Content Group 4 of Timor-Leste

Foreign Direct Investment Policy

1. The Private Investment Law (2011) specifies the conditions and incentives for both domestic and foreign investment and guarantees full equality before the law for international investors. Other major laws affecting incoming foreign investment include the Companies Code of 2004, the Commercial Registration Code, and the Taxation Act of 2008. In accordance with article 30 of the Private Investment Law, the government of Timor-Leste announced the establishment of a Specialised Investment Agency, a one-stop-shop for investment and export promotion, on January 5, 2015. The agency became TradeInvest Timor-Leste in November 2015.


2. TradeInvest Timor-Leste, the main investment and export promotion agency, aims to facilitate and support potential investors in Timor-Leste and assist foreign companies in identifying projects among the array of business opportunities that are emerging in Timor-Leste. TradeInvest is a one-stop-shop that provides services such as: licensing, taxes, investment opportunities, permits, tariffs, or linking importers with the right procedures. 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, labour, immigration, building and housing, territorial planning and the environment. 


3. The Private Investment Commission evaluates applications for foreign investment permits, verifying the following:
   
   
   • Compliance of the application with requirements established in applicable legislation (such as the National Development Plan, in the Procedural Regulation for Foreign Investment)
   • Suitability, capacity, experience, and availability of financial resources necessary for the 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
      
4. The Timorese legal system is based on a mix of Indonesian laws and regulations, acts passed by the United Nations Transitional Administration, and post-independence Timorese legislation. The country is still working on a review of its legislation to harmonise the system, but has yet to undergo a comprehensive overhaul of the overlapping yet disparate systems. Timor-Leste has two official languages, Tetun and Portuguese, and two working languages, Indonesian and English; all new legislation is enacted in Portuguese and is based on the civil law tradition. A new private investment policy, tax codes and customs agencies are part of the ongoing fiscal reform effort that is designed to align Timorese legislation and regulation with best practices in ASEAN (under the ASEAN Comprehensive Investment Agreement) and under United Nations Conference on Trade and Development (UNCTAD).


5. Timor-Leste does not have a competition or anti-trust law. Foreign investors may invest in any sector other than postal services, public communications, protected natural areas, and weapons production and distribution, as these are specifically reserved for the state. Investors are also prohibited from investing in sectors otherwise restricted by law (such as criminal activities).


6. While Timor-Leste does not yet have a separate expropriation law, 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 and 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 nationalisation policies or land policies that deliberately target the property of investors. Furthermore, before expropriation occurs, the affected claimants/occupants are given 30 days to leave the property and 10 days for filing cases at the local courts. Over 2012 to 2017, the cases of expropriation that did occur, primarily affected urban squatters occupying state property. Two large government development projects have relocated significant numbers of residents, while two known private investments have negotiated with the government to remove residents as part of the investment agreement.


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


8. The government, through its autonomous agency, the National Petroleum and Minerals Authority (ANPM), has contracted with foreign firms to explore and develop offshore oil and gas deposits. In 2011, the government’s National Strategic Development Plan was approved unanimously by the National Parliament. The plan focuses on using petroleum revenues to support non-petroleum economic development and help the country to become a middle-income country by 2030. The government ostensibly recognises that international investment and business partnership are a key part of developing a diversified and sustainable economy in Timor-Leste.


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


10. 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 leases (up to 50 years). There is no comprehensive national legislation governing land ownership, and investors who wish to lease property must often sort through competing claims from the Portuguese colonial administration, the Indonesian occupation era, and the post-independence period.


11. The documents required for investments include:
    
    
    • TradeInvest application form
    • Descriptive project summary (project briefs, technical plans)
    • Identification of promoters, professional CV/Firm Corporate Capability
    • Bank credentials (bank statement, bank reference)
    • Business plan
    • Documents of land ownership
    • Lot location
    • Budget for construction/remodelling
    • Environmental Impact Assessment (environmental licensing)
    • Criminal records (original/certified copy)


12. TradeInvest can issue a certificate of investment to projects approved by the Private Investment Commission that are valued at less than USD20 million. Investments of more than USD20 million or that require more than 5 hectares of state land for tourism, or 100 hectares of state land for agriculture, livestock, or forestry, require approval from the Council of Ministers. Investors can also request a Special Investment Agreement, through TradeInvest, prior to submitting the project to the Council of Ministers for approval. According to the TradeInvest website, application fees are USD500 for national investors and USD2,000 for international investors, and investment decisions are issued within 30 days.


13. Timor-Leste has not yet conducted any investment policy reviews through the Organisation for Economic Co-operation and Development (OECD), WTO, or UNCTAD. Timor-Leste and Portugal have signed an Agreement on Mutual Protection and Promotion of Investment. Timor-Leste also signed a Bilateral Investment Treaty (BIT) with Germany in 2005, and with Qatar in 2012, but they have not entered into force.


14. The government offers investment incentives to offset some of these challenges, including five-, eight-, or ten-year tax holidays depending on the location and nature of the investment. Investment opportunities outside of the oil and gas sector are increasing, with interest growing in the agricultural, construction, telecommunications, and tourism sectors.


15. The government is also working on a major petroleum sector infrastructure project along the country’s southern coast and has created Special Economic Zones in Oecusse exclave and Atauro Island.

Sources: WTO – Trade Policy Review, US Department of Commerce, Fitch Solutions