The generation and distribution of an accurate time signal has been the cause of some technical difficulties in the past. Modern telescopes with their distributed computer architecture have increased this problem even more. Since the availability of the Global Positioning System (GPS), the generation of an accurate time signal of isolated telescope sites is not a problem any more. However, distribution of a time signal with a high accuracy to all computers is still an issue. The IRIG-B code, which is commonly used, is not adequate if accuracy requirements are in the 10 microsecond range. Also, synchronization of software processes in one computer and in different computers must be solved. This paper presents the design that is adopted for the ESO Very Large Telescope (VLT). An overview of the requirements of the time reference system (TRS) is given. These requirements have been defined on the basis of experiences with the timing system of the ESO NTT telescope. The hardware components are described with the emphasis on the distribution and the decoding module in the computers. As timing is vital in a `real time' software environment, the operating system and application software requirements have driven the TRS requirements from the beginning of the definition. This has led to a TRS system that supports the software needs on time synchronization between processes, even in different computers. A description is given about the software implementation.