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Module KompletuTax in Timor-Leste

taxes payment in Timor-Leste Democratic Republic explanation, located in southeast asia, neighbor to Indonesia and Australia.

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Module KompletuTax in Timor-Leste

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  1. Tax in Timor-Leste Chapter 1 Introduction Prepared by: Teresa FreitasBelo.,B.Bus.,MM.,PhD Jorge Ribeiro Freitas.,MM

  2. Differrention between Retribution and Donation

  3. ANY QUESTIONS???

  4. Quick Quiz

  5. Tax Collecting System What is: • Self Assessment • Official Assessment • With holding

  6. CHAPTER 2INCOME TAX IN TIMOR-LESTE PREPARE BY: TERESA FREITAS BELO.,B.Bus.,MM.,PhD JORGE RIBEIRO FREITAS.,L.Agr.Ec.,MM

  7. Introduction • Generally, income tax applies to any realized increase in economic capacity, in whatever name or form, which can be used by the taxpayer for consumption or to increase the wealth of the taxpayer, other than exempt income and wages subject to wage income tax.

  8. Cont’ • Gross receipts from some types of business and investment income are subject to a final withholding tax upon payment and are not declared in the annual income tax form.

  9. Cont’ • Also some receipts from some types of business and investment income are subject to non-final withholding tax and have to be declared in the annual income tax form. • Income tax applies to both individuals and enterprises.

  10. Tax rates for income earned by a resident natural person and not subject to a final withholding tax are progressive: • 0% for any part of annual taxable income of up to US$6,000; • 10% for any part of annual taxable income above US$ 6,000.

  11. Cont’ • The tax rate for taxable income earned by legal and non-resident natural persons and not subject to a final withholding tax is a flat rate of 10% for all taxable income.

  12. Payments of income tax are made through: • installments; and • a self-assessed final payment (to be made with the lodging of the annual income tax form).

  13. Cont’ • Income tax payable for the 2020 tax year is due with the lodgment of an annual income tax form on or before 31 March 2021.

  14. Structure of the Income Tax Law • The Government of the Democratic Republic of Timor Leste has recently introduced Tax Policy Reform.

  15. The Timor Leste Domestic tax laws are contained in: • The Taxes and Duties Act 2008 (the Act), and • UNTAET Regulation 2000/18 (as amended) Generally, the Act provides for: the imposition of the various taxes in Timor Leste, • the rates of taxes • the calculation of taxable income of taxpayers, and • some general matters such as the delivery of tax forms and the payment of taxes.

  16. CHAPTER 3 TAX SUBJECTS TERESA FREITAS BELO.,B.Bus.,MM.,PhD JORGE RIBEIRO FREITAS.,L.Agr.Ec.,MM

  17. TAX SUBJECTS • Who is subject to income tax The following persons and entities are subject to income tax (or are tax subjects) in Timor Leste: • an individual (natural person); • an undivided estate as a unit in lieu of the beneficiaries; • a legal person that has been incorporated, formed, organized, or established in Timor-Leste or under a foreign law, including a trust.

  18. 2.1. Resident Taxpayer • A resident taxpayer is: • a natural person who is present in Timor-Leste for a period of, or periods amounting in aggregate to, one hundred eighty-three days in any twelve month period that commences or ends during the year, unless the person’s permanent place of abode is not in Timor-Leste; • a legal person that has been incorporated, formed, organized, or established in Timor-Leste, including the undivided estate of a natural person who was a resident natural person immediately before death

  19. 2.2. Non-Resident Taxpayer • A non-resident taxpayer is: • an individual who is not present in Timor Leste for more than 182 days in any twelve month period that commences or ends during the year; • an individual whose permanent place of abode is outside of Timor Leste; • a body which is not established or domiciled in Timor Leste.

  20. 2.3. Permanent Establishment A permanent establishment is any establishment in Timor Leste used by a non-resident to conduct business in Timor Leste in the form of, amongst others: • a place of management; • a branch office; • a representative office; • an office; • a factory; • a workshop; • a mine, an oil or gas well, a quarry, or any other place of extraction of natural

  21. Cont’ • resources, including any place of drilling for mineral exploration; • a fishery, place of animal husbandry, farm, plantation or forest; • a construction, installation or assembly project; • the furnishing of services through employees or other personnel, if conducted for more than 60 days in any 12 month period; • a natural or legal person acting as a dependent agent ; • an agent or employee of a non-resident insurance company, if the agent or employee collects premiums, or insures risks in Timor Leste.

  22. Who is not subject to income tax • The following are not subject to income tax in Timor Leste: • diplomatic mission; or • an international organization as determined by the Minister of Finance provided; • Timor-Leste is a member of the organization; and • the organization does not carry on business or engage in other activities to derive Timor-Leste source income, other than providing loans to the Government from a fund comprising member contributions.

  23. What is subject to income tax • Income • Generally, income subject to income tax in Timor Leste is described as any increase in economic capability received or accrued by a taxpayer, in whatever name or form and originating from within or outside Timor Leste, which can be used for consumption or to increase the wealth of the taxpayer concerned. • Note: Wages received are subject to wage income tax and are not subject to income tax.

  24. Cont’ • The total income of an income taxpayer for a tax year is the total of the following amounts derived by the taxpayer during the tax year: • business income • property income; • gains from fluctuations in foreign currencies; • lottery prizes or awards; • a refund of a tax payment previously deducted as an expense; and • any other amount that is a realized increase in economic capacity, in whatever name or form, which can be used by the taxpayer for consumption or to increase the wealth of the taxpayer, other than wages subject to wages income tax.

  25. Exempt Income • The following income is exempt from income tax: • any aid or donations, provided the donor and done do not have any business, ownership, or control relationship; • gifts received by relatives within one degree of direct lineage, or by a religious, • educational, or charitable organisation, or a co-operative, provided that the donor or donee does not have any business relation, ownership, or control; • inheritances; • assets (including cash) received by a legal person in exchange for shares or capital contribution; • an amount paid by an insurance company to a natural person in connection with health, accident, life, or education insurance; • dividends; • any contribution paid by an employer or employee to an approved pension fund; • income derived by an approved pension fund; and • remuneration paid to natural persons out of the Trust Fund for East Timor.

  26. Income excluded from Taxable Income (withholding tax) • Certain types of income is subject to withholding tax. In some instances this withholding tax is a final tax on that income and that income is excluded from taxable income. • Withholding Tax – Final • Withholding – Not Final:

  27. General Deductions from Income • The amount of Taxable Income for residents and non-residents who have a permanent establishment in Timor Leste shall be determined on the basis of gross income reduced by: • expenditures (excluding interest expense for all taxpayers other than financial institutions) and losses on the alienation of assets or the discharge of indebtedness to the extent incurred in the conduct of a taxable business activity; • expenditures incurred in deriving any other amounts included in gross income; • any loss on disposal of an asset, other than an asset held on personal account;

  28. Cont’ • depreciation of tangible business assets and business buildings and amortization of intangible assets and expenditure; • contributions to an approved pension fund; • bad debts determined in accordance with Section 39 of the Taxes and Duties Act 2008 and for financial institutions doubtful debts determined in accordance with Section 38 of the Taxes and Duties Act 2008. • Tax (except for income tax) • losses due to the difference of foreign exchange rate; • the company's research and development expenses performed in Timor Leste; and • scholarship, apprenticeship, and training costs

  29. Deductions not allowed: • The following are not deductible in determining the taxable income of an income taxpayer: • the distribution of profit in whatever name or form, such as dividends, including dividends paid by an insurance company to a policyholder, or any distribution of surplus by a co-operative; • expenses charged or incurred for the personal benefit of shareholders, partners, or members; • reserves, other than as provided for under this Law; • Insurance premiums for health, accident, life, or education insurance paid by a natural person, except if the premiums are paid by an employer in respect of an employee and the premium is treated as income of the employee; • excessive pay or compensation paid by a legal person to a member of the legal person, or paid between associates, as consideration for work performed; • gifts, aid, donations, or inheritances if exempt from income tax in the hands of the • recipient under the provisions of the Taxes and Duties Act 2008;

  30. Cont’ • Timor-Leste or foreign income tax; and • costs incurred for the personal benefit of an income taxpayer or the taxpayer’s dependents; • salaries paid to a partner in a partnership; • late payment interest, penalties and fines imposed for non-compliance with this law; • interest expense unless the expense is incurred by a financial institution; • a fine or other monetary penalty imposed for violation of any law, rule, or regulation; • a bribe, or any similar amount; and • an expenditure or loss incurred to the extent recoverable under a policy of insurance or contract of indemnity.

  31. CHAPTER 4TAXABLE INCOME TERESA FREITAS BELO.,B.Bus.,MM.,PhD JORGE RIBEIRO FREITAS.,L.Agr.Ec.,MM

  32. TAXABLE INCOME • Taxable income from business activity • Income tax period • The “tax year” means the 12 month period from 1 January to 31 December or, if a taxpayer has permission to use a substituted tax year, the substituted tax year. • Cash or Accrual Basis • A income taxpayer whose annual gross turnover is $100,000 or more shall account for income tax on an accrual basis.

  33. Cont’ • An income taxpayer accounting for income tax on an accrual basis recognizes income when it is receivable and incurs an expense when it is payable. • An amount is payable when all the events that determine liability have occurred and the mount of the liability can be determined with reasonable accuracy, but not before economic performance occurs.

  34. Economic performanceoccurs: • (a) in the case of acquisition of goods, services or capital assets, at the time the goods, services or capital assets are provided, • (b) in case of use of goods or capital assets, at the time the goods or capital assets are used;and • in any other case, at the time the taxpayer makes payment in full satisfaction of the liability.

  35. Aspects of taxable income calculation • Inventory • A deduction is allowed for the cost of inventory incurred during the tax year even if the inventory is on hand at the end of the year. • Depreciation • An income taxpayer is allowed a deduction for depreciable assets and business buildings during the tax year.

  36. Cont’ • Depreciation methods Depreciable assets may be depreciated: • Individually on a straight-line basis or • Under a pooling system on a declining balance basis • The same method of depreciation shall apply to all depreciable assets of a taxpayer. • Business Buildings must be depreciated using the straight-line methodology of depreciation.

  37. Cont’ • Pooling system of Depreciation • The depreciation deduction for each depreciation pool for a tax year shall be calculated by applying the depreciation rate for the pool to the written down value of the pool at the end of the tax year. • The written down value of a depreciation pool at the end of a tax year shall be the written down value at the end of the previous tax year less the depreciation deduction allowed for that year:

  38. Cont’ • The written down value of a depreciation pool at the end of a tax year shall be the written down value at the end of the previous tax year less the depreciation deduction allowed for that year: • increased by the cost of depreciable assets added to the depreciation pool, and the cost of improvement, renewal, and reconstruction of assets in the pool, during the tax year; and • decreased by the consideration received or receivable for assets in the depreciation pool alienated during the tax year, including any compensation received for the loss of such assets due to natural calamities or other involuntary disposals.

  39. Cont’ • Individual Basis of Depreciation • The following rules apply to a depreciable sset and business buildings depreciated on a straight-line basis: • where the cost of a depreciable asset is less than $100, the depreciation deduction in the year that the asset is acquired is equal to the cost of the asset and no depreciation deduction is allowed for that asset in a subsequent year; • the cost of an improvement, renewal, or reconstruction of a depreciable asset or business building shall be treated as the cost of a new asset with a useful life equal to the original useful life of the asset or building; • where the depreciable asset or business building is used only partly in the conduct of taxable business activities and partly for another purpose, the amount of depreciation allowed as a deduction shall be reduced by the proportion of the non-business use; and (d) where the depreciable asset or business building is alienated by a taxpayer, the cost of the asset or building shall be reduced by the depreciation deductions allowed under this section.

  40. Cont’ • Amortization of Intangibles • An income taxpayer is also allowed a deduction for the amortization of intangible assets and expenditure. • “Intangible asset” is any property (other than tangible movable property or immovable property) that: • has a useful life exceeding one year; and • is used wholly or partly in the conduct of taxable business activities;

  41. Depreciation and amortization rates(part A)

  42. Depreciable Assets(Part B)

  43. Intangible Assets and Expenditures, and Pre-commencement Costs(Part C)

  44. Cont’ (a) The useful life of this type of property shall be determined in accordance with the period of time for which the intangible property exists.

  45. Cont’ • Reserves • Bad Debts A taxpayer is allowed a deduction in a tax year for a bad debt if the amount of the debt: • was previously included in taxable business income, • the debt is written off in the accounts of the income taxpayer during the tax year, and • the income taxpayer has reasonable grounds for believing that the debt will not be recovered. • Long-term Contracts • Finance Leases

  46. Cont’ • A lease is a finance lease if: • the lease term (including any period under an option to renew) is 75% or more of the useful life of the asset for depreciation purposes; • the lessee has an option to purchase the asset for a fixed or determinable price at the expiration of the lease; • the estimated residual value of the asset at the expiration of the lease is less than 20% of its market value at the start of the lease; • in the case of a lease that commences before the last 25% of the useful life of the asset, the present value of the minimum lease payments equals or exceeds 90% of the market value of the asset at the commencement of the lease term; or • Guide G05 Income Tax – English Page 15 of 33 (e) the asset is custom made for the lessee and, after the expiration of the lease, the asset will be of no practical use to any person other than the lessee.

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