Taxation of petroleum operations
The taxation of petroleum operations in Timor-Leste is partly covered by the TDA. However, the TDA operates only to modify the taxation of petroleum activities pursuant to a number of legacy tax regimes. These modifications apply to contractors, sub-contractors, and any other parties receiving income from the supply of goods or services to a contractor or sub-contractor.
Specific provisions for the taxation of petroleum operations include a personal income tax (PIT) rate of 30% for residents or 20% for non-residents.
Special tax regime for the Joint Petroleum Development Area (JPDA)
The JPDA is a geographical area in the Timor Sea known to be rich in hydrocarbon deposits. The JPDA covers the 'Annex F' production sharing contracts (PSCs) (see below) known as Bayu-Undan (including the Elang Kakatua and Kakatua North fields) PSCs, and Greater Sunrise. The JPDA also covers a number of non-Annex F PSCs.
Pursuant to the Timor Sea Treaty (TST), the JPDA is technically within the taxation jurisdiction of both Timor-Leste and Australia and therefore falls under the joint control and management of Timor-Leste and Australia. ‘Annex F’ of the TST refers to the PSCs with commercial discoveries at the time of the TST signing and so imbeds a number of historical tax principles.
Control of the JPDA is exercised by a 'Joint Authority' containing representation from Australia and Timor-Leste. The petroleum activities covering the exploration, development, processing, transportation, and marketing of hydrocarbons are carried out pursuant to PSCs entered into between the designated authority and the oil company in question.
Under the TST, revenue from the JPDA PSCs is split 90% for Timor-Leste and 10% for Australia. Accordingly, for tax calculation purposes, business profits or losses of an entity carrying on business in the JPDA are reduced by the 'reduction percentage' of 90% for Timor-Leste and 10% for Australia. This effectively means that the tax rates applied by Timor-Leste and Australia are at 90% and 10% of their respective national level.