Tax in Sri Lanka

Who is the tax authority and where do filings live?

Sri Lanka's Inland Revenue Department (IRD), under the Ministry of Finance, administers Sri Lanka's tax system [SC1]. Customs is administered by Sri Lanka Customs. Filings flow through IRD's eService portal. Substantive law: Inland Revenue Act 24 of 2017 (as amended through successive amendments including the major 2023 reform), VAT Act 14 of 2002 (as amended), and successive amendments under IMF Extended Fund Facility programme conditions. Sri Lanka is a SAARC member.

What is the tax year and when are returns due?

Individual tax year (year of assessment) runs 1 April to 31 March. Personal returns due 30 November of year of assessment following income year [SC1]. Wage tax (PAYE replaced by Advance Personal Income Tax post-2018) withheld monthly. Corporate annual returns due 30 November. VAT monthly by 30th of following month.

Who is a Sri Lankan tax resident?

Under Inland Revenue Act, an individual is tax resident in Sri Lanka if (a) physically present 183+ days in year of assessment, OR (b) maintaining habitual abode in Sri Lanka [SC2]. Residents taxed on worldwide income; non-residents on Sri Lanka-source income.

What are the personal income tax rates?

Post-2023 reform brackets (effective 1 January 2023 / 1 April 2023): 6 percent up to LKR 500,000; 12 percent on LKR 500,001-1,000,000; 18 percent on LKR 1,000,001-1,500,000; 24 percent on LKR 1,500,001-2,000,000; 30 percent on LKR 2,000,001-2,500,000; 36 percent above LKR 2,500,000 [SC1]. Personal allowance LKR 1.2m. Investment income (dividends from Sri Lankan companies) face 15 percent WHT (final). Capital gains face 10 percent flat (post-1-April-2018 introduction).

How does Sri Lanka's corporate tax work?

The corporate income tax rate is 30 percent for resident companies (post-2022 reform) [SC2]. Specific industry rates: 14 percent for SMEs (turnover up to LKR 500m); 18 percent for manufacturing (alternative election); 45 percent for liquor, tobacco, betting/gaming. Withholding on non-resident dividends 15 percent. Pillar Two not yet transposed. Tax losses 6 years.

What about VAT?

Standard VAT 18 percent (raised from 15 percent on 1 January 2024 under IMF programme conditions; rate fluctuated 8-15-18 percent over recent years) [SC3]. Zero-rated on exports. Registration above LKR 60m annual turnover. Social Security Contribution Levy (SSCL) at 2.5 percent on certain transactions added under post-2022 amendments. The post-2022 fiscal-crisis recovery programme has driven aggressive tax-rate increases.

How are cryptoassets taxed?

Central Bank of Sri Lanka advisory positions cryptoassets as not legal tender [SC2]. Where declared, gains fall under existing income-tax categories at applicable rates.

What is the treaty network and what are the audit triggers?

Sri Lanka has approximately 45 active double tax treaties [SC4]. SAARC member. MLI signed 2019 with successive ratification status. Audit triggers include disproportionate VAT credits, transfer-pricing non-compliance. Standard SOL 4 years; extended for fraud.

What are the common penalties and pitfalls for foreigners?

Penalty framework: late filings, failure to file, incorrect declarations [SC5]. Common pitfalls: (1) post-2022 IMF Extended Fund Facility-driven aggressive tax-rate increases; (2) post-2023 PIT 6-bracket reform with 36 percent top marginal; (3) VAT raised 15 to 18 percent on 1 January 2024; (4) Sri Lankan year of assessment 1 April - 31 March; (5) Inland Revenue Act 24 of 2017 with successive major amendments; (6) Pillar Two not transposed; (7) SSCL 2.5 percent layered atop VAT; (8) sector-specific 14/18/45 percent CIT framework; (9) post-2018 capital gains 10 percent introduction; (10) ~45 DTCs; (11) MLI signed 2019.