UNITED NATIONS NATIONS UNIES

United Nations Transitional Administration Administration Transitoire des Nations Unies

in East Timor au Timor Oriental

UNTAET

UNTAET/REG/2000/35

20 December 2000

REGULATION NO. 2000/35

TO AMEND REGULATION NO. 2000/18 ON A REVENUE SYSTEM FOR EAST TIMOR

(as amended by UNTAET Regulation 2000/32)

The Special Representative of the Secretary-General (hereinafter: Transitional Administrator),

Pursuant to the authority given to him under United Nations Security Council resolution 1272 (1999) of 25 October 1999,

Taking into account United Nations Transitional Administration in East Timor (UNTAET) Regulation No. 1999/1 of 27 November 1999 on the Authority of the Transitional Administration in East Timor,

Upon the recommendation of the National Council,

For the purpose of amending UNTAET Regulation No. 2000/18 of 1 July 2000 on a Taxation System for East Timor, as amended by UNTAET Regulation No. 2000/32 of 29 September 2000,

Promulgates the following:

Section 1 Definitions

Section 3 of Regulation No. 2000/18 is amended by:

(a)       deleting the definition of “exempt wages” and substituting the following:

“exempt wages” means wages that are specified in Part B of Section 5 of Schedule 1  as exempt from wage income tax;

(b)       inserting the following definitions after the definition of the term “Law on  Income Tax”:

“non-resident”  in respect  of a  natural  person  means a  natural  person  who is not  a resident of East Timor”

“non-wage benefits” means any reward for services provided by an employer to an employee, including:

(a) the market value of any non-cash benefit provided by an employer  to an employee;

(b) the value determined by the Commissioner of the provision by the employer to an employee of the use of a motor vehicle wholly or partly for private purposes of the employee;

(c)     the  value  determined  by  the Commissioner  of the provision by the employer  of accommodation or housing;

(d)     the value determined by the Commissioner of the provision by an employer to an employee of a housekeeper, driver, guard, gardener, or other domestic assistant; and

(e) the cost to the employer of providing an employee with any meal, refreshment, or entertainment except in the course of providing a good or service for the employer where the Commissioner considers that the cost of provision for the employer is reasonable;

(c)       inserting the following definitions after the definition of the term “person”:

For purposes of Chapters VIII, X and XI and Sections 5 and 6 of Schedule 1 of the present Regulation, person also includes any body incorporated, formed, organized or established in East Timor or elsewhere as a limited company, limited or other partnership, any enterprise owned by or a political or administrative subdivision of a government (including  the Transitional Administration in East Timor), any public international organization, non- governmental organization, cooperative, association, affiliation, foundation, trust or similar organization and other forms of business.

From a date to be determined by a Directive, and for purposes of Chapter VII of the present Regulation, persons also includes the East Timor Transitional Administration (ETTA) or its successor as may be provided in UNTAET regulations.

“private aircraft” means an aircraft imported by or for a natural person who will use aircraft mainly for private or recreational purposes;

“private yacht” means a yacht of any type imported by or for a natural person who will use it mainly for private or recreational purposes;

“resident” in respect of a natural person means a natural person who is present in East Timor for more than 182 days in a tax year unless the person’s permanent place of abode is not in East Timor;

(d)      inserting the following definition after the definition of the term “tax year”:

“taxable wages” means wages less exempt wages and any allowances set out in Part A of Section 5 of Schedule 1;

(e)                          deleting the definition of “wages” and substituting the following:

“wages” means any reward for services provided by an employer to an employee, including:

(a)   any salary provided to the employee , including leave pay, overtime payments, commissions, and bonuses;

(b)     director’s fees;

(c)     the value of gifts provided by an employer to an employee;

(d)    any allowance provided by the employer for the benefit of an employee;

(e)   any payment provided by the employer in respect of loss or termination of employment;

(f)   any payments however described made on termination of employment in respect of entitlements outstanding at the time of termination;

(g)     the reimbursement or discharge by an employer of any expense of    the

employee  including utilities expenses;

(h)    the amount of any reimbursement or discharge by an employer of an

employee’s medical expenses;

(i)   the amount of any waiver where any employer waives an obligation of the employee to pay an amount owing to the employer; and

(j)     non-wage benefits greater than $20 provided in a calendar month to

employees of an employer that is exempt from income tax.

Section 2

Goods subject to excise tax

Section 20 of Regulation No. 2000/18 is amended by substituting the following table in place of the table included in Section 20.1:

Section 3 Imposition of import duty

Section 27 of Regulation No. 2000/18 is amended by deleting Section 27.2 and substituting the following Sections:

27.2  Where a person who imports goods into East Timor that are exempt from import duty transfers ownership or possession of the goods to another person and import duty would have been payable by the other person had the other person imported the goods, the transfer of ownership or possession of the goods to the other person will be treated as an import of the goods by the other person.

27.3   Liability to pay import duty as a result of the operation of Section 27.2 is imposed jointly on the person transferring ownership or possession of the goods and the person to whom ownership or possession is transferred.

27.4   This Chapter does not apply to imports covered by the Memorandum of Understanding dated 10 February 2000 between UNTAET, acting on behalf of East Timor, and the Government of Australia on arrangements relating to the Timor Gap.

Section 4 Wage income tax

4.1                  The reference in the Contents of Regulation No. 2000/18 to “Chapter VII Wages Tax” is changed to “Chapter VII  Wage Income Tax”.

4.2                  The title to Chapter VII of Regulation No. 2000/18 is amended by deleting the current title and substituting the following title:

VII.  Wage Income Tax

Section 5

Imposition of a wage income tax

Section 28 of Regulation No. 2000/18 is amended by deleting the current Section and substituting the following Section:

Section 28

Imposition of a wage income tax

A wage income tax at the rates set out in Part A of Section 5 of Schedule 1 is imposed on persons who receive taxable wages in respect of employment in East Timor on or after the date specified in Part C of Section 5 of Schedule 1.

Section 6 Substituted tax year

Section 35 of Regulation No. 2000/18 is amended by deleting the current Section and substituting the following:

35.1   With the prior permission of the Commissioner, a person may substitute a 12 month period (known as a “substituted tax year”) for the tax year that would otherwise apply for the purpose of calculating the liability of the person to pay tax under the Law on Income Tax.

35.2   The Commissioner may only give a person permission to use a substituted tax year where the Commissioner believes it is necessary to the efficient operation of this Regulation and the Law on Income Tax.

35.3   Where the Commissioner has permitted a person to use a substituted tax year, all references in the present Regulation or in the Law on Income Tax to a particular tax year shall be read as references to the 12 month period ending in the tax year in which the substituted tax year ends.

35.4   The Commissioner may specify by means of a designation notice transitional rules that are appropriate for the application of the present Regulation and the Law on Income Tax to a part of a tax year when a person commences to use a substituted tax year or ceases to use a substituted tax year.

Section 7

Tax on Coffee Exports

Section 36 of Regulation No. 2000/18 is amended by deleting the current section and substituting the following Section:

36.1   Subject to Section 36.2, every exporter of coffee beans, whether processed or unprocessed, shall pay at the time of export on or after 20 March 2000 a tax on the export value of those coffee beans at the rate set out in Part A of Section 6  of Schedule 1.

36.2   Exports of coffee beans described in Part B of Section 6 of Schedule 1 are exempt from the tax imposed under Section 36.1.

36.3   The export value of coffee beans is the arm's length free on board value of the beans.

36.4   Using the harmonized classification system, the owner, exporter or licensed customs broker shall present all relevant documentation on all  exported coffee beans to an officer of the Border Service.

Section 8 Withholding tax changes

Section 38 of Regulation No. 2000/18 is amended by deleting the current section and substituting the following Section:

Section 38

Withholding tax and direct tax liability

38.1            Withholding tax rates under the Law on Income Tax shall be reduced to zero for the period 1 January 2000 to 31 December 2000.

38.2            Income that would have been subject to withholding tax under the Law on Income Tax had Section 38.1 not applied shall be subject to income tax at the rates set out in paragraph (b) of Part A of Section 6 of Schedule 1.

38.3            A person who receives amounts that have been correctly  subject  to withholding tax under the Law on Income Tax as modified by paragraphs (a)(i) and (a)(iii) of Part A of Section 6 of Schedule 1 has no further liability with respect to income tax imposed on those amounts.

38.4                   Income tax otherwise payable on income derived by a person in a tax year shall be reduced by:

(a)                  any withholding tax imposed on income described in paragraph (a)(ii) of Part A of Section 6 of Schedule 1; and

(b)      tax on coffee exports imposed under Section 36 after 1 January 2001; and if the reduction exceeds the income tax otherwise payable, the Commissioner shall refund the excess to the person.

38.5            The Commissioner may make an assessment of any additional income tax owed by a person or refund any overpayment in accordance with Section 51.7 where that person receives amounts that have not been correctly subject to withholding tax.

38.6            Payment of tax assessed under Section 38.5 is due and payable one month after the date on which the person assessed receives notice of the assessment.

38.7            Payments of tax under the Law on Income Tax are required on the fifteenth day or, if the fifteenth day is not a business day, on the next business day of the relevant calendar month. Payments of tax required under Articles 21 and 25 of the Law on Income Tax may be deferred until 15 March 2001.

38.8            Article 25(1) of the Law on Income Tax shall be read as requiring four payments of tax on 15 February, 15 May, 15 August and 15 November for persons with a turnover of $1 million or less in the preceding tax year.

38.9            All payments of tax required under this Section shall be made to the Central Payments Office or its nominated agent.

Section 9

Modifications of the Law on Income Tax

Section 40 of Regulation No. 2000/18 is amended by deleting the current Section and substituting the following Section:

Section 40

Modifications of the Law on Income Tax

40.1            Article 14 of the Law on Income Tax does not apply to the 2000 tax year.

40.2            Paragraph 8 of Article 25 of the Law on Income Tax ceases to apply after 24 October 1999.

Section 10

Restrictions on deductions and carried-forward losses

Section 41 of Regulation No. 2000/18 is amended by deleting the current Section and substituting the following Section:

Section 41

Restrictions on deductions and carried-forward losses

41.1   No deduction shall be allowed under Article 6(1) of the Law on Income Tax in respect of non-wage benefits exceeding $20 provided in a calendar month by an employer to an employee.

41.2   Any credits for taxes paid or entitlements to refunds of tax for any reason that existed on 25 October 1999 shall be treated as nil on that date.

41.3   Losses calculated under Article 6(2) of the Law on Income Tax shall be treated as nil on 31 December 1999.

41.4   Any provisions in regulations or other instruments subsidiary to the Law on Income Tax that have the effect of providing concessional treatment for tax purposes  of income derived in East Timor, including but not limited to regional investment allowances, remote area concessions, and other administratively approved allowances, shall be treated as expiring immediately prior to 1 January 2001.

Section 11

Modification of taxation laws to which Regulation No. 1999/1 applies

Section 45.1 of Regulation No. 2000/18 is amended by:

(a)       deleting the word “and” at the end of paragraph (d);

(b)      deleting paragraph (e) and substituting the following in its place:

(e)                  references to Indonesia shall be read as references to East Timor; and

(f)                   references to Indonesian citizens shall be read as references to natural persons who are residents of East Timor.

Section 12

Failure to deliver tax payment

Section 73.1 of Regulation No. 2000/18 is amended by deleting the words “fifteen percent (15%) of the amount of the tax that remains unpaid per annum, calculated on a daily basis, for the period from the due date until the date on which payment is made and:” and substituting the following in its place:

5% of the tax not paid by the due date plus an additional 1% of the tax that remains unpaid on the 15th day of each month following the due date; and:

Section 13

Schedule 1– Rates of Tax and Import Duty, Exemptions and Dates of Effect

Schedule 1 to Regulation No. 2000/18 is amended by deleting the current Sections 2 to 6 of that Schedule and substituting the following Sections:

Section 2 Excise Tax

Part A: Tax Rates

The rates of excise tax for the purposes of Section 17 are set out in the following

Table:

Part B: Exemptions

The following goods shall be exempt from excise tax:

(a)             Goods that are exempt from import duty under Part B of Section 4 of Schedule 1 are exempt from excise tax on importation; and

(b)      Goods referred to in Section 20.2

Part C:  Date of Effect

Excise tax is imposed on goods imported into East Timor and on goods produced in East Timor on or after 20 March 2000.

Section 3 Sales Tax

Part A:  Tax Rates

The rates of sales tax for the purposes of Section 22 are as follows:

(a)      in respect of goods imported into East Timor  5%

(b)      in respect of sales of goods or the provision of services in East Timor        [to be decided later]% Part B: Exemptions

The following goods shall be exempt from sales tax:

(a)      in respect of goods imported into East Timor:

(i)   Goods that are exempt from import duty under Part B of Section 4 of Schedule 1 are exempt from sales tax on importation.

(ii)     Goods referred to in Section 25.2

(b)      in respect of sales of goods or the provision of services in East Timor:

(i)   [to be decided later]

(ii)   Persons whose monthly turnover from sales and provision of services does not exceed $[to be decided later]

(iii)   Goods and services referred to in Sections 25.3 and 25.4 Part C:  Date of Effect 

Sales tax is imposed on goods imported into East Timor on or after 20 March 2000.

Sales tax on sales of goods and the provision of services in East Timor has not come into effect. It applies to sales of goods and the provision of services on or after [to be decided later].

Section 4 Import Duty

Part A:  Tax Rate

The rate of import duty for the purposes of Section 27 is 5% of the customs value of the goods.

Part B: Exemptions

The following imported goods shall be exempt from import duty:

(a)                   where the goods accompany a person arriving in East Timor from another territory:

(i)    two hundred (200) cigarettes and two and one half (2.5) litres of excisable beverages per person;

(ii)    goods up to a value of US $300 of a non-commercial nature that are exclusively for the personal use or enjoyment of travellers or goods intended as gifts, where the nature and quantity of the goods indicate that they are not imported for, or intended to be imported for, commercial purposes;

(iii)   goods of a non-commercial nature, other than jewellery, that are exclusively for the personal use or enjoyment of travelers and that are brought into East Timor by travelers in accompanying luggage or carried on or about the travelers’ bodies; and

(iv)         household effects accompanying former residents of East Timor returning to reside in East Timor on a permanent basis;

(b)       imports of the type:

(i)    exempted under the Vienna Conventions on Diplomatic Relations of 1961 and Consular Relations of 1963;

(ii)    exempted under the Convention on the Privileges and Immunities of the United Nations; and

(iii)   exempted under the Convention on the Privileges and Immunities of the Specialized Agencies;

(c)       goods re-imported in the same condition in which they were exported;

(d)                  goods other than alcohol or tobacco imported by registered charitable organizations, being charitable organizations that have registered under an UNTAET directive that has been promulgated for that purpose, where the goods are to be used for charitable purposes of humanitarian assistance and relief, education or health care;

(e)                   goods for temporary admission, where the importer has provided security for import duty in the prescribed manner;

(f)                    goods for consumption by international staff of UNTAET or members of the Peace Keeping Force from contingent countries, where the goods are sold in conformity with prescribed rules of sale;

(g)                   baby formulas that are specially designed for babies under one (1) year of age so that after preparation they are consumed in a liquid form and provide the health benefits of human milk that would normally be provided to a baby that suckles from its mother;

(h)                         tampons and sanitary napkins; and

(i)                            goods not described in previous paragraphs where:

(i)    the goods are imported into East Timor other than as personal goods accompanying a traveller; and

(ii)    the import duty that would be imposed on the import if not for this paragraph would be U.S. $10 or less.

Part C:  Date of Effect

Import duty is imposed on goods imported into East Timor on or after 20

March 2000.

Section 5 Wage Income Tax

Part A:  Tax Rates

(a)                   The rates of wage income tax imposed on wages for the purposes of Section 28 are as follows:

(i)    if the employee has provided the employer with the employee’s tax identification number or is treated as having provided the employer with the employee’s tax identification number under Section 29:

MONTHLY TAXABLE WAGES          RATE

employee;

(ii)     if the employee is a non-resident, 20% of the wages received by the

(iii)     in all other cases, 30% of the wages received by an employee.

(b)                  Where an employee receives wages for a period of less than one month, the rates of wage income tax set out in paragraph (a) are imposed on a pro-rata basis.

Part B: Exemptions

The following wages  shall be exempt from wage income tax::

(a)                   wages received for official duties that are exempt from taxation under Section 20 of Regulation No. 2000/31;

(b)                  wages received in the territory covered by the Memorandum of Understanding dated 10 February 2000 between UNTAET, acting on behalf of East Timor, and the Government of Australia on arrangements relating to the Timor Gap;

(c)                   wages of an employee who is a citizen of a foreign country received in the employee’s capacity as a public servant of the government of a foreign country where the income is subject to income tax in that country;

(d)                  wages of an employee who is an employee of the United Nations or its specialized agencies; provided, however, that from a date to be determined by a Directive, this exemption shall not be construed to include wages of an employee of the East Timor Transitional Administration (ETTA) or its successor as may be defined by UNTAET regulations; and

(e)                   wages of an employee who is a non-resident of East Timor and who derives the wages in respect of services provided in East Timor under a contract of employment entered into prior to 30 September 2000 to provide services for a project approved by UNTAET and funded by a foreign government where the wages are received before the earlier of:

(i)                        the expiry of the contract of employment that existed at 30 September

2000; and

(ii)                          1 July 2001.

Part C:  Date of Effect

Wage income tax is imposed on wages received on or after 1 January 2001.

Section 6 Income Tax

Part A:  Tax Rates

(a)    For the purposes of the application of the Law on Income Tax, the rates of income tax that must be withheld by a person making payments described in this Section are as follows:

(i)                    amounts that are payable to residents or that are payable to non- residents who have a permanent establishment in East Timor:

TYPE OF INCOME         RATE

(ii)                  amounts that are payable to residents or that are payable to non- residents who have a permanent establishment in East Timor:

TYPE OF INCOME         RATE

(iii)                amounts payable to non-residents who do not have a permanent establishment in East Timor:

TYPE OF INCOME         RATE

(b)   For the purposes of the application of the Law on Income Tax and Chapter VIII of the present Regulation, the rates of income tax imposed on income other than income described in paragraph (a)(i) and (a)(iii) are as follows:

AMOUNT OF INCOME         RATE

(c)  The rate of tax imposed on coffee exports under Section 36.1 is 5%.

Part B: Exemptions

The following amounts are exempt from income tax:

(a) amounts exempt under Article 4(3) of the Law on Income Tax, as modified by Section 39 of the present Regulation.

The following amounts are exempt from tax under Section 36.1:

(a) up to five (5) kilograms of coffee beans exported in accompanied baggage by a

person departing from East Timor.

Part C:  Date of Effect

As a result of UNTAET Regulation No. 1999/1, an income tax has been imposed on taxable income determined for the period from 25 October 1999 and applies in the 2000 and subsequent tax years.

The tax on coffee exports applied from 20 March 2000.