Establishing payroll internationally requires navigating various legal requirements and considerations that can be challenging. Globalization Partners offers the resources to help you efficiently set up Timor-Leste payroll and ensure full compliance with local governance.
According to the nation’s 2012 Labour Code, Wage Income Taxes are to be paid by the employer and deducted from employee payments. Annual taxable income under $6,000 has no tax withholding requirements for residents, but any yearly income over that amount is subject to a 10 percent tax. This income is taxable regardless of whether payments are made in cash. Non-residents must pay a flat rate of 10% on any Timor-Leste sourced taxable income.
Employers are required to withhold Wage Income Taxes monthly and provide an annual return by the last day of February for each tax year.
The following wages are exempt from Wage Income Taxes:
- Wages for an employee who is a citizen of another country, receives payment as a government employee, and pays income tax in their own country
- Wages paid to an employee for official duties the law exempts from taxes
- Wages that an individual receives financed by the Trust Fund for East Timor
- Wages for an employee of the United Nations or one of its entities
Termination and Entitlement Terms
You can terminate a contract with an employee without prior notice under just cause. The following employee behaviors qualify as reasonable grounds for termination:
- Unlawful disobedience of orders given by superiors
- Unjustified absence for over three consecutive days or five different days in a month
- Negligent behavior
- Offensive dishonesty or repeated lack of conscientiousness toward work
- Breach of professional confidentiality
- Criminal conviction that prevents an employee from working
Suppose you must terminate a contract due to redundancy, a market change, or another similar situation. In that case, you are required to notify all affected workers and carry out negotiations with them regarding the rescission of their contract. If maintaining the contract is impossible, the law stipulates that you must provide 15 days’ notice for employees who have worked at your company for fewer than two years. The law requires at least 30 days’ notice for employees who have worked for you for more than two years.
Should the worker be reinstated after rescission due to a court ruling or circumstantial change, they may be entitled to compensation. In any case of termination, you are responsible for compensating employees with one month’s salary for each period of five years they’ve worked for you.
Payroll Options for Companies
Companies have several Timor-Leste payroll options. Carefully assess your company’s requirements as you decide on the best choice for your budget, operational needs, and logistics. Some standard options global companies use include:
- Internal payroll processing: You may be able to include your global workers in your parent company’s internal payroll. This option may reduce transactional costs, but it also takes time and brings personnel expenses. Internal payroll processing also carries financial risk. If you face an administrative issue with paying international workers, your parent company will be liable.
- Subsidiary: If you establish a business entity in Timor-Leste, you can use the subsidiary to administer local payroll. However, you’ll need to allocate significant resources for establishing the subsidiary.
- Timor-Leste payroll processing company: Local entities offer third-party payroll management services in the country and can handle your company’s requirements. However, they can charge high fees for their solutions. You will also be liable for any errors they make on behalf of your company,
- Global EOR:As an Employer of Record (EOR), Globalization Partners offers various services, including putting your Timorese employees on a single, accessible payroll platform. Our solution enables you to streamline payroll processes without exposing your company to liability. We’ll hire your workers through our entity and take on all the responsibility.
Choose Globalization Partners for Efficient Payroll Management
For trusted Timor-Leste payroll outsourcing, work with Globalization Partners as your Employer of Record. We’ll manage payroll for you so you can focus on your other business priorities. Contact us today to learn more.