Sri Lanka offers numerous opportunities for entrepreneurs and investors from nearby countries and beyond. If you’re someone looking to start a company, it is essential to get familiar with the Sri Lanka Corporate Tax rates and incentives. Recently, the country came into an agreement with the International Monetary Fund (IMF) to develop its economy, mitigate the economic challenges and align with global digital tax trends. <\/p>\n\n\n\n
Collaborating with Enterslice can make your tax compliance journey a lot easier. With our expert professionals in tax, regulatory and compliance, you will have a structured understanding of Sri Lanka’s corporate tax system. You can reach out to the expert team of Enterslice today to get assisted with all the recent tax updates. <\/p>\n\n\n\n
If you are an entrepreneur seeking business setup in Sri Lanka<\/strong><\/a>, this blog will help you out. Stay updated with the recent reforms in the tax system, that exist in the land of nature, culture, and adventure. <\/p>\n\n\n\n Corporate Income Tax is a fee levied by the government on the net profit and income of registered resident and non-resident companies. It is a percentage of funds that is contributed to the economy of the country, which is a mandatory requirement for all businesses registered in Sri Lanka. <\/p>\n\n\n\n On February 21st 2025, the Sri Lankan government updated its income tax laws, and the changes came into effect from April 1st 2025. The standard corporate income tax rate in Sri Lanka is 30%. The Sri Lankan corporate tax rate of 30% applies to every taxable company operating within the country. <\/p>\n\n\n\n For non-resident companies, Sri Lanka has a territorial tax system, and only income generated within the country is subject to tax. However, for resident companies, they are taxed on their worldwide income. In the new update for foreign income, there is an introduction of a concessionary corporate income tax rate of 15%. <\/p>\n\n\n\n There are changes in the personal income tax threshold for individuals earning within Sri Lanka; the tax-free monthly income has increased from LKR 100,000 to LKR 150,000. In the corporate income tax rate, specific sectors such as gaming, betting, the sale of tobacco products, etc., now have a CIT of 45% which has increased from 40%. <\/p>\n\n\n\n There is also an increase in advance income tax (AIT) from 5% to 10%. There is also a reduction in the time period to claim credit or income tax refund to 30 months, replacing the previous deadline of 48 months. <\/p>\n\n\n\n In Sri Lanka, all the residents and non-residents that generate profits within the country are required to pay corporate income tax. However, the tax rate will depend on the source of income and the type of specific business activity. <\/p>\n\n\n\n In Sri Lanka, the Ministry of Finance, Planning, and Economic Development has published an updated regulation No. 01 of 2025, which will be valid for five years, replacing the previous regulation No. 02 of 2023, which was valid for two years. This updated publication is a guide on offering tax exemptions, incentives and introduction of changes in income tax and Value Added Tax (VAT). <\/p>\n\n\n\n The update in the regulations improves the investment opportunities for a broader market<\/a> and implements a structured and comprehensive framework with attractive incentives for Businesses of Strategic Importance (BSI) operating within the Colombo Port City Special Economic Zone (SEZ). <\/p>\n\n\n\n The recent tax update in Sri Lanka also includes changes in the Value Added Tax (VAT). The digital services provided by non-residents to the Sri Lankan consumers will now be subject to 18% VAT (Value Added Tax). The previously abolished SVAT scheme, due to processing delays, has now been repealed effective October 1, 2025, and now businesses will have to pay VAT on both imports and local transactions. Eligible individuals can then apply for a refund of excess input tax. <\/p>\n\n\n\n The VAT Refund Fund has also been increased from contributing 6% to 10%, effective October 1, 2025. There is also a repeal of VAT exemption on the import of aircraft spare parts and aircraft engines. There is also a new introduction of VAT exemptions on the supply of locally produced liquid milk and yoghurt, and import or supply of chemical naphtha to the Electricity Board (CEB). In addition to this, it is mandatory to file VAT returns electronically. <\/p>\n\n\n\n Sri Lanka tax incentives and exemptions encourage Foreign Direct Investment (FDI) and encourage economic development. Sri Lanka tax holidays of between eight to fifteen years is a special tax relief for the Businesses of Strategic Importance (BSI) that are operating within the Colombo Port City (CPC), including a 7.5% concessionary tax rate for four years for secondary BSI. <\/p>\n\n\n\n Under the Board of Investment (BOI), Sri Lanka offers tax exemption on Withholding Tax (WHT) depending on your business project. For projects on renewable energy, there is a seven years tax exemption and a five years tax exemption for Agro-farming businesses. <\/p>\n\n\n\n Businesses in Sri Lanka will have to ensure compliance with the Sri Lankan tax regulations, which includes: <\/p>\n\n\n\n As a registered taxable company in Sri Lanka, you will have to file your tax annually without missing the deadline. The 2024\/25 financial year ending March 31st<\/sup> 2025, deadline is on or before the 30th<\/sup> of November 2025. You will have to file with the Inland Revenue Department (IRD). <\/p>\n\n\n\n To file your income tax, you no longer have to visit the tax authorities and file it manually. You can simply pay your taxes online through the official IRD (Inland Revenue Department) website and move to its e-filing system, which is simplified and straightforward. <\/p>\n\n\n\n If you are thinking of entering the South Asian market, Sri Lanka is the answer for you. The new tax reform in Sri Lanka is aimed at improving the country’s economy and offering reduced tax rates for service-based businesses with improved tax compliance to streamline tax administration, making Sri Lanka tax system, more balanced. <\/p>\n\n\n\n Enterslice<\/strong><\/a> is the leading legal tech company that has helped over 50,000+ entrepreneurs globally. Our services are results driven with 100% client satisfaction, offering services from tax advisory to audit, assurance and cross-border compliance. We will streamline accounting<\/a> to simplify tax filing and reporting for you. With Enterslice, you will never miss tax deadlines and regulatory compliance. <\/p>\n\n\n\n Corporate Tax is a mandatory tax payment for both local and foreign-owned businesses operating within Sri Lanka and generating revenue. However, your tax rate will depend on your source of income and the type of business activity. From 1 April 2025, foreign sourced income and foreign service income are also subject to the income tax rate that was previously exempted. <\/p><\/li> The recent update and changes in the corporate tax in Sri Lanka are for income tax, VAT and repeal of specific tax exemptions, particularly affecting companies and individuals who are earning foreign income. While the standard corporate income tax rate remains 30%, there is an increase in other specific industries from 40% to 45%. Yes, Sri Lanka’s offers excellent incentives for businesses in the renewable energy sector, medical equipment production, dairy and pharmaceutical manufacturing, and solid waste management.<\/p><\/li> Yes, Sri Lanka has different corporate tax rates for industry-specific businesses. The standard corporate income tax in the country is 30%; however, businesses engaged in service exports such as BPO and IT are subject to a reduced corporate income tax rate of 15%, provided the income is remitted via the local banking system. What is Corporate Income Tax? <\/h2>\n\n\n\n
Corporate Tax Rate in Sri Lanka in 2025 <\/h3>\n\n\n\n
Who Needs to Pay Corporate Tax in Sri Lanka? <\/h2>\n\n\n\n
Types of Industries paying Corporate Tax in Sri Lanka include: <\/h3>\n\n\n\n
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The 2025 Corporate Tax Update in Sri Lanka <\/h2>\n\n\n\n
Value Added Tax (VAT) in Sri Lanka in 2025 <\/h2>\n\n\n\n
Sri Lanka Tax Incentives and Exemptions in 2025 <\/h2>\n\n\n\n
Tax Compliance in Sri Lanka <\/h2>\n\n\n\n
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Tax Filing of Corporate Tax in Sri Lanka <\/h2>\n\n\n\n
To Wrap Up <\/h2>\n\n\n\n
FAQs on Sri Lanka’s Corporate Tax and Incentives <\/h2>\n\n\n
Who is liable for paying corporate tax in Sri Lanka? <\/h3>
What is the recent update of Corporate Tax in Sri Lanka? <\/h3>
Key Changes in the Tax System of Sri Lanka in 2025<\/strong>
Increased Corporate Income Tax Rate: <\/strong>The increased CIT from 40% to 45% is for specific sectors like gaming, manufacturing, sale or import of liquor, etc.
Concessionary Income Tax Rate: <\/strong>In service exports like BPO and IT, there is a concessionary tax rate of 15%, which was previously exempted.
Advance Income Tax (AIT): <\/strong>There is an interest rate on Advance Income Tax (AIT), which has doubled from 5% to 10%.
Non-Resident Digital Services: <\/strong>Non-resident individuals offering digital services to Sri Lankan residents will be subject to 18% VAT.
Repeal of Exemptions: <\/strong>VAT exemption on aircraft products has been repealed, and there is an exemption has been reintroduced for locally manufactured products like milk and yoghurt.
Repeal of SVAT Scheme: <\/strong>Repeal of the Simplified VAT (SVAT) scheme and replaced with a new VAT refund system.
Sri Lanka Tax Holidays: <\/strong>There is a tax holiday of between eight to fifteen years for strategic businesses operating in the Sri Lankan port.
Foreign Income of Individuals: <\/strong>As a Sri Lankan resident when you remit your foreign earnings to Sri Lanka, you will have to pay a tax of 15%. <\/p><\/li>Does Sri Lanka have incentives for businesses in Sri Lanka? <\/h3>
Does Sri Lanka have different corporate tax rates for specific industries? <\/h3>
For the companies that are involved in gaming, betting, and manufacturing or sale or import of liquor and tobacco products, they will have a corporate income tax rate of 45%. <\/p><\/li>Do I need to pay tax on foreign income? <\/h3>