Sri Lanka

Taxable period

A tax year is any period of 12 consecutive months reckoned from 1 April in any calendar year to 31 March of the following year.

Tax returns

Return of income is due within eight months from the end of the year of assessment.

Payment of tax

Sri Lanka has a pay-and-file system under which the CIT payable for each tax year is required to be paid in four instalments. Instalments should be calculated based on the income estimated in advance. In the case of companies with year ended 31 March, CIT instalments should be paid respectively for the first, second, third, and fourth quarters, on or before 15 August, 15 November, and 15 February of the tax year and 15 May immediately following the end of the tax year. In the case of companies with year ended other than 31 March, each tax instalment is due on or before the 15th day after each three-month period. However, the Inland Revenue Department (IRD) has ruled that companies who changed their accounting period can apply the same payment basis as companies with year ended 31 March.  

Tax audit process

The tax authority may select tax files for an audit on a risk assessment basis or if there is any specific information relating to a taxpayer that warrants investigation.

Statute of limitations

No assessment on income tax payable can be raised on a taxpayer who has duly filed a return of income after the expiry of a period of 30 months from the date the taxpayer filed the return.

Topics of focus for tax authorities

Tax authorities, in their audit, primarily focus on whether disallowable expenses have been added back to taxable profits and on profit margins reported. With the requirement to obtain tax clearance for remittance of passive income and service fees abroad, increasing attention is paid to remittance of royalties, interest, dividends, rents, and other service fee payments to non-resident persons.

Transfer pricing audits are also now taking place.