Personal Income Taxation in Sri Lanka
For residents in Sri Lanka, worldwide income is used as a basis of taxation. This implies that both, income sourced from within Sri Lanka, as well as income sourced outside of Sri Lanka is used for tax related purposes.
Personal Income Tax Rates in Sri Lanka
The following personal income tax rates are applicable in Sri Lanka:
- For an income between 0 LKR (Sri Lankan Rupee) and 3,000,000 LKR (Sri Lankan Rupee): PIT is levied at a rate of 6%.
- For an income between 3,000,000 LKR (Sri Lankan Rupee) and 6,000,000 LKR (Sri Lankan Rupee): PIT is levied at a rate of 12%.
- For an income higher than 6,000,000 LKR (Sri Lankan Rupee): PIT is levied at a rate of 18%.
Concessionary Tax Rates
Concessionary Sums are payable to employees upon cessation of employment. The following effective tax rates are utilized in this regard:
- For a taxable income of first LKR (Sri Lankan Rupee) 10 Million: No tax is applicable.
- For a taxable income of next LKR (Sri Lankan Rupee) 10 Million: Tax is levied at a rate of 6%.
- On the balance amount: Tax is levied at a rate of 12%.
Corporate Income Taxation in Sri Lanka
Corporate Income Taxation, the residency status of the underlying company is the biggest determinant of the tax payable. In this regard, resident companies are supposed to pay tax on their aggregate (worldwide) income. This implies that income sourced from both, within Sri Lanka, as well as outside Sri Lanka are used for computing corporate income tax.
On the other hand, non-resident companies in Sri Lanka are taxed on all income that has been earned, or sourced within the periphery of Sri Lanka.
Corporate Income Tax Rates in Sri Lanka
The following CIT rates are levied across all business entities in Sri Lanka:
- Small and Medium Enterprises in Sri Lanka with an annual turnover of less than 1 Million: CIT is charged at a rate of 14%.
- Export related businesses: CIT is levied at a rate of 14%.
- Agriculture related businesses: CIT is exempted.
- Companies providing educational services: CIT is levied at a rate of 14%.
- Companies providing tourism related services: CIT is levied at a rate of 14%.
- Companies providing IT solutions and services: CIT is exempted.
- Companies dealing with tobacco, alcohol and related products: CIT is levied at a rate of 40%.
- Businesses involved in the construction sector: CIT is levied at a rate of 14%.
- Businesses involved in trading, banking, or financing related services: CIT is levied at a rate of 24%.
- Manufacturing related businesses: CIT is levied at a rate of 18%.
- Businesses involved in healthcare: CIT is levied at a rate of 10%.
Dividend Tax: Dividend Tax is payable at a rate of 14%. This is levied on gross dividends that are distributed by resident companies.
Remittance Tax: This is levied in the case where profits of non-resident business entities are remitted in a tax year. In this regard, tax is levied at a rate of 14%.
Other Taxation in Sri Lanka
- Value Added Tax (VAT): VAT is levied in Sri Lanka as a consumption tax on imports, as well as domestic supplies of goods and services. It is levied as a standardized rate of 8%. However, some goods and services, and even lines of businesses are altogether exempted from VAT. Examples of these businesses include export related businesses, as well as other staple and necessity based goods and services.
- Custom Duties: Custom Duties are levied across all imported goods and services at their transactional value. There is a three-tier tariff structure in place, under which the currently applicable rates are 10% and 0%.
- Special Commodity Levy: Special Commodity Levy is also in place on specific luxury based imports of goods and services.
- Excise Duties: Excise Duties are levied at variable rates, contingent on the product category. Generally, they are applicable on luxury based goods, like tobacco, alcohol, liquor and other relevant products.
- Stamp Duties: Stamp Duties are also payable on specific instruments and documents.
- Payroll Taxes: Payroll Taxes are levied in the form of Employee Provident Fund, and Employee Trust Fund. Under employee provident fund, the employer’s contribution amounts to around 12%, whereas the contribution by the employer is around 8%. Under the Employee Trust Fund, a specific percentage, equivalent to 3% of the monthly salary is further established by the government.
- Share Transaction Levy: This is levied at a rate of 0.3% from both the parties (the buyer of shares, as well as the seller of shares), across all listed shares traded via the Colombo Stock Exchange.
- Tourism Development Levy: Tourism Development Levy is charged by tourist hotels, and institutions at a rate of 1%.
- Telecommunication Levy: The effective rate of telecommunication levy is set at 22.6%. The corresponding levy on internet related services is equivalent to 10.2%.