Certified copy)

TradeInvest can issue a certificate of investment to projects approved by the Private Investment Commission that are valued at less than USD $20 million. Investments of more than USD $20 million or that require more than 5 hectares of state land for tourism or 100 hectares of state land for agriculture, livestock, or forestry require approval from the Council of Ministers. Investors can also request a Special Investment Agreement, through TradeInvest, prior to submitting the project to the Council of Ministers for approval. According to the TradeInvest website, application fees are USD $500 for national investors and USD $2,000 for international investors, and investment decisions are issued within 30 days.

Other Investment Policy Reviews

Timor-Leste has not yet conducted any investment policy reviews through OECD, WTO, or UNCTAD. Timor-Leste was accepted as an observer to the WTO in 2016, and its Working Party for accession to the WTO was established in December 2016. The country is in the process of designing and adopting fiscal and economic reform that include new laws on private investment, export promotion, commercial companies, sanctions, taxation, and the value-added tax (VAT). Timor-Leste’s political stability has given opportunities for business to grow. Commerce is increasing and the government is funding additional public services and larger public works projects. Other than the oil and gas sector, investment opportunities exist in the service, tourism, agriculture, and infrastructure sectors. While the government is committed to improving its services in critical sectors, challenges remain. Bureaucratic inefficiency, infrastructure bottlenecks, a paucity of local financing options, the absence of a real property law and other essential legislation, uncertain implementation of government procedures, significant deficiencies in human capacity, and perceptions of malfeasance, conflicts of interest, and corruption are the notable challenges.

Business Facilitation

Timor-Leste’s Business Verification and Registration Service office (SERVE – Serviço de Registo e Verificação Empresarial) processes business registration and licensing in the country. SERVE was created in 2013 as one-stop-shop to make business registration faster and easier. The agency’s website is www.serve.gov.tl. Business registration and application processes are currently done by visiting the office in person. Getting a business license takes between one and five days. For companies involved in civil construction, food processing, or pharmaceutical industries, the agency works closely with relevant ministries, particularly the Ministry of Commerce, Industry and Environment, to facilitate business licenses.

Outward Investment

The government does not promote or incentivize outward investment, nor does it restrict it.

2. Bilateral Investment Agreements and Taxation TreatiesShare    

Timor-Leste and Portugal have signed an Agreement on Mutual Protection and Promotion of Investment. Timor-Leste signed a Bilateral Investment Treaty (BIT) with Germany in 2005 and with Qatar in 2012, but they have not entered into force. Timor-Leste does not have a BIT with the United States.

Timor-Leste does not have a bilateral taxation treaty with the United States.

3. Legal RegimeShare    

Transparency of the Regulatory System

Timor-Leste’s regulatory system is still in its formative stages. The existing tax, labor, environment, health and safety, and other laws and policies do not present any obvious impediments to investment. However, the lack of a comprehensive law governing land and property rights is an issue of concern for foreign investors and businesses.

In 2011 and 2012, the government issued a number of tax assessments on private firms (both foreign and domestic) stretching back several years, with compounded interest plus penalties. Several of the affected firms have contested these assessments. In February 2016, the government reached a negotiated settlement with one private firm on most of the outstanding assessments.

The Ministry of Finance launched an online Procurement Portal in 2011, intended to increase transparency by providing equal access to information on government tenders and procurement contracts. However, updates are inconsistent and not all tenders appear to be included in the site. In 2012, the government hired an internationally-recognized firm to serve as its procurement agent for major projects but there are still concerns about nontransparent and unfair procurement practices. The Audit Chamber, under the Court of Appeals, is responsible for reviewing government procurements above a $5 million threshold. In 2016, the Audit Chamber rejected the government’s proposed $720 million contract with a large Korean company for a development on the south coast, on the basis of “non-compliance with fundamental norms currently in place in Timor-Leste.” The government appealed the decision, and the company withdrew from the process in June 2016 before a decision on the appeal.

In June 2013, with assistance from the International Finance Corporation, the government established the Business Registration and Verification Service (SERVE) as a one-stop business registration center for both foreign and domestic investors. SERVE is the government’s attempt to streamline the business registration process to less than five days from start to finish. Prior to the opening of SERVE, business operators had to visit three different government ministries to complete a process that could take upwards of one year. SERVE has registered over 20,000 businesses, approximately half of which are construction-related enterprises.

In addition to registering businesses, SERVE can also issue business licenses for what it determines to be low-risk undertakings. The Ministry of Commerce, Industry, and the Environment must issue business licenses for high-risk endeavors. Currently, both business registration and licensing are free. However, there are proposals to institute a small fee for business license renewals. The initial business license is valid for 12 months, with renewals also generally 12 months.

Parliament and parliamentary committees regularly hold hearings about and debates on proposed laws. For certain major legislation, the government holds limited public consultations or solicits public comment.

There are no known informal regulatory processes outside of the government. Regulations are adopted and implemented at the national level, and most oversight occurs in the capital, although some agencies have staff at the district level that monitor compliance. Regulations are published in the national journal in advance of their entry into force, although applicable information may be difficult to find for those entering the market.

International Regulatory Considerations

Timor-Leste is applying for full membership into the Association of Southeast Asian Nations (ASEAN) and served as President of the Community of Portuguese Speaking Countries from 2014-2016 and also part of Macau Economic Forum (between China and CPLP). The government views building these international ties as part of its effort to increase investment opportunities within the country. Timor-Leste is also pursuing trilateral economic cooperation with Indonesia and Australia to boost cross-country investment.

Reforms currently underway in Timor-Leste’s fiscal and economic systems aim to bring the country into compliance with ASEAN standards.

Timor-Leste was accepted as an observer to the WTO in 2016, and its Working Party for accession was established in December 2016.

Legal System and Judicial Independence

Timor-Leste has a civil law system influenced by the Portuguese law system. Indonesian law that was in force as of August 30, 1999 is applied as a subsidiary source of law for issues which have not yet been addressed in Timorese legislation, including the commercial code. The justice system -- police, prosecutors, and courts -- are still evolving and short-staffed. Until October 2014, when Timor-Leste's Parliament voted to dismiss all foreign judges, prosecutors, and advisors from the judiciary, the government relied upon significant numbers of foreign experts and advisors to augment local resources. In the immediate wake of the dismissals, there was a significant backlog in cases, but observers believe that backlog has lessened.

In December 2015, the government established a Legislative Reform and Justice Sector Commission which has the mission to recommend law reform, evaluate how laws are being implemented, and harmonize legislation. As stipulated in the country’s strategic development plan, the commission will review and improve the legal instruments ensuring protection of rights, liberties and guarantees, as well as access to the law, bringing legislation closer to the democratic ideals and the citizens of Timor-Leste.

The Office of the Prosecutor General has continued to accumulate experience and capacity to establish and implement case management and other essential systems. The country has established courts of first instance and a court of appeal. However, courts currently operate only in four of the thirteen districts, and most cases at the local level are handled through traditional justice mechanisms. Additional courts foreseen in the Constitution and legislation, such as specialized tax courts, have not yet been established. The U.S. Embassy is not aware of any major court cases testing the sanctity of contracts or enforcement of contracts that have been processed to conclusion; however, one U.S. oil company has successfully argued tax cases against the government in Dili District Court. The company came to a confidential negotiated settlement with the government in most of the remaining pending cases.

Laws and Regulations on Foreign Direct Investment

The Timorese legal system is based on a mix of Indonesian laws and regulations, acts passed by the United Nations Transitional Administration, and post-independence Timorese legislation. The country is working on a review of its legislation to harmonize the system, but has yet to undergo a comprehensive overhaul of the overlapping yet disparate systems. Timor-Leste has two official languages, Tetun and Portuguese, and two working languages, Indonesian and English; all new legislation is enacted in Portuguese and is based on the civil law tradition.

The Private Investment Law (Law No.14/2011) specifies the conditions and incentives for both domestic and foreign investment and guarantees full equality before the law for international investors. Other major laws affecting incoming foreign investment include the Companies Code of 2004, the Commercial Registration Code, and the Taxation Act of 2008. In accordance with article 30 of the Private Investment Law, the Government of Timor-Leste announced the establishment of a Specialized Investment Agency, a one-stop-shop for investment and export promotion on January 5, 2015. The agency became TradeInvest Timor-Leste in November 2015. The agency has the responsibility to promote Timorese exports and investment opportunities in the country and to encourage domestic entrepreneurship. A new private investment policy, tax codes, and customs agencies are part of the ongoing fiscal reform effort that is designed to align Timorese legislation and regulation with best practices in ASEAN (under the ASEAN Comprehensive Investment Agreement) and under UNCTAD.

Competition and Anti-Trust Laws

Timor-Leste does not have a competition or anti-trust law.

Expropriation and Compensation

Timor-Leste does not yet have a separate expropriation law. However, both Article 54 of the Constitution and the Private Investment Law permit the expropriation or requisition of private property in the public interest only if just proper compensation is paid to the investor. The Private Investment Law calls for the equal treatment of foreign and national investors in expropriation cases and prohibits nationalization policies or land policies that deliberately target the property of investors.

Before expropriation occurs, the affected occupants or claimants, if non-occupying, are given 30 days to leave the property and 10 days for filing cases at the local courts. If no claims are filed during the 10 days, the occupants should clear the property before being evicted. During the last five years, expropriation primarily affected urban squatters occupying state property. Two large government development projects have relocated significant numbers of residents, while two known private investments have negotiated with the government to remove residents as part of the investment agreement.

Dispute Settlement

ICSID Convention and New York Convention

Timor-Leste is a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention). It is not a signatory party to the convention of the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Timor-Leste’s Court of Appeals must first recognize a foreign judgment or arbitral award in order for it to be enforced in the country.

Investor-State Dispute Settlement

Civil disputes are generally handled through the domestic court system, which is not always properly equipped for the demands that are currently placed upon it. The Timorese justice system suffers from a shortage of qualified judges and attorneys, incomplete and piecemeal national legislation, and insufficient geographical coverage. New legislation is enacted in Portuguese, while many legislators, prosecutors, judges, attorneys, police officers, plaintiffs, and defendants do not speak the language. Legal professionals lack specialized technical expertise to address complicated commercial or tax cases.

The government pursued international arbitration against at least one private company in a tax dispute. There were four cases filed against the company at Singapore Arbitration in 2014. After more than a year of process, both sides signed a negotiated agreement in February 2016 that resolved most of the pending cases.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is consistent with Timorese traditional justice systems, but there is no formal system yet in place. The Council of Ministers approved the Arbitration, Mediation, and Conciliation Law in December 2016 as part of the fiscal reform efforts, but the law has not yet received parliamentary approval.

The domestic court system is not properly equipped to handle commercial or tax disputes, and most legal professionals lack specialized expertise or training in these types of cases.

Bankruptcy Regulations

The Council of Ministers approved an insolvency law in March 2017, which must now receive parliamentary approval. In 2016, the World Bank ranked the country 169 of 169 in resolving insolvency.

4. Industrial PoliciesShare    

Investment Incentives

The Government of Timor-Leste offers investment incentives, including tax credits and import duty exemptions, to both domestic and international investors. For domestic investments worth over USD $50,000, foreign investments of over USD $1.5 million, and joint foreign and national resident investments, where the national resident controls at least 75 percent of shares, of USD $750,000, investors benefit from a five year exemption from income, sales, and service taxes, as well as exemptions of customs duties for goods and equipment used in the construction or management of the investment, and also guaranteed contract for up to 100 years (50 years to renovate plus another 50 years’ lease). The period of exemption is extended to eight years for investments in Rural Zones (outside of the cities of Dili and Baucau) and to ten years for investments in Peripheral Zones (the exclave of Oecusse and the island of Atauro). Even after these periods have expired, investors may deduct from their tax obligations up to 100 percent of the costs of constructing or repairing transportation infrastructure. The new private investment policy and taxation law that is currently under discussion will change this incentive structure, if adopted. Specific details of the changes envisioned are not yet public.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones in Timor-Leste. Law No.3/2014 defines and regulates a free trade zone in the Oecusse exclave called the Special Zone for Social Market Economy (ZEESM). The ZEESM as stipulated in the law will prioritize activities of a socioeconomic nature to promote the quality of life and well-being of the community, namely:

  • Development of commercial agriculture
  • Creation of an ethical financial center
  • Creation of a free trade zone
  • Increased tourism
  • Creation of a center for international studies and research on climate change
  • Creation of a center of green research
  • Implementation and development of industrial activities for export and import
  • Other economic activities that add value to the region, as well as strengthen its international competitiveness

The government has approved a decree law on the development of Atauro (an island outside Dili) as part of ZEESM and is pursuing the possibility of creating another free trade zone.

Performance and Data Localization Requirements

Some individual investment agreements and government contracts specify local content requirements. One such contract mandated 30 percent local employment, but the specific requirements vary depending on the agreement.

Timor-Leste’s current immigration laws are not onerous and permit workers to apply for work permits in-country after entry on a 30-day visa acquired at arrival. Timor-Leste has passed a new immigration and asylum law, which will change the visa structure and may streamline the process.

5. Protection of Property RightsShare    

Real Property

The legal regime governing land and property ownership in Timor-Leste remains unclear and uncertain. The country does not yet have legislation regulating the competing claims on land and properties arising from various occupancies during Portuguese, Indonesian, and post-independence eras. These uncertainties are compounded by a history of displacement, overlapping titles, and lack of legal clarity regarding land ownership. A 2010 World Bank report found that the resolution of land ownership disputes is often dominated by the use of customary norms and local or traditional authorities, especially outside of urban areas. A 2016 Asia Foundation studied found that 70 percent of occupants in Dili fear eviction within the next five years. This, combined with lack of a comprehensive land law, makes securing and protecting land titles or property rights a difficult task. However, the government is making some progress as it undertakes efforts to map properties and adjudicate conflicting claims. Parliament passed a package of land laws in 2017, which is currently with the Court of Appeals for constitutional review.

Intellectual Property Rights

Section 60 of Timor-Leste’s constitution provides for the protection of literary, scientific, and artistic work. In addition, Article 1223 of the country’s Civil Code stipulates a necessity of having specific regulation to protect authors of the property. However, legislators have yet to create specific regulations to codify or systematize domestic protection of intellectual property rights. Timor-Leste is not party to any international agreements on intellectual property rights. As a result, some international companies have resorted to printing cautionary notices in local newspapers in order to establish claims to their trademarks and patents. However, the dearth of domestic legislation in this area means that it is unclear the extent to which these practices afford any legal protection.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

6. Financial SectorShare    

Capital Markets and Portfolio Investment

Timor-Leste does not have a stock market and has limited credit and liquidity to facilitate investment. There are no known restrictions on portfolio investment.

Money and Banking System

There are five commercial banks operating in Timor-Leste: ANZ of Australia, Mandiri of Indonesia, BRI of Indonesia, BNU of Portugal, and a subsidized national bank, National Commercial Bank of Timor-Leste. Foreign citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account. According to Central Bank data, commercial banks’ credit to the private sector totaled USD 182.5 million as of December 2016. The overall non-performing loan rate was 15.2 percent in September 2016.

The Central Bank of Timor-Leste is the country’s monetary authority. It supervises the activities of commercial banks, money transfer operators, currency exchange offices, insurance companies, and other deposit-taking corporations, as well as serving as the operational manager of the country’s sovereign wealth Petroleum Fund. The bank also operates the clearing house for interbank payments and undertakes bank operations for the government and Timor-Leste’s public administration.

Foreign Exchange and Remittances

Foreign Exchange

The U.S. dollar is the official currency of Timor-Leste. There are no official currency controls, although the Central Bank of Timor-Leste imposes reporting requirements for the importation or exportation of cash above USD $5,000 and requires explicit authorization for sums in excess of USD $10,000. The four foreign banks operating in Timor-Leste – Bank Mandiri, BRI, ANZ Bank, and Banco Nacional Ultramarino – may also impose reporting requirements for transactions above a certain amount in order to comply with home-country anti-money laundering regulations in addition to the requirements stipulated by the Central Bank. American citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account.

Remittance Policies

Timor-Leste does not have a specific policy governing remittances. The government has facilitated many young Timorese going overseas for industrial and agricultural work but the data is still very limited. In 2016, Timorese workers participating in bilateral workers’ programs in South Korea and Australia sent USD $9.89 million back to Timor-Leste.

Sovereign Wealth Funds

Established in 2005, the Petroleum Fund is Timor-Leste's sovereign wealth fund. The Minister of Finance is responsible for its overall management and investment strategy. The Central Bank of Timor-Leste is responsible for its operational management, although the Minister of Finance has the authority to select a different operational manager. By law, all petroleum and related revenues must be paid into the Fund, with the balance of the Fund invested in international financial markets for the benefit of present and future generations of Timor-Leste's citizens. Most of the Fund's receipts are invested in U.S. Treasuries, but the Petroleum Fund Law permits the investment of up to 50 percent of the Fund in equities, 10 percent of which may be in exotic investments. The Petroleum Fund publishes monthly, quarterly, and annual reports online. As of January 2017 Petroleum Fund assets stood at USD $16.09 billion. The law governing the Fund provides that there shall at all times be appointed an independent auditor, which shall be an internationally recognized accounting firm (most recently Deloitte Touche Tohmatsu). In February 2016, the Sovereign Wealth Institute rated the Petroleum Fund as an 8 out of a possible 10 points for transparency. The Petroleum Fund is the primary source of funding for the government budget, with a ceiling on annual withdrawals set by law at 3 percent of Timor-Leste's total petroleum wealth (defined as the current Petroleum Fund balance plus the net present value of future petroleum receipts). Recent budgets have exceeded the annual ceiling with the approval of Parliament; however, budgets have rarely been fully executed, returning up to one-third of the budget to the government coffers.

In July 2010, Timor-Leste became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but was suspended in March 2017 because it did not submit required reports. EITI is a G-8 endorsed undertaking that involves a country's government, extractive-sector companies, and civil society in ensuring transparency of relevant payments and revenues..

In 2008, Timor-Leste participated for the first time in the IMF-hosted international working group on sovereign wealth funds. The country follows the best practices of the Santiago Principles.

7. State-Owned EnterprisesShare    

The Timorese government operates several state-owned enterprises (SOEs) across various sectors, including broadcasting, aviation, oil and gas, pharmaceuticals, and telecommunications. Several of the country’s most prominent SOEs include:

  • The Government of Timor-Leste has shares in one private company, Timor Telecom, a telecommunications provider. It owns 20.6 percent, while Telecomunicações Públicas de Timor (TPT) owns 54 percent. In 2013, two private foreign companies began telecommunications operations, ending Timor Telecom's monopoly of the fixed and mobile network. In exchange for the end of the monopoly, Timor Telecom acquired certain equipment procured by the government and will retain no-cost usage rights of some government-owned infrastructure and equipment until 2062.
  • In mid-2011, the government established TimorGAP, E.P., a 100-percent state-owned petroleum company intended to partner with international firms in exploration and development of Timor-Leste’s petroleum resources and to provide downstream petroleum services. TimorGAP is supervised by the Minister of Petroleum and Mineral Resources, but is governed by an independent Board of Directors. Firms that partner with TimorGAP will receive preferential treatment in tenders for petroleum projects.
  • In November 2008, the Timorese government transformed Timor-Leste’s Public Broadcasting Service, Radio Televisão de Timor-Leste (RTTL), into a state-owned enterprise known as RTTL. RTTL is wholly owned by the state under the supervision of the State Secretary of Social Communication, governed by an independent Board of Directors. In 2016, the government established an official news agency, TATOLI.
  • In November 2005 (Government Decree No.8/2005), the government established ANATL, E.P., a state-owned company to administer the domestic airports in all aspects, including air navigation.
  • The government also created SAMES, E.P. in April 2004 (Government Decree No. 2/2004), a public enterprise that imports, stores, and distributes medicines and medical products and equipment. In April 2015, government converted SAMES, E.P. into SAMES, I.P., an autonomous institution which operates under the tutelage and supervision of the Ministry of Health.

Several autonomous government agencies are active in the economy: the Institute of Equipment Management (IGE), the Dili Port Authority (APORTIL), and the National Aviation Authority (AACTL). Postal and communications services may shift from the Ministry of Transportation and Communications to autonomous agency status eventually. Timor-Leste Electricity Company (EDTL) has recently ceased to be an autonomous institution and currently operates under the direct supervision of the General Directorate for Electricity. Other autonomous and self-funded institutions are the National Petroleum and Mineral Authority (ANPM), which regulates the oil and gas sector, and a lottery operated by the Ministry of Tourism. A National Authority of Communication (ANC) under the Ministry of Transport and Telecommunication will eventually shift to become an autonomous and self-funded institution.

Timor-Leste has not adhered to the Organization of Economic Cooperation and Development (OECD) guidelines on Corporate Governance of SOEs. Line ministers supervise SOEs but independent boards of directors administer them. Senior management reports directly to a 5-7 member Board of Directors. Line ministers are responsible for nominating or dismissing the President of the Board of Directors with approval from the Council of Ministers.

Privatization Program

Timor-Leste does not have a privatization program.

8. Responsible Business ConductShare    

Businesses are generally aware of expectations and standards for responsible business conduct, although regulation of those standards is inconsistent. The government monitors business compliance with labor and environmental regulations, although the capacity to do so is insufficient. The government does not appear to factor responsible business conduct policies into procurement decisions.

There have been no high-profile business-related instances of corporate impact on human rights. Civil society and other organizations are generally able to monitor and promote human rights, both related to corporate actions and otherwise, without undue interference from the government.

Timor-Leste is not an adherent to the OECD Guidelines for Multinational Enterprises. In July 2010, it became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but it was suspended in March 2017 for failing to submit its required 2014 report, although the EITI statement on the suspension recognized Timor-Leste’s consistent commitment to transparency. The criteria and procedures by which the national government awards natural resource contracts or licenses are specified in the 2005 Petroleum Act. The process actually used to award contracts is broadly consistent with the procedural requirements set by law or regulation. Once a contract or license is awarded, the government makes public the basic terms of the awards. The government publishes quarterly reports on its Petroleum Fund on the Central Bank website.

9. CorruptionShare    

Transparency International ranks Timor-Leste at 101 out of 176 countries on its Corruption Perceptions Index in 2016, and the Government of Timor-Leste is continuing to take steps to combat corruption. In 2010, the Anti-Corruption Commission (CAC), an independent agency, opened its doors. That same year, the Office of the Prosecutor General also forwarded its first high-profile corruption case to the courts. Since then, the CAC has referred several cases to the Office of the Prosecutor General and has several ongoing investigations. In 2016, former Minister of Finance Emilia Pires and former Vice-Minister of Health Madalena Hanjam, were convicted of “economic participation in business” related to improper procurement of hospital beds. Both received prison sentences, which are suspended during the appeals process, although Pires was out of the country at the time and has not yet returned. Other corruption cases involving high-profile leaders, including the former President of the National Parliament, Vicente Guterres have not moved forward as of the date this publication is written due to claims of immunity. Business people operating in country report concerns about operational difficulties they ascribe to lower-level corruption with regard to bureaucratic processing in areas such as licensing, importation, and taxation.

The government is working to establish internal discipline and performance standards. In 2016, the government decided to establish a new customs authority and adopted the revised Arusha Declaration towards integrity in customs.

Under Timorese law, bribery is a crime, punishable with up to four years of imprisonment. It is illegal to bribe a foreign official, although Timorese law would not apply to an attempted bribery of a foreign official overseas. Bribes cannot be deducted from taxes.

Timor-Leste has signed and ratified the UN Anticorruption Convention. However, Timor-Leste is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Anti-Corruption Commission of Timor-Leste
Rua Sergio Vieira de Mello
Farol
Dili, Timor-Leste
Phone: +670 77305564; +670 77326597; or +670 77326599
Email: keixa@cac.tl

Contact at "watchdog" organizations:

La’o Hamutuk – Walk Together
PO Box 340, Bebora, Dili Timor Leste
Phone: +670 3321040
Mobile: +670 77234330
Email: info@laohamutuk.org

Lalenok ba Ema Hotu (LABEH) – The Mirror for the People
Avenida Presidente Nicolao Lobato-Comoro-(in front of SDN.07-Malinamuc)
Comoro
Dili, Timor Leste
Phone: +670 3331068
Email: gil.silva@labeh.org

10. Political and Security EnvironmentShare    

Timor-Leste has emerged from a history of colonialism, occupation, and recent civil strife to the period of domestic calm that it now enjoys. After twenty-five years of occupation by Indonesia, under an agreement between the United Nations, former colonial power Portugal, and Indonesia, a popular consultation was held in August 30, 1999 to allow the Timorese to vote on whether to remain part of Indonesia or to become independent. The majority chose independence; Timorese militias opposed to the decision organized and, supported by the Indonesian military, commenced a campaign of retribution. Approximately 1,300 Timorese were killed and as many as 300,000 people were forcibly relocated into West Timor as refugees. The majority of the country's infrastructure, including homes, irrigation systems, water supply systems, and schools, and nearly 100 percent of the country's electrical grid were destroyed. On September 20, 1999, at the request of the Timorese government, Australia led a deployment of peacekeeping troops (the International Force for East Timor, INTERFET), which brought the violence to an end.

After almost three years of UN administration, Timor-Leste became a fully independent republic with a parliamentary form of government on May 20, 2002. UN peacekeepers departed in 2005, leaving a special political mission in its stead. In 2006, however, civil order collapsed due to domestic political struggles which led to armed conflict between the police and military. In late May 2006, the Government of Timor-Leste urgently requested police and military assistance from Australia, New Zealand, Malaysia, and Portugal. In August 2006, the UN Security Council passed Resolution 1704, creating the United Nations Integrated Mission in Timor-Leste (UNMIT). UNMIT’s mandate was to assist in restoring stability, rebuilding security sector institutions, supporting the Government of Timor-Leste to conduct the 2007 presidential and parliamentary elections, and achieving accountability for crimes against humanity and other atrocities committed in 1999. An Australian-led International Stabilization Force (ISF) supported UNMIT’s mission. Timor-Leste held free, fair, and largely peaceful presidential and parliamentary elections in 2007. Nobel Peace Prize Laureate Jose Ramos-Horta assumed the Presidency, while former guerilla leader and outgoing president Kay Rala Xanana Gusmao became Prime Minister.

In February 2008, followers of a fugitive former military police commander attacked President Ramos-Horta, who sustained gunshot injuries. Prime Minister Gusmao escaped unharmed in a separate attack against him the same day. The government, with the approval of Parliament, imposed a state of siege that temporarily imposed a curfew, curtailed freedom of assembly, and gave security forces greater latitude for arrests and searches. These emergency measures were scaled back as conditions stabilized over the following weeks. The state of emergency was lifted completely when the remainder of the rebels surrendered to authorities in April 2008. Most of them were convicted in March 2010 for their involvement in the assassination attempt; the President commuted their sentences later that year.

Since 2008, the government has succeeded in restoring calm and maintaining stability throughout the country. National elections for president and parliament in 2012 were peaceful, free, and fair. UNMIT and the ISF departed from Timor-Leste at the end of 2012.

In 2014 and 2015, Timor-Leste was challenged with minor internal political turmoil when dissident leader Mauk Moruk launched a political attack against then Prime Minister Xanana Gusmao, accusing his government of corruption, nepotism and collusion and called for a revolution. His group allegedly launched a series of attacks against security forces which resulted in a four-month joint security operation against his group in 2015. In August 2015, security forces killed Mauk Moruk during the operation.

Timor-Leste held peaceful presidential elections with minimal international assistance in March 2017. Parliamentary elections will occur later in 2017.

11. Labor Policies and PracticesShare    

The shortage of skilled labor is a significant constraint on private sector growth in Timor-Leste. Business executives report difficulties identifying skilled tradespeople to undertake or manage new construction projects. Public and private sector employers consistently encounter problems locating managerial, clerical, and other office staff. There is a surplus of young, inexperienced, unskilled labor, with 15,000 new entrants into the labor market each year in an economy with an estimated total of 75,000 formal sector jobs. The government, donors, and employers place enormous emphasis on education and training in order to build local capacity. This policy is adopted not only to fill the skill gaps but also to meet local hiring requirements for foreign investors. According to a 2013 government report, 71 percent of the working population is employed in the informal sector.

The 2012 Labor Law put in place regulations for labor conditions, including a 44-hour work week, standard benefits such as leave and premium pay for overtime, and minimum standards of worker health and safety. In June 2012, the government set the minimum wage for full-time employment at USD $115 per month. Enforcement of labor laws is uneven, but increasing. Special economic zones are allowed to have different labor laws.

The government’s labor inspectorate identifies and remediates labor violations and holds violators accountable, investigates and prosecutes unfair labor practices, such as harassment and/or dismissal of union members; and investigates and prosecutes instances of forced and/or child labor. Most of the cases come from temporary labor agreements in the construction and service sectors.

As stipulated in labor code, workers have the right to strike. Workers must notify companies in advance of the planned strike, and most labor disputes are settled through the mediation and conciliation service and the labor arbitration council. Workers must present claims in writing to their employer and give the employer five days to respond prior to declaring a strike. If the employers do not respond within that timeframe or respond but the parties do not reach agreement within 20 days, the organization representing the workers must provide five days’ advance notice of a strike. The strikes can be stopped by the government if they disturb public order. Strikes against international companies have occurred, primarily over employment contracts and salary entitlements, but generally create limited disruption.

The Government of Timor-Leste has acceded to many of the major international labor and human rights conventions including:

  • International Labor Organization (ILO) Convention No. 29 on Forced Labor
  • ILO Convention No. 87 on Freedom of Association and Protection of the Right to Organize
  • ILO Convention No. 98 on the Right to Organize and Collective Bargaining
  • ILO Convention No. 182 on the Worst Forms of Child Labor
  • International Covenant on Civil and Political Rights
  • International Covenant on Economic, Social, and Cultural Rights

As of 2017, no new labor-related laws were enacted. However, the Secretary of State for Professional Training and Employment Policy (SEPFOPE) is planning to review some articles of the labor code, including possibly adjusting minimum wage to reflect the current market.

12. OPIC and Other Investment Insurance ProgramsShare    

The Overseas Private Investment Corporation (OPIC) and the Government of Timor-Leste signed an Investment Incentive Agreement in 2002. OPIC is open for business in Timor-Leste and welcomes contact from potential U.S. investors (www.opic.gov). Potential U.S. investors and exporters are encouraged to contact the U.S. Export Import bank (www.exim.gov) and the United States Trade and Development Agency (www.ustda.gov) as well.

Timor-Leste has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 2002. The International Finance Corporation (IFC) maintains an office in Timor-Leste, co-located with the World Bank Country Office in Dili.

13. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical Source

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2014

$3033

2015

$1442

www.worldbank.org/en/country

Host country: Ministry of Finance, Statistics Directorate

Foreign Direct Investment

Host Country Statistical Source

USG or International Statistical Source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

N/A

N/A

2015

$10

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

No host country source available.

Host country’s FDI in the United States ($M USD, stock positions)

N/A

N/A

2015

-$4

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

No host country source available.

Total inbound stock of FDI as % host GDP

N/A

N/A

2015

-0.3%

N/A

Table 3: Sources and Destination of FDI

No data is available for Timor-Leste.

 

Table 4: Sources of Portfolio Investment

No data is available for Timor-Leste.

 

14. Contact for More InformationShare    

Filipe Boaventura Marques Henrique
Economic/Commercial Assistant, United States Embassy
Av. De Portugal, Praia dos Coqueiros
Dili, Timor-Leste
Phone: +670 332-4684 ext. 2048
Mobile: +670 7853 8526
Email: DiliEcon2@state.gov