The Government of Timor-Leste has welcomed foreign-investment and business-development opportunities since gaining independence in 2002. In practice the investment climate continues to be hampered by inadequate regulatory mechanisms, corruption, insufficient personnel capacity, and deficient infrastructure. The government is working to address these issues but limited human capacity and a time-consuming bureaucratic/legislative system has made progress on reform slow. Initially plagued by conflict and turmoil after independence, Timor-Leste has emerged as a peaceful and stable democracy. Peaceful changes of government and freely contested elections, including a 2022 presidential election that drew 16 candidates, demonstrated an active political climate with competing views for how to best develop an economy largely dependent on public-sector spending for growth. Timor-Leste’s desire to join the Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO) provides incentive to implement fiscal and economic reforms to meet regional and international norms.
After an 8.6% economic contraction in 2020, Timor-Leste’s economy rebounded slightly in 2021, growing by 1.8%. Timor-Leste’s private sector is weak and primarily dependent on government contracts, and the government’s ability to regulate industry remains limited. The agriculture sector supplied less than 10% of the country’s total GDP. Oil and gas production represents the largest share of GDP and has attracted the most foreign investment, but the producing fields are depleting, and the Government of Timor-Leste (GOTL) continues to seek partners to develop onshore and offshore blocks. The GOTL is focused on development of the Greater Sunrise offshore natural gas reserves in which the GOTL controls a majority share of the joint venture. The GOTL also wants to develop its own domestic petroleum refinery capabilities on its south coast, which it seeks partners to develop, even as the international community moves towards decarbonization and a clean energy transition. The government has said it would like additional investment in the country’s southern coast, and it maintains Special Economic Zones in Oecusse and Atauro Island.
Agriculture is the largest sector of the economy by employment but has been historically undeveloped and is dominated by subsistence farming. The United States was instrumental in fostering the coffee industry in Timor-Leste, and over the last decade coffee has been the third largest contributor to GDP. Focused efforts to develop other crops could potentially yield similar returns.
Timor-Leste has not developed green development policies that impact the investment climate. The government supports responsible business conduct and protections for labor rights, although it lacks institutional capacity to ensure compliance. In practice, labor and human rights concerns do not pose significant risks to doing business responsibly.
Beginning in March 2020, the government declared a State of Emergency implementing measures to combat the COVID-19 pandemic, including closing its borders, suspending commercial passenger flights, and sometimes enforcing internal travel restrictions. These measures, renewed for most of 2020-2021 every 30 days, hampered progress on development projects, including those involving foreign investments. In November 2021, the government passed amendments to public health laws that enabled the lifting of the SOE.
U.S. assistance to Timor-Leste has contributed to improvements in the customs system and is helping to strengthen the legal regime for cybercrime. U.S. assistance also promotes diversification of Timor-Leste’s economy, support for private-sector, health and agricultural development, strengthening of democratic institutions, and reinforcing a commercial law framework. USAID support for public-private partnerships in the tourism sector and improving agriculture value chains contributes to strengthening the non-oil sector. The Commerce Department’s Commercial Law Development Program (CLDP) provides training opportunities for Timorese government officials in key legal and regulatory agencies to improve the business environment.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Timor-Leste welcomes and strives to attract Foreign Direct Investment (FDI). The government has made considerable effort to establish effective legislative, executive, and judicial institutions, draft laws and regulations, and build personnel capacity. In 2011, parliament unanimously approved the government’s National Strategic Development Plan. The plan directs petroleum revenues to support non-petroleum economic development and help the country move to become a middle-income country by 2030. Despite its openness to FDI and efforts to improve the enabling environment, Timor-Leste’s legal, regulatory, and human capacity remain weak and continue to present challenges for investors.
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 the country and assist foreign companies in identifying projects among the limited business opportunities emerging in Timor-Leste. TradeInvest is a one-stop-shop that provides services such as licensing, taxes, investment opportunities, permits, tariffs, and educating importers on correct procedures and policies. TradeInvest also provides post-investment aftercare services. The agency’s official website is www.tradeinvest.tl.
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. However, under the constitution, only citizens may own land. Timor-Leste enacted laws in 2017 and 2018 to facilitate and protect foreign private investment by adhering to international agreements and reducing bureaucratic hurdles. Private Investment Law No. 15/2017 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.
The government views building international ties as part of its effort to increase foreign direct investment opportunities. Timor-Leste is applying for full membership to ASEAN and served as President of the Community of Portuguese Speaking Countries from 2014-2016. (A Timorese citizen has served as Executive Secretary of the Community of Portuguese Speaking Countries since July 2021.) Timor-Leste is also pursuing WTO accession. It is also pursuing trilateral economic cooperation opportunities with Indonesia and Australia to boost cross-country investment.
The government’s Strategic Development Plan highlights key investment areas to include oil and gas, forestry and livestock, fisheries, tourism, energy, infrastructure, civil construction, coffee, spices, and transportation. In an April 2021 speech, Timor-Leste’s Ambassador to the United States also highlighted many of these sectors.
The government, through its autonomous agency, the National Petroleum and Minerals Authority (ANPM), contracts with foreign firms to explore and develop offshore oil and gas deposits. Pre-qualification for Timor-Leste’s second licensing round of 11 onshore and 7 offshore blocks closed on January 14, 2022. Thirteen companies submitted bid documents. Bid results were announced April 22, 2022 with five blocks awarded. ANPM has also hosted annual Oil, Gas, and Energy Summits for four years to attract international investors to the oil and gas industry in Timor-Leste, collectively drawing virtual and in-person attendance from over 350 participants from nearly 225 companies. The 2022 summit was held in Dili in June. The government deposits oil and gas revenues into a sovereign petroleum fund. Investment income represents the majority of fund income with revenues from oil and gas currently a relatively small share of income. Strong recovery of global oil prices in 2021, however, reaching historic highs in early 2022 has bolstered revenue from depleting production. The fund value has experienced considerable fluctuation as the COVID-19 pandemic impacted global financial markets. Government expenditures, including efforts to combat COVID-19, rely heavily on the fund. Business and individual tax collections comprise less than 10% of GOTL operating revenues. Government spending, coffee exports, subsistence agriculture, remittances from workers abroad, and small-scale retail activities are the other sources of employment and economic drivers.
In August 2019, Australia and Timor-Leste ratified a Maritime Boundary Treaty under the UN Convention on Law of the Sea, which defined the exclusive economic zone borders between the two countries, removing development hurdles for both the Greater Sunrise and Buffalo offshore projects, and formalized the governance structure and tax sharing arrangement between the two countries. In 2018 the Timor-Leste government bought out the majority rights of several companies involved in a consortium to develop the Greater Sunrise oil and gas reserve. The government has stated its intention to build oil and gas refineries and significant associated infrastructure on its south coast to process the offshore reserves. Due to the cost of these infrastructure projects, the government may seek investment partners for all or some of them.
Timorese authorities are intent on expanding private sector economic activities to provide employment for new labor market entrants. The country has one of the world’s most rapidly growing populations, with three-fourths of the population under 35 years of age and a birth rate around five per adult female. The population as of June 2021 was approximately 1.36 million.
Limits on Foreign Control and Right to Private Ownership and Establishment
By law, foreign investors may invest in any sector other than postal services, public communications, transportation, protected natural areas, funeral services, 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. However, in practice, foreign companies have significant holdings in reserved sectors. For example, Brazilian, Indonesian, Vietnamese, and Chinese investors control large shares of the country’s three telecommunications providers.
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. 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. Resolution may be delayed for years.
TradeInvest 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. Prospective investments are reviewed for their economic cost and benefits as well as for the capacity of the investor.
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.
TradeInvest can issue a certificate of investment for projects approved by the Private Investment Commission valued at less than $20 million. Investments of more than $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. The TradeInvest website reports that application fees are $500 for national investors and $2,000 for international investors. TradeInvest should issue investment decisions within 30 days. Regulatory actions needing approval from the Council of Ministers may require additional time to resolve.
After nearly a decade, the government granted a foreign company the rights to invest an initial $100 million to develop 16 hectares into an upscale resort just west of the capital in March 2020. In January 2022, the Council of Ministers approved a Special Investment Agreement (SIA) for the development that had been pending since 2010. Other multi-million-dollar large-scale investments, including the Tibar Port and Baucau cement plant, might directly employ hundreds of Timorese but are yet to open and have been delayed by COVID-19 and opaque government processes.
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 and held its first meeting in October 2020. In May of 2022, the Coordinating Minister for Economic Affairs and WTO Accession Chief Negotiator led a large government delegation in bilateral meetings with WTO members, the WTO Secretariat and development partners in Geneva. Timor-Leste’s overall political stability has allowed some businesses to grow; political impasses, however, during which the country operated without state budgets, reduced opportunities for government contracts in 2017, 2018, and 2020. The political impasses affected many areas of the economy, including commerce, public services, and larger public works projects. The government passed its 2021 and 2022 state budgets on time in December prior to the start of the respective fiscal year (January – December).
In March 2020, the government enacted a State of Emergency (SOE) to respond to the COVID-19 pandemic and restricted many “non-essential” commercial enterprises. In November 2021, the government passed amendments to the Health Law that allowed it to implement some of the public health measures previously only possible under an SOE. The last SOE expired on November 28, 2021. In August 2020, the government released an economic recovery plan to promote Timor-Leste’s post-COVID-19 economic recovery, including short-, medium-, and long-term interventions. The plan includes support to the private sector as well as to households and local producers.
Although the government is committed to improving its services in critical sectors, challenges remain: bureaucratic inefficiency, infrastructure bottlenecks, the absence of real property and information communications technology (ICT) laws and other essential legislation, a lack of commercial courts, uncertain implementation of government procedures, significant deficiencies in human capacity, conflicts of interest, and corruption are some of the most notable challenges.
Civil Society
Timor-Leste has not been the subject of investment policy reviews by domestic or third country civil society groups.
Business Facilitation
Timor-Leste’s Business Verification and Registration Service office (SERVE) 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 http://www.serve.gov.tl. Business registration and application processes require an in-person visit to SERVE’s office. Getting a business license takes between one and five days; however, actual timelines may be greater. For companies involved in civil construction, food processing, or pharmaceutical industries, the agency works closely with relevant ministries, particularly the Ministry of Tourism, Commerce, and Industry, to facilitate business licenses, although since 2017 all registration requirements have been centralized with SERVE.
Outward Investment
The government does not promote or incentivize outward investment, nor does it restrict it.
2. Bilateral Investment and Taxation Treaties
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. Timor-Leste does not have a BIT or a bilateral taxation treaty with the United States.
Timor-Leste is not a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting.
3. Legal Regime
Transparency of the Regulatory System
Timor-Leste’s regulatory system is still in formative stages. Existing tax, labor, environment, health and safety, and other laws and policies do not present obvious impediments to investment. Government policies and practices generally are transparent.
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. Reports say when tenders are posted, it is only for a few days and winners may be pre-selected. The Audit Chamber, under the Court of Appeals, is responsible for reviewing government procurements above $5 million.
In 2018 and 2019, the Ministry of Finance launched the ASYCUDA system in APORTIL, the organization managing international port, and International Airport of Nicolao Lobato customs, as part of the fiscal reform process with the aim of improving efficiency, customer service, and transparency. The government hopes to facilitate trade by implementing a modern and reliable system to track and manage imports and exports. USAID’s Customs Reform Project helped Timor-Leste’s Customs Authority to streamline processes, improve government-wide integration, and align with laws and international standards. The project also established a National Customs Hotline for reporting illegal activities and an online Customs Trade portal providing the public with trade-related information, improving transparency for import/export procedures. In May 2021, Timor-Leste’s Customs Authority launched a Customs Hotline, allowing anyone to anonymously report by phone or online possible customs infractions. This and similar international programming help the GOTL reduce trade costs by adopting best-practice customs clearance and transit procedures.
In addition, SERVE issues no-cost business licenses for what it determines to be low-risk undertakings. High- and medium-risk business licenses may incur application fees. Initial and renewal business license are generally valid for 12 months. SERVE also supports the private sector’s compliance with mandatory social security contribution laws.
Parliament and parliamentary committees regularly hold hearings and debates on proposed laws. For certain major legislation, the government holds limited public consultations or solicits public comment. Since March 2020, the GOTL has reduced public consultations due to COVID-19 protocols. There is no legal requirement to publish draft regulations prior to enactment. Relevant functional agencies generally are responsible for formulating regulations, which is then presented by the parent Ministry for consideration and approval by the Council of Ministers.
Regulations are adopted and implemented at the national level; there are no sub-national levels of regulation. Most oversight occurs in the capital by relevant ministries, although some agencies have staff at the district level that monitor compliance. Legislation and regulations are published in the national journal (Jornal da República de Timor-Leste, www.mj.gove.tl/jornal/), in full text, to signify entry into force, although applicable information may be tardily printed or difficult to find.
Public finances and debt obligations are published and available to the public. Financial reports available through internet-based access are not consistently updated, but they are generally made available upon request.
Government encourages businesses to engage in good corporate social responsibility practices, although this effort is only codified in the oil and gas sector. The Petroleum Act of 2005 includes a local content regulation that requires applicants for production sharing contracts to include proposals for environmental protection, health and safety, and training and preferential employment of Timor-Leste nationals.
International Regulatory Considerations
Reforms currently underway in Timor-Leste’s fiscal and economic systems aim to bring the country into compliance with ASEAN standards. The Timor-Leste ASEAN Mobilization Plan (TLAMP) aims to bring all the relevant line ministries into compliance with ASEAN economic best practices.
Timor-Leste was accepted as an observer to the WTO in 2016, and its Working Party for accession was established in December 2016. The first meeting of the Working Party was held in October 2020. A Timor-Leste government delegation visited Geneva in May 2022 for bilateral meetings with WTO members and the WTO Secretariat and participated in roundtable discussions on the country’s WTO accession.
Legal System and Judicial Independence
The Portuguese legal system heavily influences Timor-Leste’s civil law system. Timor-Leste applies Indonesian law, which was in force until August 1999, as a subsidiary source of law for issues not yet addressed in Timorese legislation. The country does not have a written commercial code. The judicial system operates independently of the executive but is evolving and short staffed. Regulations and enforcement actions can be appealed to the court system.
The Office of the Prosecutor General continues to accumulate experience and capacity to establish and implement case management and other essential systems. Timor-Leste has courts of first instance and a court of appeal. However, courts operate in only four of the country’s thirteen districts, and customary law governs most cases at the local level. Additional courts outlined in the Constitution and law, such as specialized tax courts, have not yet been established. Waiting times to bring a case before a judge remain long, and cases may be unresolved for years. Conciliation and arbitration judicial reforms to reduce pending caseloads are preliminary. In practice, the system generally prioritizes criminal 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 modeled on Portuguese civil law. The country is reviewing 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 (Tetum and Portuguese) and two working languages (Indonesian and English); all new legislation is enacted in Portuguese and is based on the civil law tradition, though is supposed to be published in Tetum as well.
The Private Investment Law (Law No. 15/2017) 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. The Government of Timor-Leste announced the establishment of TradeInvest, a one-stop-shop for investment and export promotion in 2015 (https://www.tradeinvest.tl). The agency has the responsibility to promote Timorese exports and investment opportunities in the country and to encourage domestic entrepreneurship. There are ongoing fiscal reform efforts designed to align Timorese legislation and regulation with best practices in ASEAN (under the ASEAN Comprehensive Investment Agreement) and under the United Nations Conference on Trade and Development (UNCTAD).
Competition and Antitrust Laws
Timor-Leste does not have a competition or anti-trust law.
Expropriation and Compensation
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.
The government relocated significant numbers of residents for large development projects in Oecusse and Suai. Two known private investments in Dili have negotiated with the government to remove residents as part of the investment agreement. A large-scale hospitality development close to the capital is a cautionary example of unregistered tenets establishing domiciles on claimed property of a private investor and demanding compensation from the corporation or government before vacating, and all parties are outwardly refusing to relocate, compensate, or compromise. The government has not used methods that could be considered indirect expropriation. The government has at times been accused of not offering fair market value as compensation for expropriations, or for not following due process for evictions of squatters on government or disputed land.
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). In February 2021, parliament ratified the convention of the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Law No 6/2021, of March 31, 2021, approved the legal framework for voluntary arbitration. The new regime applies to all arbitration proceedings based in Timor-Leste, whether domestic or international, as well as the confirmation and enforcement of arbitral awards rendered in another country, without prejudice to the provisions of international conventions. The Voluntary Arbitration Acts follows the systematic structure and principles of the UNCITRAL Model Law on International Commercial Arbitration of 1985, as amended in 2006, and entered into force the day after its publication.
Investor-State Dispute Settlement
The domestic court system handles civil disputes but is not properly equipped for the demands 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. Local courts recognize foreign arbitral awards against the government. There is no history of extrajudicial action against investors.
The government pursued international arbitration against at least one private company in a tax dispute. There were four cases filed against the company in Singapore in 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.
In 2019, an Australian company pursued arbitration against the government for alleged breaches and unlawful rejection of a fuel supply contract. The case went before the Supreme Court of Victoria, Australia, and was resolved in favor of the government in October 2020.
In 2018, overseas arbitration led to a $5 million settlement in favor of a private Spanish construction firm for late payment by the GOTL on a road project in 2018. This is the only known example of a private-sector actor receiving compensation for losses determined to be the fault of the GOTL.
In 2016, a U.S. company and the government of Timor-Leste settled several significant outstanding disputes regarding tax assessments. The parties were unable to resolve a further dispute regarding a withholding tax but agreed to leave the matter with the Singapore International Arbitration Center. The parties also agreed on a shared understanding of the relevant dispute resolution framework and application of penalties, and an agreement to work together towards consolidating the applicable tax laws.
International Commercial Arbitration and Foreign Courts
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. There is no domestic arbitration body in Timor-Leste. Legal dispute resolution rarely takes place in Timor-Leste and established private sector actors tend to travel to Singapore or Australia for arbitration. Local courts recognize and enforce foreign arbitral awards.
Many legal reforms are hindered by COVID-19 response, financial resources, and human capacity. For instance, the Dean of the University of Timor-Leste (UNTL) Law School expressed interest in developing an arbitration training program for UNTL law students but acknowledged students’ English skills presented a significant hurdle to participation in international arbitration training and competitions.
Bankruptcy Regulations
The Council of Ministers approved an insolvency law in March 2017, but parliament did not act on the law. In the most recent publication (2020), the World Bank ranked the country 168 of 190 in resolving insolvency with a score of zero reflecting no history of recovery.
4. Industrial Policies
Investment Incentives
The Government of Timor-Leste offers investment incentives, including tax credits and import duty exemptions, to both domestic and international investors. There are no investment incentive programs specifically targeting underrepresented investors. An investment might be exempt from income tax, sales tax, and/or service taxes. For most industries, the corporate tax rate is 10%. Domestic investments worth over $50,000, foreign investments of over $1.5 million, and joint foreign and national resident investments where the national resident controls at least 75 percent of shares totaling $750,000 benefit from a five-year exemption from income, sales, and service taxes, and customs duties for goods and equipment used in the construction or management of the investment. 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. Government guarantees or joint financing of foreign direct investment is not common practice; however, the government has engaged in a limited number of public-private partnerships, including development of the Tibar Port. The government does not currently offer incentives to promote clean energy investments.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are no foreign trade zones in Timor-Leste. Law No.3/2014 of 2014 defines and regulates a free trade zone in the Oecusse exclave called the Special Zone for Social Market Economy (ZEESM). The ZEESM prioritized socioeconomic activities 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 (Note: the FTZ has not been established to date.)
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 approved a decree law in 2016 on the development of Atauro (an island offshore from Dili) as part of ZEEMS. As of March 2022, most of these objectives have yet to be realized.
Performance and Data Localization Requirements
Individual investment agreements and government contracts may specify local content requirements. Local content requirements in the oil and gas sector are particularly strict; requirements in other sectors are often not enforced. In the oil and gas sector, to be considered for production sharing contracts, potential partners are required to include provisions for training and preferential employment for Timor-Leste nationals and for acquisition of goods and services from Timor-Leste. Requirements are applied uniformly to domestic and international investors.
5. Protection of Property Rights
Real Property
Property rights remain an issue of concern for foreign investors and businesses. The legal regime governing land and property ownership in Timor-Leste remains incomplete. A history of displacement, overlapping titles, and lack of legal clarity regarding competing claims on land and properties arising from various occupancies during Portuguese, Indonesian, and post-independence eras makes protecting land titles and property rights difficult. While substantial amounts of land are subject to ownership dispute there is no consolidated accounting of the overall share. A comprehensive land law was promulgated in 2017 and national land surveys and registrations have been done. Under the law, claimants must register claims, which will be decided in arbitration. However, issuance of land titles and resolution of disputed title is pending additional government action on additional complementary legislation. Additionally, there are no administrative systems in place to track land transactions following initial titling
Foreign persons may lease but not acquire land in Timor-Leste. Mortgages exist, however there is no legal mechanism for foreign banks to repossess property in cases of default. There are no requirements to occupy or develop property to retain legal ownership.
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 the necessity of specific regulations to protect authors of the property. Also, Article 19 of the Private Investment Law states all investors are entitled to the protection of industrial secrets, copyrights, industrial property rights, distinctive trademark signs, or any other intellectual property rights recognized by law. However, legislators have yet to create specific regulations to codify domestic protection of intellectual property rights. In May and June 2021, the U.S. Embassy facilitated virtual meetings of the U.S. Patent and Trademark Office with TradeInvest and the Office of the Minister Coordinator of Economic Affairs. No new IP related laws or regulations were enacted in 2021; a draft IP law has been prepared with USAID assistance but is still pending as of June 2022.
International companies have printed notices in local newspapers to demonstrate 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.
Timor-Leste is not listed on USTR’s Special 301 Report or the Notorious Markets List. The government does not track or report on seizures of counterfeit goods. No official or unofficial data is available regarding the prevalence of counterfeit goods in the economy. Timor-Leste is a member of the World Intellectual Property Organization (WIPO). 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 Sector
Capital Markets and Portfolio Investment
Timor-Leste does not have a stock market. There is limited access to credit and liquidity to facilitate investment. There are no known restrictions on portfolio investment.
Money and Banking System
As of 2019 only 54% of Timorese adults were depositors with commercial banks, and only 4% held bank loans. 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 Commercial Bank of Timor-Leste. The banking system was estimated to hold $734 million in net assets in 2021. All banks in Timor-Leste are subject to prudential measures and regulation by the Central Bank. Since most of the country’s operating banks are branches of foreign banks, the system is relatively resistant to domestic economic shocks. Foreign citizens must have a tax identification number demonstrating residency in Timor-Leste to maintain an individual bank account. According to World Bank data, lending to the private sector totaled approximately $290 million in 2020. The overall non-performing loan rate was 5.1% in 2020.
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 as 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 $5,000 and requires explicit authorization for sums in excess of $10,000. Investors may request conversion of funds into foreign currency through the banking system to transfer funds abroad to meet financial obligations incurred by the investment such as payment of imports, payment of capital or interest on loans taken abroad, or payment of rights and management services. The foreign banks operating in Timor-Leste may impose reporting requirements for transactions above a certain amount 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 to maintain an individual bank account.
Remittance Policies
The Private Investment Law (No. 15/2017) guarantees the right to freely transfer funds abroad from any investment or reinvestment in Timor-Leste. This applies to:
Profit and dividends paid as a result of an investment made;
Capital resulting from the sale, liquidation, and extinction of shares in commercial companies which constitute investment, as well as the sale of business assets, which are the property of the investor;
Capital resulting from the reduction of the capital stock of a commercial company constituting an investment;
Amounts due on the basis of contracts which constitute investment;
Benefits payable to amortization or payment of financial interest constituting an investment;
Personal income obtained in the discharge of management and administration functions relating to investment participation in economic activities;
Income from the transfer of intellectual property rights which constitute investment.
Compensation payable as a consequence of government requisition or expropriation of the property of an investor;
Payments arising from settlement of investment disputes.
The right to freely transfer funds abroad must be exercised in accordance with the applicable Central Bank regulations and is limited only by the application of a general legislation, such as tax legislation.
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. The Fund’s receipts are invested in approximately 40 percent equities and 60 percent bonds, but 2021 changes to the Petroleum Fund Law permit the Fund to invest up to 50 percent in equities. The Petroleum Fund publishes monthly, quarterly, and annual reports online. Laws governing the Fund provide that it must maintain an independent auditor, which shall be an internationally recognized accounting firm. The Petroleum Fund meets the 24 generally accepted principles and practices for sovereign wealth funds, commonly referred to as the “Santiago Principles.” Timor-Leste is a full member of the International Forum of Sovereign Wealth Funds.
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 and supplementals have exceeded the annual ceiling with parliamentary approval. However, budgets are rarely fully executed, regularly returning up to one-third of their value to government coffers.
The Petroleum Activities Law no 13/2005, article 22, limits the government to investing 20 percent of the fund in petroleum activities. The government amended the law in 2019 to allow 5% of the Petroleum Fund to be invested in Timor Gas and Petroleum (Timor GAP), the national oil company, while reducing the percentage of the Fund held in stocks from 40% to 35%. Timor GAP must use the investment to exploit known oil and gas fields, which are commercially competitive and will contribute to development and diversification of the national economy. Timor GAP shall pay 4.5% interest on the investment and comply with reporting requirements.
7. State-Owned Enterprises
The Timorese government operates a small number of state-owned enterprises (SOEs) across various sectors, including broadcasting, aviation, oil and gas, pharmaceuticals, and telecommunications. There is no published list of SOEs.
The Government of Timor-Leste owns 20.6 percent of Timor Telecom -a telecommunications provider- while privately-owned Telecommunicators 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 Timor GAP, 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. Timor GAP is supervised by the Minister of Petroleum but is governed by an independent Board of Directors. Firms that partner with Timor GAP 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. The government owns RTTL under the supervision of the State Secretary of Social Communication and 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, the government converted SAMES, E.P. into SAMES, I.P., an autonomous institution, which operates under the tutelage and supervision of the Ministry of Health.
In 2020, the government approved two decree laws to convert the public electricity utility known as the Department of National Electricity to Public Enterprise (EDTL, E.P) into a state-owned enterprise in the hope it will deliver better services to the customer and improve its cost recovery. Timor-Leste loses nearly half of its generated power by inefficient distribution infrastructure and consumer theft, costing the government millions annually.
In 2020, the government through Decree Law no. 41/2020 established Bee Timor-Leste Empressa Publica (BTL, E.P.) as a state-owned public water utility company.
Several autonomous government agencies are active in the economy: The Dili Port Authority (APORTIL), Timor-Leste’s Agency for Information and Communication Technology (TIC Timor), the National Electrical Authority (ANE), and the National Aviation Authority (AACTL) are four such agencies. Other autonomous and self-funded institution includes the National Petroleum and Mineral Authority (ANPM), which regulates the oil and gas sector.
Line ministers or the prime minister’s office supervise SOEs, but independent boards of directors administer them. Senior management reports directly to government-appointed boards 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 formalized privatization program.
8. Responsible Business Conduct
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. Timor-Leste is a member of the Extractive Industries Transparency Initiative (EITI) and is rated as making Satisfactory progress across all assessed requirements. Labor violations are infrequently cited or prosecuted.
There have been no high-profile business-related instances of corporate impact on human rights. Child labor exists; it mostly occurs in agriculture and the informal economy but could be a concern for certain supply chains. Timor-Leste has laws concerning labor, the environment, and mineral and petroleum exploitation and worked to enforce them, although inspection and judicial capacity limits constrained enforcement effectiveness.
Land tenure is often unclear, and disputes are common. Communities have protested or rejected instances of government allocation of land for infrastructure or public use. Groups have complained that expropriated property was not valued properly by the government when paying compensation.
Civil society and other organizations generally 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.
Timor-Leste released a National Climate Change Policy in 2020 but has not established any policies to reach net-zero carbon emissions by 2050. The country submitted a National Adaptation Plan (NAP) in 2020 as part of its commitment to the UNFCCC and the Paris Agreement. Timor-Leste submitted its first Intended Nationally Determined Contributions in 2017 but has not made any updates. The government does not have policies or regulatory incentives to promote renewable energy. Timor-Leste has enacted several laws addressing environmental policies, including the Environmental Basic Law (which includes climate change adaptation and mitigation issues), the Environmental License Decree Law, the Operational Law of Clean Development Mechanism, The Decree Law on Export, Import, and Use of Ozone Depleting Substances in Timor-Leste, and the Decree Law on Protected Areas. Public procurement policies do not include environmental or green growth considerations for resource efficiency, pollution abatement, or climate resilience. Data for greenhouse gas emissions do not exist beyond 2015.
9. Corruption
Transparency International ranked Timor-Leste 82 out of 180 countries in its 2020 Corruption Perceptions Index. In 2010, the Anti-Corruption Commission (CAC), an independent agency, opened its doors, with support from USAID and the U.S. Millennium Challenge Corporation. That same year, the Office of the Prosecutor General 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, which have resulted in several ongoing investigations. In 2016, former Minister of Finance Emilia Pires and former Vice-Minister of Health Madalena Hanjam, were convicted of participating in improper procurement of hospital beds. Both received prison sentences. In 2020 and 2021, the government waived immunity for multiple former and current parliamentarians to criminal prosecution for fraud. In January 2022, the Minister of Parliamentary Affairs and Social Justice was accused of corruption involving a contract to supply set-top cable boxes. The Prime Minister waived any immunities, and the CAC conducted an investigation. The Dili Prosecutor’s office will determine if there is sufficient evidence to submit the case to the court. Under Timorese law, bribery is a crime punishable with up to four years of imprisonment. Timor-Leste has also signed and ratified the UN Anticorruption Convention; however, it is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
In July 2020, parliament approved a new anti-corruption bill with new identified offenses, including in the private sector, which included penalties for construction fraud and a failure to declare assets or unjustified wealth. The Law on Measures to Prevent and Fight Corruption (No. 7/2020) went into effect in late 2020.
Resources to Report Corruption
Contact at the government agency or agencies that are 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
Contact at a “watchdog” organization:
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: info@labeh.org
10. Political and Security Environment
Timor-Leste emerged from a history of colonialism, occupation, and civil strife to the period of relative domestic calm that it has enjoyed for more than a decade. After twenty-four years of occupation by Indonesia, under an agreement between the United Nations, former colonial power Portugal, and Indonesia, a popular consultation was held on August 30, 1999, to allow the Timorese to vote on whether to remain part of Indonesia or to become independent. Seventy-nine percent of Timor-Leste voters rejected Indonesia’s governance proposal, effectively putting Timor-Leste on a path to 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 ended the violence.
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. 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) to assist in restoring stability, rebuilding the 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 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 José Ramos-Horta assumed the presidency, and former guerilla leader and outgoing president Xanana Gusmão became prime minister.
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. Following free, fair, and peaceful parliamentary elections in July 2017, Mari bin Amude Alkatiri became prime minister of a two-party coalition government. In a March 2017 presidential election, also judged as free and fair, voters elected Francisco Lu Olo Guterres. In contrast with previous years, elections proceeded without extensive support from the international community. Security forces maintained public order with no reported incidents of excessive use of force. Alkatiri’s government was not able to pass its program or budget. Early parliamentary elections in May 2018 were considered fair and transparent, with 81% voter turnout.
In January 2020, the coalition government rejected its own budget in protest of ongoing ministerial vacancies, and the prime minister submitted his resignation to the president. The prime minister subsequently withdrew the request to resign and assumed leadership of the country’s COVID-19 response. The president maintains the authority to determine whether the country will hold early elections to resolve a political impasse or whether the political parties in parliament should form a new government. Following changes in the ruling coalition membership, the Eighth Constitutional Government continues. After political instability in the governing coalition delayed passage of the 2020 budget by ten months, the 2021 and 2022 budgets were successfully passed on time. In April 2021, the government passed a budget amendment responding to the continuing COVID-19 pandemic and natural disasters, including severe flooding in Dili.
Two rounds of presidential elections in March and April 2022 were peaceful, free, and fair, with over 75% voter turnout.
Occasional factional political violence can temporarily impact local retail businesses. There have been no instances in the past ten years of damage to projects or installations.
11. Labor Policies and Practices
The Private Investment Law stipulates that all investors are required to employ Timorese workers and promote their professional training for the performance of qualified functions, including the improvement of technical or managerial knowledge. The law does grant qualified investors the right to a minimum of five work visas for workers or collaborators qualified for supervisory, directing, or technical functions necessary for the investment project, and the ability to request work visas for foreign workers required to install or operate the venture. Timor-Leste’s immigration laws permit workers to apply for work permits in-country after entry on a 30-day visa acquired at arrival; however, U.S. citizens consistently report difficulties getting work permits approved in time. Delays in work permits can subsequently lead to penalties for overstaying visas, which can amount to hundreds of dollars
Shortages of skilled labor remain a significant constraint on private sector growth in Timor-Leste. Shortages of skilled workers are particularly notable in the construction and fishing sectors. Public and private sector employers also consistently encounter problems locating managerial, clerical, and other office staff. There is a surplus of young, inexperienced, unskilled labor, with roughly 15,000 new entrants into the labor market each year in an economy with an estimated total of 70,000 formal sector jobs for a total country population of approximately 1.36 million. Youth unemployment is estimated at 13.4%. Agriculture employs 59% of the population, the largest sector, the majority of which is subsistence agriculture. Data shows that the unemployment rate increases at higher levels of education, indicating a mismatch between training and skills sought by employers, and in particular a lack of vocational training. The government, donors, and employers place considerable emphasis on education and training to build local capacity. This policy aims not only to fill the skill gaps but also to meet local hiring requirements for foreign investors. There is a significant gender imbalance in employment, with the percentage of working age women having substantially lower participation rates, and higher unemployment rates than men.
Only about a quarter of the working age population works in the formal economy. About 28% are unemployed, unpaid household workers, informal workers, retired, or not seeking work. Another 27% are subsistence farmers or fisher people, and 21% are students. Apart from agriculture and fisheries, informal employment largely involves small-scale commerce, including informal vending and handicrafts. Of those formally employed, 82% work in the capital municipality of Dili. The oil and gas sector employs only 0.1% of the working age population, although it contributes 12% of the national GDP.
Foreign migrant workers constitute a small portion of the workforce, with unemployment rates equal to or higher than domestic workers. Substantial numbers of Timorese go overseas to work, with the United Kingdom, Australia, and South Korea being popular destinations. Government programs support training for out-going migrant workers. Worker remittances represent a significant source of national income, totaling $397 million in 2020.
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 $115 per month. Enforcement of labor laws declined in recent years due to budget shortfalls, and enforcement in 2020 and 2021 was constrained by COVID-19.
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 cases come from temporary labor agreements in the construction and service sectors. Labor inspection numbers rose in 2021 after having been limited in 2020 due to the COVID-19 pandemic and related government measures.
As stipulated in labor code, workers have the right to strike; however, they must notify companies in advance of the planned strike, and most labor disputes are settled through mediation and arbitration. 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. Strikes can be stopped by the government if they disturb public order.
Various businesses have protested state-of-emergency provisions imposed to control the COVID-19 pandemic that severely limited economic activity. Government responses and outcomes have been peaceful. A successful vaccination campaign and falling case counts has led to the relaxation of most restrictive measures but international travel remains limited. Before the COVID-19 pandemic, strikes against international companies occurred primarily over employment contracts and salary entitlements but yielded limited disruption.
The Government of Timor-Leste is member to the following major international labor and human rights conventions:
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
The Maritime Boundary Treaty with Australia, which entered into force in 2019, delineates special labor and migration regulations for Timorese and foreign workers on the Bayu Undan project and other offshore projects in the EEZ.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
The Overseas Private Investment Corporation (OPIC) and the Government of Timor-Leste signed an Investment Incentive Agreement in 2002. OPIC became the U.S. International Development Finance Corporation (DFC). To date the DFC has not negotiated an amendment of or replacement to the 2002 agreement. There are no current active or planned DFC projects in Timor-Leste. Potential U.S. investors and exporters are encouraged to contact the U.S. Export Import bank (www.exim.gov), the U.S. International Development Finance Corporation (www.dfc.gov), and the United States Trade and Development Agency (www.ustda.gov). Timor-Leste has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 2002, and the International Finance Corporation (IFC) has operated in Timor-Leste since 2006.
13. Foreign Direct Investment Statistics
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
Table 3: Sources and Destination of FDI
Data not available.
14. Contact for More Information
Political, Economic, and Consular Section
United States Embassy
Av. De Portugal, Praia dos Coqueiros
Dili, Timor-Leste
Phone: +670 330-2400
Email: DiliEcon@state.gov