«Executive Summary Twelve years after independence, Timor-Leste eagerly welcomes investment and development opportunities. Plagued by conflict and ...»
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2. Conversion and Transfer Policies 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 $5000 and requires explicit authorization for sums in excess of $10,000. Three foreign banks operate in Timor-Leste -- Bank Mandiri (Indonesia), ANZ Bank (Australia), and Banco Nacional Ultramarino (Portugal). In addition to the Central Bank’s requirements, these banks may also impose reporting requirements for transactions above a certain amount in order to comply with home-country anti-money laundering regulations.
Remittance Policies Timor-Leste does not have a policy specifically governing remittances and there is very limited data on Timorese working abroad.
3. Expropriation and Compensation Timor-Leste does not yet have an 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 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.
4. Dispute Settlement
Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts The justice system -- police, prosecutors, and courts -- is still evolving and short-staffed. The government relies upon significant numbers of foreign experts and advisors to augment local resources. The Office of the Prosecutor General has continued to accumulate experience and to Department of State: 2014 Investment Climate Statement June 2014 establish case management and other essential systems. Timor-Leste has established courts of first instance and a court of appeal. 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.
BankruptcyTimor-Leste does not yet have a commercial code or bankruptcy law.
Investment Disputes Civil disputes are generally handled through the domestic court system, which is ill-equipped to handle 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.
ICSID Convention and New York Convention Timor-Leste is party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). It is not party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. TimorLeste’s Court of Appeals must recognize a foreign judgment or arbitral award in order for it to be enforced in the country.
Duration of Dispute Resolution A World Bank study found that a contract enforcement dispute takes on average 1,285 days to settle, one of the slowest and most expensive processes in the world.
5. Performance Requirements and Investment Incentives Foreign direct investments in Timor-Leste require the incorporation of a business or purchase of national assets and can involve either the transfer of freely convertible currency from overseas to a financial institution legally established in Timor-Leste, or the importation of goods and services purchased using overseas financial resources with a total value of transferred resources exceeding $100,000.
Outside of a few select sectors, such as oil and gas, Timor-Leste does not impose performance requirements such as local partnering, gradual nationalization, domestic marketing obligations, domestic sourcing of inputs or technology transfer. Therefore, non-oil and gas related entities with foreign investor status may be 100-percent foreign equity. However, 5 percent of the shareholders of oil and gas related entities must be Timorese. The investment laws do not impose restrictions on the sale of investments by a foreign investor.
In the Strategic Development Plan 2011-2030 and in its five-year program approved in September 2012, the government announced that it would develop a National Labor Content Department of State: 2014 Investment Climate Statement June 2014 policy that would require both domestic and foreign investors to devote a minimum percentage of the value of "major projects" to either the employment or training of Timorese citizens.
Details of the policy have not yet been clarified.
The Private Investment Law guarantees the right of investors to contract foreign workers, in accordance with relevant immigration regulations. Applications for work visas can be lengthy and bureaucratic, but are generally granted upon presentation of the appropriate documents.
WTO/TRIMS Timor-Leste is not a member of the World Trade Organization (WTO), so does not have any obligations under the WTO’s Trade Related Investment Measures provisions.
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 $50,000 and foreign investments of over $1.5 million, investors benefit from five years of exemption from income, sales, and services taxes, as well as exemptions of 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.
Research and Development Any foreign firm willing to participate in a subsidized research and development project may submit an investment proposal and seek advice from TradeInvest Timor-Leste on the possibility of Public Private Partnership (PPP) initiatives in the relevant sector. The government currently focuses on PPPs for major construction projects and has not been involved actively in Research and Development programs.
Performance Requirements Timor-Leste does not require investors to fulfill domestic content requirements. At least one member of the board of directors has to be a permanent residence of Timor-Leste. Any foreign investors willing to invest in Timor-Leste will be granted temporary residence and if the investor has been in Timor-Leste for a minimum consecutive period of three years, he/she will be granted permanent residence.
According to Article 27 of the Private Investment Law, an investor must employ Timorese workers and promote their vocational training for those in technical and management positions.
Data Storage There is no specific requirement forcing investors to establish and maintain a certain amount of data storage in the country. However, investors are required to provide TradeInvest Timor-Leste with regular data on the progress of their business.
6. Right to Private Ownership and Establishment Foreign and domestic entities may establish and own business enterprises and engage in remunerative activity. Private entities may establish, acquire, and dispose of interests in business enterprises.
7. Protection of Property Rights Timorese legislation provides for the ownership and lease of real property. Only Timorese individuals and corporations may own land; foreign entities may lease land for up to 50 years.
Other forms of property rights established under Portuguese and Indonesian legislation have been in effect in Timor-Leste in the past and may still enjoy recognition. Timorese law provides for pledges on corporate shares.
Due to the destruction of the property registry in 1999 and the absence of authorizing legislation, it is not possible to register title deeds. Nonetheless, the notion of property ownership persists, properties are bought and sold, and the courts deal with real estate issues.
Real Property There continues to be confusion over land and property ownership as there are competing claims on property arising from various occupancies during the Portuguese, Indonesian, and postindependence 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. This, combined with the lack of a comprehensive land law, makes solidifying land titles and 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 2012, but the then-President vetoed the legislation and new drafts are still under debate.
Intellectual Property Rights Section 60 of Timor-Leste’s Constitution provides for the protection of literary, scientific, and artistic work. However, legislators have yet 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 of legal protection this affords.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Embassy point of contact: Shawn Baxter BaxterGS@state.govLocal lawyers list: http://timorleste.usembassy.gov/service3/attorneys.html
8. Transparency of the Regulatory System
In June 2013, with assistance from the International Finance Corporation, the government established SERVE (Service for Registration and Verification of Entrepreneurs) 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. In its first seven months of operation, SERVE has registered over 4,000 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 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. Renewals are also for 12 months by default; however, it is unclear whether renewals can be valid for longer periods.
SERVE’s only office is in Dili, with plans to open a new office in the Oecusse exclave by the end of 2014. SERVE staff is training local community Business Development Center personnel in business registration requirements, with the hopes that by the end of 2014, they will be able to accept business registration applications outside of the capital.
The country’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.
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, and the disputes are still being addressed through the courts or international arbitration.
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.
Parliament and parliamentary committees regularly hold hearings about and debates on proposed laws. For certain major legislation, the government holds public consultations or solicits public comment.
9. Efficient Capital Markets and Portfolio Investment Money and Banking System, Hostile Takeovers
The three foreign banks operating in Timor-Leste have modest loan portfolios. According to Central Bank data, commercial bank credits to the private sector totaled $176.9 million as of December 2013. The overall non-performing loan rate was 49.5 percent.