All companies and individuals need to submit an income tax return in Sri Lanka according to the rules of Sri Lanka Inland Revenue. The personal income tax rate stands at 15 %.
However, the personal income tax rate in Sri Lanka was averaged 28 % between 2004 to 2016. In 2007 the income tax reached an all-time high of 35 % and an all-time low of 15% in 2016.
The standard corporate tax rate stands at 28 %, and a maximum of 40% tax can be applied to the profit (depends on the types of the business)
All the resident companies in Sri Lanka is taxed on their worldwide income, and the non-resident company is taxed on the income that is only derived from Sri Lanka.
In Sri Lanka, they have self-assessment system for paying income tax. However, the income tax return can be filled annually or it can be filled before September 30th of the year.
The final tax liability due is on or before September 30th and non-fillings of income tax return before the dateline will result in penalties.
Income Tax Payments- Installment
|1ST Quarter||By 15th August of that year|
|2nd Quarter||By 15th November of current year|
|3rd Quarter||By 15th February of current year|
|4th Quarter||By 15th May of present year|
|5th Quarter||By 30th September of following year|
The government of Sri Lanka makes the tax paying process much more straightforward. Now the tax can be paid upon installment basis. The table below shows the installment payment scheme –
Corporate Income Tax Filing
When it comes to corporate tax, the tax rates depend on the type of the business. For example, the corporate tax rate of the industrial company is more compared to other company.
However, the table below shows the corporate tax rates of different business category–
|Business category||Tax Rates|
|Tax on Tobacco company||28 %|
|Dividend of company||10 %|
|Remittance from foreign companies||10 %|
|Relocation global HQ||Exemption|
|Royalty on international goods||Exemption|
As Special Rates of Sri Lanka Inland Revenue
Production company and service provider company that annual income is below Rs. 500,000,000 are subjected to pay 12% tax. On the other hand, the public listing company needs to pay a 14% tax.
However, the group of companies needs to pay 12% tax if the profit is not over Rs 500000. If the income of offshore company cross 5000000 they will be subjected to 28% tax and if the income is below 5000000, 12% tax will be applicable.
The table below shows the tax rates of various industry and service provider.
|Storage facilities and software development business||Individual||12%|
|Education service provider||Individual||10%|
|Agriculture Industry||Income from agriculture||10%|
|General rate, Financial service company, wholesale & retail||11%|
Tax Incentives in Sri Lanka
Income tax has been exempted in specific sectors on corporate tax, duty, VAT, airport development levy.
Tax incentive with any number of investments
|Trade on fishing: Corporation that trade on fishing sectors including cutting, packing, sorting, sizing, cleaning||5 years tax exemption from inception of business.|
|Planting agro seeds & Cultivation of energy crops||5 years tax exemption from inception of business|
Income Tax Initiative for Tax Entrepreneurs
|Category of business||Investment figure in Million||Tax exemption (year)|
|Agriculture corporation||More than 25 and less than fifty||4 Year|
|Services enterprises||More than 25 and less than fifty||4 Year|
|Manufacture (medium size)||More than fifty and less than 100||4 Year|
|Agriculture (medium size)||More than hundred and less than two hundred)||5 Year|
|Services (medium size)||More than two hundred||6 Year|
|Manufacture (Large size)||More than 500, less than 700||7 Year|
|Agriculture (Large Size)||More than three hundred and less than 500||6 Year|
In case of existing enterprises those investment capitals are more than fifty million may have opportunity of exemption subject to some conditions.
Deduction of Enterprises Tax Rate
|Category||Cut out after tax holiday|
|Argo||12 % or 10%|
|Produce||12 % or 28 %|
|Info tech||10 %|
|Goods and services||12%|
During tax holiday time dividend tax is exempted for all types of enterprises.
Franchise fees, royalty’s payment that is permissible by Board of Investment being foreign parties’ tax is exempted as under section of inland revenue 17 A and 16 D.
According to recent news, Sri Lanka will bring adjustments to their new income tax law. The further modifications will help to iron out the problems which have cropped up at the time of implementation.
The new adjustments will bring changes to the personal income tax and exemption of income tax on foreign financial institutes. However, as the country economy is steadily increasing, the tax rates are reducing over time.
This is one of the reasons why more foreign investors are willing to start a business in Sri Lanka.
Read the necessary article:
- You can visit here to know business license in Sri Lanka;
- Information to setup limited liability company (LLC) in Sri Lanka;
- We discussed some small business ideas in Sri Lanka that can help you to start a business;
- Further information of new company registration in Sri Lanka as foreign investors;
- Read the types of work permit in Sri Lanka;