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Income Tax Return Sri Lanka

Income Tax Return Sri Lanka

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.

Contents

Compliance Requirements

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

Installment Payment date
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%
Corporate 10%
Education service provider Individual 10%
Corporate 10%
Agriculture Industry Income from agriculture 10%
Other industry  Charity 10%
Trustees 24%
Partners companies 24%
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

Sector Tax exemption
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 %
Structure 12%
Education 10 %
Goods and services 12%
Energy 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.

Conclusion

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. Well, now you check about the Indian rupee conversion rate to Sri Lankan rupees.

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