Last modified: 13/04/2024 06:53

Corporate taxation

		Rate
	Corporate Income Tax Rate ( Standard Rate)	30%
	Batting and Gaming / Manufacturing and Sale or Import and Sale of any Liquor or Tobacco Products	40%
	Branch Tax Rate	30%
	Capital Gains Tax Rate	30%
	NGO Tax ( On 3% of the total receipts subject to tax remission)	30%
	Charitable Institution	14%
	Trust	30%
	Unit Trust and Mutual Fund	30%

Residence: A company is resident in Sri Lanka for a year of assessment if – a) it is incorporated or formed under the laws of Sri Lanka; b) it is registered, or the principal office is, in Sri Lanka; or c) at any time during the year the management and control of the affairs of the company are exercised in Sri Lanka.

Basis: Resident companies are taxed on their worldwide income. Exemptions are available for certain types of income e.g., foreign branch profits. Non-resident companies are taxed on the permanent establishment (PE)/branch income in Sri Lanka. Branches are taxed in the same way as subsidiaries.

Taxable income: Corporate income tax is imposed on a company’s taxable income, which is broadly a company’s assessable income including capital gains less allowable deductions. Income earned in foreign currency on service exports and foreign sourced income are exempt from income tax in Sri Lanka.

Significant local taxes on income: There are number of taxes in Sri Lanka. – Income Tax – Advance Personal Income Tax (APIT) – Value Added Tax (VAT) – Social Security Contribution Levy (SSCL) – Stamp Duty etc.

Alternative minimum tax: N/A

Taxation of dividends: With effect from 1st January 2023, dividend payment is subject to 15% WHT and considered as final WHT payments.

Capital gains: Capital Gains Tax is charged on gains from the realisation of investment assets. CGT is a tax on gains realised on the transfer of ownership including sale, exchange, transfer, distribution, cancellation, redemption, destruction, loss, expiry, expropriation or surrender of an investment asset. The only gain that should be subject to CGT is the gain on the realization of an investment asset. “Investment Asset” (Sec.195) Means a capital asset held as part of an investment, but excludes the principal place of residence of an individual, provided it has been owned by the individual continuously for the three years before disposal and lived in for at least two of those three years (calculated on a daily basis). Capital asset includes the following. – Land or Building; – A membership interest in a company, partnership or trust; – A security or other financial asset; – An option, right or other interest in an asset referred to in the foregoing paragraphs; but excludes trading stock or a depreciable asset; CGT rate is 30% for entities.

Losses: In calculating income, unrelieved tax losses can be deducted within six years of assessment.

Foreign tax relief: Tax credit available for foreign sourced income. However, foreign-sourced income is exempt from income tax and hence tax relief may not be relevant.

Participation exemption: N/A

Holding-company regime: N/A

Tax-based incentives: N/A

Group relief/fiscal unity: N/A

Small company/alternative tax regimes: N/A

Corporate taxation: compliance

Tax year: Fiscal year is 1st April to 31st March. e.g. year of assessment 2023/2024 means 1st April 2023 to 31st March 2024.

Consolidated returns: N/A

Filing and payment: Income Tax return should be submitted on or before 30th November of subsequent year of assessment. e.g. the return for the year of assessment 2023/2024 should be filed on or before 30th November 2024. Tax installments should be made as follows. 1st installment – on or before 15th August in the same Y/A. 2nd installment – on or before 15th November in the same Y/A 3rd installment – on or before 15th of February in the same Y/A 4th installment – on or before 15th of May in the subsequent Y/A Final installment – on or before 30th September in the subsequent Y/A

Penalties: – Failure to register as taxpayer – Not exceeding Rs.50,000/- – Failure to notify changes in address, place of business or the nature of taxable activity Rs. 50,000/- – Failure to file tax return on or before the due date greater of a) 5% of tax owing + 5% of amount of tax owing plus 1% of amount of tax owing for each month or part of a month during which the failure to file continues and b) Rs. 50,000/- plus further Rs.10,000/- for each month or part of a month during which the failure continues. subject to maximum of Rs.400,000/- – Failure to pay installment on due date is 10% of the amount due but not paid. – Failure to pay taxes due on assessment is 20% of tax due but not paid. – Under payment of tax by material omission in a return intentionally, negligently or fraudulently is 25% of underpayment or where the under exceed Rs.10Mn or higher than 25% of a person’s tax liability 75% – Failure to maintain documents required by the Act after warning notice by Commissioner General(CG). – Failure to comply with third party notice 25% of the difference between the amount payable and the amount paid to CG.

Rulings: There are public ruling and private ruling.

Taxation of individuals

	Rate
	Income Tax
First Rs.1,200,000   @	0%
Next   Rs.500,000   @	6%
Next   Rs.500,000   @	12%
Next   Rs.500,000   @	18%
Next   Rs.500,000   @	24%
Next   Rs.500,000   @	30%
Balance                  @	36%

1. xxxxxxxx
2. xxxxxxxx

Residence: An individual shall be a resident in Sri Lanka for a year of assessment if the individual – a) resides in Sri Lanka. b) is present in Sri Lanka during the year and that presence falls within a period or periods amounting in aggregate to one hundred and eighty-three days or more in any twelve month period that commences or ends during the year. c) is an employee or an official of the Government of Sri Lanka and his spouse is posted abroad during the year; or d) is an individual who is employed on a Sri Lanka ship, within the meaning of the Merchant shipping Act, during the period the individual is so employed.

Basis: The assessable income of a person for a year of assessment from employment, business, investment or other source shall be equal to – in the case of a resident person, the person’s income from employment, business, investment or other source for that year, wherever the source arises; and in the case of a non-resident person, the person’s income from the employment, business, investment or other source for that year, to the extent that the income arises in or is derived from a source in Sri Lanka.

Taxable income: The taxable income of a person for a year of assessment shall be equal to the total of the person’s assessable income for the year from each employment, business, investment and other sources.

Capital gains: Capital Gains Tax is charged on gains from the realisation of investment assets. CGT is a tax on gains realised on the transfer of ownership including sale, exchange, transfer, distribution, cancellation, redemption, destruction, loss, expiry, expropriation or surrender of an investment asset. The only gain that should be subject to CGT is the gain on the realization of an investment asset. “Investment Asset” (Sec.195) Means a capital asset held as part of an investment but excludes the principal place of residence of an individual, provided it has been owned by the individual continuously for the three years before disposal and lived in for at least two of those three years (calculated on a daily basis). Capital asset includes the following. – Land or Building; – A membership interest in a company, partnership or trust; – A security or other financial asset; – An option, right or other interest in an asset referred to in the foregoing paragraphs; but excludes trading stock or a depreciable asset; CGT rate is 10% for individuals.

Deductions and allowances: In arriving at taxable income of a year of assessment qualifying payments and reliefs for that year under section 52 shall be deducted

Foreign tax relief: Tax credit available for foreign sourced income. However, foreign-sourced income is exempt from income tax and hence tax relief may not be relevant.

Taxation of individuals: compliance

Tax year: The fiscal year in Sri Lanka is 1st April to 31st March. e.g. year of assessment 2023/2024 means 1st April 2023 to 31st March 2024.

Filing and payment: Income Tax return should be submitted on or before 30th November of subsequent year of assessment. e.g. the return for the year of assessment 2023/2024 should be filed on or before 30th November 2024. Tax installments should be made as follows. 1st installment – on or before 15th August in the same Y/A. 2nd installment – on or before 15th November in the same Y/A 3rd installment – on or before 15th of February in the same Y/A 4th installment – on or before 15th of May in the subsequent Y/A Final installment – on or before 30th September in the subsequent Y/A

Penalties: – Failure to register as taxpayer – Not exceeding Rs.50,000/- – Failure to notify changes in address, place of business or the nature of taxable activity Rs. 50,000/- – Failure to file tax return on or before the due date greater of a) 5% of tax owing + 5% of amount of tax owing plus 1% of amount of tax owing for each month or part of a month during which the failure to file continues and b) Rs. 50,000/- plus further Rs.10,000/- for each month or part of a month during which the failure continues. subject to maximum of Rs.400,000/- – Failure to pay installment on due date is 10% of the amount due but not paid. – Failure to pay taxes due on assessment is 20% of tax due but not paid. – Under payment of tax by material omission in a return intentionally, negligently or fraudulently is 25% of underpayment or where the under exceed Rs.10Mn or higher than 25% of a person’s tax liability 75% – Failure to maintain documents required by the Act after warning notice by Commissioner General(CG). – Failure to comply with third party notice 25% of the difference between the amount payable and the amount paid to CG.

Rulings: There are public ruling and private ruling.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Interest	5%	5%	5%	5%
Rent	10%	10%	14%	14%
Service	N/A	5%	14%	14%
Dividend	15%	15%	15%	15%
Royalty	14%	14%	14%	14%

Payment made made to non-resident person are subject to double tax agreement 

Branch remittance tax: Branch remittance tax is 14%.

Anti-avoidance legislation

Transfer pricing: Any income, gains and profits arising in, derived or accruing from, or any loss incurred by any person in Sri Lanka engaged in any international transaction entered into with its associated enterprises shall be ascertained having regard to the arm’s length price.

Interest restriction: The amount of financial costs deducted in calculating the income of an entity (other than a financial institution) from conducting a business or investment, for any year of assessment. commencing prior to April 1, 2021, shall not exceed the amount of financial costs attributable to financial instruments within the limit referred to in Note 1; the income of a company (other than a financial institution) which is incorporated in or outside Sri Lanka and having an issued share capital as at the date on which the year of assessment ends, from conducting a business or investment for any year of assessment commencing on or after April l, 2021, shall not exceed the limit referred to in Note 2. Note 1 A x B Where: ‘A’ is the total of the issued share capital and reserves of the entity. and ‘B’ is- (i) in the case of a manufacturing entity, the number 3; and (ii) in the case of an entity other than a manufacturing entity, the number 4; Note 2 A — X C B Where: ‘A’ = financial cost of the year; ‘B’ =value of financial instruments on which the financial cost incurred during the year; and ‘C’ = 4 x total of the issued share capital and reserves of the company as at the end of the year.

Controlled foreign companies: N/A

Hybrid mismatches: N/A

Disclosure requirements: Transfer Pricing Documentation and Disclosure Form – Enterprises carrying out controlled transactions with associated enterprises subject to Section 76 and 77, as the case may be, must maintain documents and submit information regarding controlled transactions, including information on those associated enterprises, as follows.

Preparing and Maintaining Transfer Pricing Documentation Enterprises carrying out controlled transaction with associated enterprises subject to Section 76 and/or 77, as the case may be, shall be responsible for preparing and maintaining transfer pricing documentation including: (i) Local File referring specifically to material and controlled transactions of the local taxpayer, according to Annexure I of the Gazette Notification No 2104/4, dated December 31, 2018. (ii) Master File containing standardised information relevant for all the members of a multinational group, according to Annexure II of the Gazette Notification No 2104/4, dated December 31, 2018. (iii) Country-by-Country Report containing certain information relating to the global allocation of the multinational group’s income and taxes paid together with certain indicators of the location of economic activity within the group, according to Annexure III of the Gazette Notification No 2104/4, dated December 31, 2018.

The Local File referred to in the above item (i) is to be prepared and maintained by those enterprises that carry out controlled transactions or each category of controlled transactions with associated enterprises exceed Sri Lankan Rupees (LKR) 200 million for each year of assessment as recorded in the books of account. The local file must be prepared in English in the case of international transactions. The Local file should be kept available for a period of six years from the end of the relevant year of assessment, and it should include the information specified in Annexure I of this Regulation (The transaction here does not include dividend and granting or repayment of loan capital) The Master File referred to in the above item (ii) is to be prepared and maintained by those enterprises that have declared revenue whose value exceeds LKR 7.5 billion for each year of assessment as recorded in the books of account. The Master file which is maintained in English should include the information specified in Annexure II of this Regulation.

Exit taxes: N/A

General anti-avoidance rule: N/A

Digital services tax and Other significant anti-avoidance legislation: N/A

Value-added tax/Goods and services tax

Type of tax: Value Added Tax Value Added Tax shall be charged – a) at the time of supply, on every taxable supply of goods or services, made in a taxable period, by a registered person in the course of the carrying on, or carrying out, of a taxable activity by such person in Sri Lanka; b) on the importation of goods into Sri Lanka, by any person, and c) on the value of such goods or services supplied or the goods imported, as the case may be.

Standard rate: 18%

Reduced rates: N/A

Registration: VAT Registration Threshold If the taxable supplies exceed Rs. 15 Mn per quarter or Rs. 60Mn per annum, taxpayer must obtain VAT registration.

Filing and payment: Payment: every 20th of the following month Filing: Monthly or Quarterly

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
EPF	12%	8%
ETF	3%	0%

Self-employed

N/A

Other taxes

Capital duty: N/A

Immovable property taxes: N/A

Transfer tax: N/A

Stamp duty: – On transfer of property 4%

Net wealth/worth tax: N/A

Inheritance/gift taxes: N/A

Other: N/A

Tax treaties

Tax Treaties are available with following Countries. Australia Bahrain Bangladesh Belarus Belgium Canada China Czechoslovakia (Czech Republic) Denmark (Rev.) Finland France Germany Hong Kong (Limited) India (Rev.) Indonesia Iran Italy Japan Jordan (Limited) Korea Kuwait Luxembourg Malaysia (Rev.) Mauritius Nepal Netherlands Norway (Rev.) Oman Pakistan (Rev.) Palestine Philippines Poland Qatar Romania Russia Saudi Arabia (Limited) Seychelles Singapore Sweden Switzerland Thailand Turkey U.A.E. (Limited) U.A.E. (Comprehensive) U.K. U.S.A U.S.A. Protocol Vietnam SARRC Multilateral Treaty