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Sri Lanka Corporate - Tax credits and incentives

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Pursuant to the Strategic Development Project Act, projects that are identified and receive strategic development project status qualify for exemption in part or full from the applicability of the following taxes: CIT, VAT, ESC, customs duty, NBT, and PAL. These projects are large-scale projects, mainly infrastructure projects. The tax concessions include exemption from income tax (to be negotiated) for a period not exceeding 25 years.

The other tax incentives are discussed below.

Tax holidays

Exemptions for new enterprises in which the sum invested in the acquisition of fixed assets occurred prior to 1 April 2015

Qualifying enterprises Qualifying criteria Tax holiday (years)
Specified activities Investment criteria
Small scale enterprises Agriculture and/or agro processing, animal husbandry and/or processing, fisheries and/or fish processing, and creative work, including art work Minimum investment of LKR 25 million, but less than LKR 50 million 4
Medium scale enterprises Any specified activity LKR 50 million to LKR 100 million 4
LKR 100 million to LKR 200 million 5
More than LKR 200 million 6
Large scale enterprises Agriculture or forestry, animal husbandry, specified manufacture, specified services, processing and solid waste management, and any other activity approved by the Minister of Finance LKR 300 million to LKR 500 million 6
LKR 500 million to LKR 700 million 7
LKR 700 million to LKR 1,000 million 8
LKR 1,000 million to LKR 1,500 million 9
LKR 1,500 million to LKR 2,500 million 10
More than LKR 2,500 million 12
New enterprises in specified activities Cement LKR 6,500 million 5 and a 12% concessionary tax rate thereafter
Pharmaceuticals LKR 1,300 million
Fabric LKR 650 million
Milk powder LKR 3,900 million

Large-scale investors must have invested in the acquisition of fixed assets prior to 1 April 2016 and commenced commercial operation prior to 1 April 2017 to qualify for the tax exemptions.

  • A five-year tax holiday is available to a new venture capital company satisfying specified criteria.
  • A five-year tax holiday is granted for the profits from the new undertaking of a company that is engaged solely in R&D in the field of science or technology with the objective of using the results thereof for the production or improvement of products with a minimum investment of LKR 2 million prior to 1 April 2014.
  • Tax holidays outside the purview of the tax statute are also available in specified areas of investment to companies that enter into agreements with the BOI and to any strategic development projects identified in accordance with the provisions of the Strategic Development Projects Act No 14 of 2008. The specified areas include non-traditional export-oriented manufacturing and thrust industries, export-oriented services, and large-scale projects of which the project cost exceeds LKR 500 million. Generous waivers of import duties on specified imports and other concessions are also available for these companies.
  • Profits and income derived from the sectors of fishing, cultivation, and primary processing of agricultural seeds or planting materials were exempt from CIT for a period of five years reckoned from the tax year commencing from 1 April 2006. From 1 April 2011, but prior to 1 April 2016, a concessionary rate of 10% was applicable. From 1 April 2016, the applicable rate is 17.5%.
  • A ten-year tax exemption is granted on profits and income of an undertaking from cultivation of renewable energy crops in agricultural land.
  • Profits and income from all transactions connected with manufacturing, distribution, and marketing of organic fertilisers and pesticides are exempt from CIT.

Inbound investment incentives

  • Exemption from CIT is granted on the profits and income earned in foreign currency prior to 1 April 2017 by any resident company in Sri Lanka from any services, excluding commissions, discounts, or similar type of receipt, rendered in or outside Sri Lanka, provided such profits and income (less such amounts expended outside Sri Lanka as are considered by the Commissioner General to be reasonable expenses) were remitted to Sri Lanka through a bank.
  • Exemption from CIT is granted in respect of dividends, interest, or royalties received on investments made outside Sri Lanka, provided that dividends, interest, and royalties are remitted to Sri Lanka through a bank.

Other incentives

  • New or existing companies that export non-traditional goods were entitled to be taxed on the profits from these exports at a concessionary rate of 12%. However, from the tax year commencing from 1 April 2017, the applicable rate is 14%.
  • Exemption from CIT is granted on the profits arising from trading in shares, rights to any share, bonus, or share warrants in respect of which the share transaction levy has been charged.
  • Exemption from CIT is granted on an amount equal to the interest or the discount paid or allowed to any non-resident person or to any licensed commercial bank in Sri Lanka by the issuer of any sovereign bond denominated in foreign currency, issued on or after 21 October 2008, by or on behalf of the government of Sri Lanka and on the profits and income from the sale of such sovereign bond.
  • Exemption from CIT is granted on an amount equal to the interest or the discount paid or allowed to any person on or after 1 April 2009, on any Sri Lanka Development Bond denominated in United States dollars, issued by the Central Bank of Sri Lanka and on the profits and income from the sale of such Sri Lanka Development Bond.
  • Exemption from CIT is granted on the profits and income derived by or accruing to any person or partnership from investment in Economic Resurgence Certificates, utilising money lying to credit of any account opened in any commercial bank or in any specialised bank with the approval of the Central Bank of Sri Lanka from and out of monies deposited in such account on or after 1 February 2009.

Foreign tax credit

Where any DTT is entered into between the government of Sri Lanka and the government of any other territory outside Sri Lanka, a credit is to be granted in respect of any tax paid or payable outside Sri Lanka in respect of profits or income arising outside Sri Lanka. Such credit should not exceed the amount of the Sri Lanka tax payable in respect of such profits or income.

Where any non-resident person or any partnership registered outside Sri Lanka providing certain services is liable to pay income tax in Sri Lanka and income tax in any other country, then such person or partnership shall be entitled to relief from income tax payable in Sri Lanka of an amount equal to the excess, if any, of the income tax in respect of such income payable in Sri Lanka over the income tax in respect of such income payable in such other country.

Last Reviewed - 01 June 2017

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