Timor-Leste Fiscal FrameworkTimor-Leste Fiscal Framework

Angelo de AlmeidaAngelo de AlmeidaRevenue CommissionerRevenue Commissioner

Ministry of Planning and FinanceMinistry of Planning and Finance

Petroleum Taxation ActPetroleum Taxation Act

•• IntroductionIntroduction

•• FrameworkFramework

•• Tax detailsTax details

•• AdministrationAdministration

FrameworkFramework

•• Overall administration framework Overall administration framework provided by UNTAET 2000/18provided by UNTAET 2000/18

•• The Petroleum Taxation Act (PTA) The Petroleum Taxation Act (PTA) supplements UNTAET 2000/18supplements UNTAET 2000/18

•• Scope Scope –– applies to Timorapplies to Timor--Leste and Leste and JPDAJPDA

Timor Location MapDILI

KUPANGKUPANGKUPANGKUPANGKUPANGKUPANGKUPANGKUPANGKUPANG Joint PetroleumDevelopment Area

0 200 KM100

DARWINDARWIN

Petroleum Tax Act Jurisdiction

Petroleum Taxation ActPetroleum Taxation Act

•• If TimorIf Timor--Leste elects to take share of Leste elects to take share of project, then the PTA states no project, then the PTA states no capital gain, assessable income or capital gain, assessable income or loss arises loss arises

•• Petroleum related expenditure is Petroleum related expenditure is only deductible against petroleum only deductible against petroleum related incomerelated income

•• Taxable income and expenditure is Taxable income and expenditure is ring fenced by contract arearing fenced by contract area

Tax Ring FencingTax Ring FencingTax Ring Fencing

PTA Treatment

Timor-Lesteor JPDA

Field A Field B Field C Field D

Contract Area BContract Area A

Petroleum Taxation Act (cont)Petroleum Taxation Act (cont)

•• Rate is 30% of taxable incomeRate is 30% of taxable income–– No branch profits taxNo branch profits tax

•• Petroleum valuation principles Petroleum valuation principles same as PSCsame as PSC

•• Final withholding tax of 6% applies Final withholding tax of 6% applies to petroleum related servicesto petroleum related services

Petroleum Taxation Act (cont)Petroleum Taxation Act (cont)

•• Income Income –– revenue from PSCrevenue from PSC

•• Deductible Costs:Deductible Costs:–– Exploration cost depreciation 5 year Exploration cost depreciation 5 year

straightstraight--lineline–– Development costs 10 year straightDevelopment costs 10 year straight--lineline–– Units of production depreciation for shortUnits of production depreciation for short--

life fields where >80% reserves produced life fields where >80% reserves produced in first 5 yearsin first 5 years’’ productionproduction

–– Annual contributions to the Annual contributions to the decommissioning cost reserve under PSCdecommissioning cost reserve under PSC

Life of Project Fiscal RegimeLife of Project Fiscal Regime

Time

Tim

or-L

este

Sha

re %

5% Royalty (PSC)

Income tax (PTA)

40% of revenue remaining after cost recovery (PSC)

Income tax (PTA)

Supplemental Petroleum Tax

(PTA)

While contractor is recovering costs

and uplift

Once exploration and development

costs are recovered, profit petroleum starts

SPT paid only If contractor return exceeds 16.5%

Note: Withholding tax not shown

Uplift defers when profit oil starts

•• Supplemental Petroleum Tax Supplemental Petroleum Tax –– Supplemental Petroleum Tax of 22.5%Supplemental Petroleum Tax of 22.5%

post realizationpost realization of 16.5% IRRof 16.5% IRR

–– Subsequent incremental investment may Subsequent incremental investment may reduce the IRR below 16.5% in which case reduce the IRR below 16.5% in which case SPT is not paid again until the project SPT is not paid again until the project achieves a 16.5% IRRachieves a 16.5% IRR

Petroleum Taxation Act (cont)Petroleum Taxation Act (cont)

Petroleum Tax AdministrationPetroleum Tax Administration

•• TimorTimor--Leste is fully committed to the Leste is fully committed to the principles of the Extractive Industries principles of the Extractive Industries Transparency Initiative (EITI)Transparency Initiative (EITI)

•• TimorTimor--Leste Petroleum Tax Division (PTD) Leste Petroleum Tax Division (PTD) has been providing professional services has been providing professional services to the Petroleum Tax Payers since year to the Petroleum Tax Payers since year 2000 2000

•• Self assessment system will continue with Self assessment system will continue with review and audit by PTDreview and audit by PTD

Petroleum Tax Administration (cont)Petroleum Tax Administration (cont)

•• International tax professionals will be International tax professionals will be retained to assist PTDretained to assist PTD

•• PTD will continue to develop PTD will continue to develop computerized systems for tax computerized systems for tax administration and communicationadministration and communication–– Canadian SIGTAS (Standard Integrated Canadian SIGTAS (Standard Integrated

Government Tax Administration System) Government Tax Administration System) -- fully fully computerized tax administration softwarecomputerized tax administration software