Changes to income tax in Sri Lanka, implemented by way of notices issued by the Department of Inland Revenue, and subject to formal amendments to the Inland Revenue Act No. 24 of 2017 (IRA).
| AREA | PROPOSED AMENDMENT | PREVIOUS POSITION |
|---|---|---|
| Exemptions – Profits and Income | Gains and profits earned or derived by any person from the sale of produce of an undertaking for agro farming of such person without subjecting such produce to any process of production or manufacture is exempt from income tax, with effect from (w.e.f.) 01.04.2019 (the term “Agro Farming” has not been defined) Please see tab “Revision of Income Tax rates – Companies” for reduction of rates in relation to agro processing. | The applicable Corporate Income Tax (CIT) rate for companies predominantly engaging in Agricultural Business was 14%. The income of individual from such activities was subject to progressive Personal Income Tax rates. |
| Gains and profits earned or derived by any person from information technology and enabling services is exempt from income tax, w.e.f. 01.01.2020. (the scope of term information technology and enabling services has not been set out in the notice) | The applicable CIT rate for companies predominantly engaging in IT services (including BPO/KPO services) was 14%. The income of individual from such activities was subject to progressive Personal Income Tax rates. | |
| Gains and profits earned or derived by any person from any service rendered in or outside Sri Lanka to any person to be utilized outside Sri Lanka is exempt from income tax w.e.f. 01.01.2020, where the payment for such services is received in foreign currency and remitted through a bank to Sri Lanka. | The applicable CIT rate for companies predominantly conducting a business of exporting of services was 14%. A relief up to LKR 15 Mn for a year of assessment was provided to a resident individual or a partner for income earned in foreign currency in Sri Lanka from services rendered in or outside Sri Lanka to any person to be utilized outside Sri Lanka. | |
| Gains and profits earned or derived by any person from any foreign source, other than gains and profits stated above, where such gains and profits earned or derived in foreign currency and remitted through a bank to Sri Lanka is exempt from income tax, w.e.f. 01.01.2020. | Same as above. | |
| Any amount derived by any non-resident person from laboratory services or standards certification services is exempt from income tax, w.e.f. 01.01.2020. | Such service fees paid to non-residents were subject to Withholding Tax (WHT) at 14%, subject to the provisions of the relevant Double Taxation Avoidance Treaty (DTAT). – | |
| Any amount derived by any religious institution which is registered with the Ministry in charge of the subject of religious affairs, by way of grants or donations is exempt from income tax, w.e.f. 01.01.2020. | The applicable tax rate for religious institutions (which fall within the definition of charitable institution) was 14%. | |
| Any sum received by any Public Corporation out of the funds voted by Parliament from the Consolidated Fund or out of any loan arranged through the Government is exempt from income tax, w.e.f. 01.04.2018. | Such exemption was not available. | |
| Exemptions – Dividends and gains on realization | Dividends paid by a resident company to a member to the extent that dividend payment is attributable to, or derived from, another dividend received by that resident company or another resident company is exempt from income tax, w.e.f. 01.01.2020. | Same exemption was available, provided that such dividend was subject to WHT (which is now removed). |
| Dividends paid by a resident company to a non-resident member is exempt from income tax, w.e.f. 01.01.2020. | Dividend paid to a non-resident person was subject to WHT at 14%, subject to the provisions of the relevant DTAT. | |
| Dividends paid by a resident company which is engaged in any one or more of the following businesses in accordance with the provisions of the Part IV of the Finance Act No. 12 of 2012 and an agreement entered into with the Board of Investment of Sri Lanka (BOI) established under the BOI Law No. 4 of 1978 – (i) entrepot trade involving import, minor processing and re-export; (ii) offshore business where goods can be procured from one country or manufactured in one country and shipped to another country without bringing the same into Sri Lanka; (iii) providing front end services to clients abroad; (iv) headquarters operations of leading buyers for management of financial supply chain and billing operations; (v) logistic services such as bonded warehouse or multi- country consolidation in Sri Lanka, is exempt from income tax, w.e.f. 01.01.2020. | Dividend paid to a person was subject to WHT at 14%, subject to the provisions of the relevant DTAT (in relation to a non-resident person). | |
| Dividends from and gains on the realization of shares in a non-resident company derived by any person with respect to a substantial participation (as defined in the IRA) in such non-resident company is exempt from income tax, w.e.f. 01.01.2020. | Dividend paid to a person was subject to WHT at 14%, subject to the provisions of the relevant DTAT (in relation to a non-resident person). | |
| Exemptions – Interests and Gains on Realization | Interest accruing to or derived by any person outside Sri Lanka on any loan granted to any person in Sri Lanka or to the Government of Sri Lanka (GoSL) is exempt from income tax, w.e.f. 01.04.2018. | Such Interest paid to a non-resident person was subject to WHT at 5%, subject to the provisions of the relevant DTAT. |
| Interest accruing to or derived by any person on moneys lying to his credit in foreign currency in any foreign currency account opened by him or on his behalf, in any commercial or specialized bank, with the approval of the Central Bank of Sri Lanka is exempt from income tax, w.e.f. 01.01.2020. | Such Interest income was subject to WHT at 5%, subject to the provisions of the relevant DTAT (in relation to a non-resident person). | |
| Interest, discount or any gain on realization of any sovereign bond denominated in local or foreign currency, issued by or on behalf of the GoSL, earned by any non-resident person (other than a Sri Lankan permanent establishment) is exempt from income tax, w.e.f. 01.04.2018. | Exemption was granted only to interest or discount paid to a non-resident person or any licensed commercial bank by the issuer of any sovereign bond denominated in foreign currency issued on or after 21.10.2008, by or on behalf of the GoSL. The scope of the exemption has been extended to include such income from bonds denominated in local currency and any gain from realization of bonds denominated in foreign currency. | |
| Interest or discount earned by any person, on any sovereign bond denominated in foreign currency, including Sri Lanka Development Bonds, issued by or on behalf of the GoSL, is exempt from income tax, w.e.f. 01.04.2018. | Same as above. The scope of the exemption has been extended to apply to any person and cover Sri Lanka Development Bonds. | |
| Revision of Income Tax rates – Companies | Standard CIT is 24%, w.e.f. 01.01.2020. | Standard CIT was 28% |
| CIT on gains and profits from following businesses of a company is 14%, w.e.f. 01.01.2020; a) Small and Medium Enterprises (as defined in IRA) b) Conducting a business of sale of goods or merchandise where the payment for such sale is received in foreign currency and remitted through a bank in Sri Lanka. c) Specified Undertaking (as defined in IRA) d) Educational services e) Promotion of tourism f) Construction services g) Agro processing (see above for exemption on agro farming) h) Healthcare services i) Dividends received from a resident company | A concessionary rate of 14% was available for a company predominantly engaged in any specified business. No change The applicable CIT rate for companies predominantly conducting a business of exporting goods was 14% No change No change No change The applicable CIT Rate for companies in construction industry was 28% The applicable CIT rate for companies predominantly conducting Agricultural Business was 14%. The applicable CIT Rate for companies involved in healthcare industry was 28% Dividend received from a resident company was subject to WHT which was final WHT. Hence, did not form a part of taxable income of a resident company, if WHT was deducted. | |
| CIT rate on gains and profits from manufacturing is 18%, w.e.f. 01.01.2020. | CIT rate applicable to manufacturing was 28%, unless captured under other specific businesses with concessionary rates. | |
| CIT rate on gains and profit from; a) conducting betting and gaming; b) manufacture and sale or import and sale of any liquor or tobacco products is 40%, w.e.f. 01.01.2020. | No change. However, it was initially proposed to be revised to 28%. But this was removed by way of the latest public notice (i.e. public notice bearing no. PN/IT/2020-03 (Revised) dated 08.04.2020). | |
| Revision of Income Tax rates – Individuals | Standard income tax rates applicable to taxable income of individuals are as follows, w.e.f. 01.01.2020. (After deducting applicable Reliefs & Qualifying payments) | Standard income tax rates applicable to taxable income of individuals were as follows; |
| Income tax rate on the business consisting of betting and gaming, manufacture and sale or import and sale of any liquor or tobacco products by an individual is 40%, w.e.f. 01.01.2020 | No change However, it was initially proposed to be revised to 28%. But this was removed by way of the latest public notice (i.e. public notice bearing no. PN/IT/2020-03 (Revised) dated 08.04.2020). | |
Income tax on terminal benefit from employment is based on following rates, w.e.f. 01.01.2020 *commuted pension, retiring gratuity, ETF or compensation for loss of office approved by the Commissioner General of Inland Revenue (CGIR). | Income tax on terminal benefits were charged on varying rates and slabs based on period of contribution or employment (i.e. 20 years or less or more than 20 years). | |
| Revision of Income Tax rates – Partnership | Income tax rates applicable to taxable income of partnership are as follows, w.e.f. 01.01.2020 Gains on realization of investment assets – 10% On the balance taxable income  | Taxable income of a partnership (excluding gains on realization of investment assets) was excluded from income tax at the partnership level. Each partner’s share of any partnership income at allocation was subject to WHT at 8%. No change |
| Reliefs | Personal relief for a resident individual or a non-resident Sri Lankan citizen for a year of assessment is up to LKR 3 Mn, w.e.f. 01.01.2020. | Tax free allowance for a resident individual or a non-resident Sri Lankan citizen was up to LKR 500,00/- for a year of assessment. A resident individual with employment income was granted a further amount, up to LKR 700,000/- of tax free allowance, for a year of assessment. |
| Following expenditure up to a total of LKR 1.2 Mn, incurred during a year of assessment are permitted as reliefs (to be deducted to arrive at taxable income) for a resident individual. a) Health expenditure including contributions to medical insurance; b) Educational expenditure incurred locally, for such individual or on behalf of his children; c) Interest paid on housing loans; d) Contributions made to an approved pension scheme; e) Expenditure incurred for the purchase of equity or security. | Such reliefs were not available. 没有这类减免 | |
| Qualifying Payments | Any sum paid to the consolidated Fund by a public corporation as required by the law by or under which such corporation is established is permitted (to be deducted by such public corporation to arrive at its taxable income) as a qualifying payment, w.e.f. 01.04.2019. | Such qualifying payment was not available. |
| WHT -Residents | WHT on investment income paid to a resident person (except provided below) in the form of dividend, interest, discount, charge, natural resource payment, rent, royalty, premium or retirement payment received and /or on service performed by such individual is removed, w.e.f. 01.01.2020. In the event of any of the above payments is a regular fixed payment, such as interest or rent, an Advance Income Tax can be deducted by the payer, upon the request and the declaration of the recipient made to the payer., w.e.f. 01.04.2020. *A separate guideline in this regard is yet to be published. WHT on following payments is deducted, w.e.f. 01.01.2020 • Amounts as winning from lottery, reward, betting or gambling – 14% • Sale price payable to the seller of any gem sold at an auction conducted by the National Gem & Jewellery Authority – 2.5% | Such investment income paid to a resident person was subject to WHT at varying rates as set out below; Rent – 10% Interest / discounts – 5% Other investment income – 14% No change |
| WHT on a resident partner’s share of profit allocated by the partnership is removed w.e.f. 01.01.2020 | Each partner’s share of any partnership income at allocation was subject to WHT at 8%. | |
| WHT on service fees paid to Resident Individuals is removed, w.e.f. 01.01.2020 | Service fees (as prescribed) paid to Resident Individuals which exceed LKR 50,000/- per month was subject to WHT at 5%. | |
| WHT – Non- Residents | WHT on dividend paid to a non-resident person is exempt, w.e.f. 01.01.2020. | Dividends paid to a non-resident person was subject to WHT at 14%, subject to the provisions of the relevant DTAT. |
| WHT on interest paid to a non-resident person is subject to WHT 5%, excluding the exempt interest, w.e.f. 01.01.2020. WHT on interest paid to any non-resident Sri Lankan citizen where the aggregate interest income from a bank/financial institution does not LKR 250,000/- per month or LKR. 3 Mn per year of assessment (for the period from 01.01.2020 to 31.03.2020 if does not exceed LKR 750, 000) is not applicable, w.e.f. 01.01.2020. | No change on rate. Such relief was not available. | |
| WHT on payment made by a resident person to a non-resident person with respect to services in relation to land, sea or air transport or telecommunication is subject to WHT at 2%, subject to the provisions of the relevant DTAT, w.e.f. 01.01.2020. | No change | |
| WHT on any other payment to a non-resident person is subject to WHT at 14%, subject to the provisions of the relevant DTAT, w.e.f. 01.01.2020. | No change. | |
| WHT – Employment Income | WHT on employment income paid to a resident employee under the Pay-As-You-Earn (PAYE) Scheme is removed, w.e.f. 01.01.2020, subject to the following; Income tax on terminal benefit of an employee paid by ETF, EPF or employer is subject to WHT based on the circular no. SEC/2020/02 dated 18.02.2020, w.e.f. 01.01.2020. Tax payments of resident employees on employment income (i.e. monthly regular profits from the employment in cash and non-cash form and Lump sum payments) for the period from 01.01.2020 to 31.03.2020 were permitted to be made by the employer, with the consent of the employee (by deducting the remuneration or otherwise) inter alia based on the following rates, as per the public notice bearing no. PN/PAYE/2020-01 issued on 15.04.2020  W.e.f. 01.04.2020, an Advance Personal Income Tax (APIT) can be deducted by the employer from the remuneration paid to a resident employee, with the consent of such employee and a non-resident employee (without the consent) based on the separate Income Tax Tables for APIT issued by the CGIR on 20.04.2020 (inter alia based on following rates).  | Employment income of an employee was subject to WHT under the PAYE scheme, inter alia based on the following rates. |
