As the impoverished half-island nation of 1.1 million prepares to celebrate the anniversary, the dusty, potholed streets of its capital Dili are being spruced up to welcome VIP guests including Indonesian President Susilo Bambang Yudhoyono, Australia's governor-general and Portugal's president.
This is a crucial year for the country also known as Timor-Leste. It will choose a new prime minister and government in general elections on July 7, then at year's end will bid goodbye to UN forces stationed since 1999.
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Taur Matan Ruak is due to take over the largely ceremonial post of president, which enjoyed a high profile under Ramos-Horta, at 11:30 pm (1430 GMT) Saturday.
Ruak, a former armed forces chief and ex-guerrilla fighter, won a run-off election last month that was widely lauded as peaceful and fair.
He takes over a country that is hobbled by extreme poverty, corruption and an over-reliance on energy revenues.
But the unstable nation has now enjoyed several years of peace.
"I would sum up the challenges and two priorities of our country as security and the well-being and prosperity of our people," Ruak, 55, told AFP.
"This is what people voted for and yearn for as demonstrated in the elections."
The UN has said that peacekeepers, stationed since 1999, will pull out as planned by year's end if the general elections are also peaceful.
The former Portuguese colony voted for independence in a UN-supervised referendum in 1999, after Indonesia's 24-year occupation had left up to 183,000 people dead from fighting, disease and starvation.
The Indonesian military and anti-independence militias went on a savage campaign of retribution after the vote, ravaging the new nation's infrastructure and killing more than 1,000 people.
The UN administered East Timor until May 20, 2002, when sovereignty was formally handed to its first president.
Since then the nation has suffered bouts of violence -- a political crisis in 2006 killed 37 people and displaced tens of thousands, and Ramos-Horta was lucky to survive an assassination attempt in 2008.
There has been no major political unrest since then, and government spending has increased dramatically in line with East Timor's increased energy income.
Still, the grinding poverty is visible everywhere.
In Dili, away from the venues for the weekend celebrations, mud canals flood slum neighbourhoods after rains, barely clothed children play in the streets, and infrastructure is limited to a few paved roads, a single port and a tiny airport.
The International Monetary Fund calls East Timor the "most oil-dependent economy in the world" after the discovery of large fields of oil and natural gas at sea.
Petroleum products account for more than 90 percent of total government revenue. A special fund, geared for development spending now and to cushion the next generation, recently swelled to $10 billion.
