Sri Lanka

Corporate - Taxes on corporate income

Last reviewed - 02 August 2023

Resident companies and public corporations are liable for corporate income tax (CIT) on their worldwide taxable income. Further, a friendly society, building society, pension fund, provident fund, retirement fund, superannuation fund, or similar fund or society are also deemed a company. A partnership in which at least 20 partners have limited liability for the debts of the partnership is also treated as a company. Similarly, a unit trust or a mutual fund that does not conduct an eligible investment business is also treated as a company, and in all such cases corporate tax is applicable. Non-resident companies are liable for CIT in respect of any business, investment, or other source to the extent that the income arises in or is derived from a source in Sri Lanka.

Income / Institution	CIT rate (%)
Income / Institution	2018/19 and period up to 31 December 2019 of 2019/20	Period from 1 January 2020 of 2019/20, 2020/21, 2021/22, and first six months period of 2022/23	Second six months period of 2022/23 and onwards
Small and medium enterprises (SMEs) that conduct business in Sri Lanka, which do not have an associate that is an entity, and with an annual turnover less than 500 million Sri Lankan rupees (LKR)	14	14	30
Business of exporting goods and services (exports includes specified undertakings*)	14	14	30
Business of agro-processing	14	14	30
Companies providing educational services	14	14	30
Companies engaged in an undertaking for the promotion of tourism	14	14	30
Companies providing information technology services	14	Exempt	30 (with effect from 1 April 2023)
Business consisting of betting and gaming, as well as manufacture or import and sale of liquor or tobacco	40	40	40
Construction services	28	14	30
Manufacturing	28	18	30
Healthcare	28	14	30
Profits and income from business other than stated above (including unit trusts and mutual funds)	28	24	30
Gains from the realisation of investment assets	10	10	30

* 'Specified undertaking' means an undertaking that is engaged in:

Entrepôt trade involving import, minor processing, and re-export.
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.
Providing front-end services to clients abroad.
Headquarters operations of leading buyers for management of financial supply chain and billing operations.
Logistic services, such as bonded warehouse or multi-country consolidation in Sri Lanka.
Transhipment operations.
Freight forwarding.
Supply of services to any exporter of goods or services or to any foreign principal of such exporter directly, being services which could be treated as essentially related to the manufacture of such goods or provision of such services exported by such exporter either directly or through any export trading house, including any service provided by an agent of a ship operator to such agent’s foreign principal, and the payment for such services are made by such exporter or foreign principal to such person in Sri Lanka in foreign currency.
Production or manufacture and supply to an exporter of non-traditional goods.
The performance of any service of ship repair, ship breaking repair, and refurbishment of marine cargo containers, provision of computer software, computer programmes, computer systems or recording computer data, or such other services as may be specified by the Minister by notice published in the Gazette, for payment in foreign currency.
Sale for foreign currency of any gem or jewellery, being a sale made in Sri Lanka by any person authorised by the Central Bank of Sri Lanka to accept payment for such sale in foreign currency.
Banking services provided for the supply of marine fuel, including the supply of marine fuel to local banker suppliers within specified port premises.

Income tax on dividends received by a company

For the period from 1 January 2020 up to the year of assessment 2021/2022, Dividends received by a company from another resident company is taxed at 14% in the hands of first-mentioned company on the gross dividends distributed by the second-mentioned resident company, other than such dividends distributed out of any dividend received by the second-mentioned resident company from another resident company on which withholding tax (WHT) has been deducted.

For the year of assessment 2022/2023 the dividends received by a company from another resident company other than such dividends distributed out of any dividend received by the second-mentioned resident company from another resident company on which withholding tax (WHT) has been deducted is taxed as follows.

a. For December ending companies

For 1^st six months period - Dividends Income Received from a resident company – That part of the taxable income is taxed at 14%

For 2^nd six months period - Dividends Income Received from a resident company – That part of the taxable income is taxed at 15%

b. For March ending companies

For 1^st six months period - Dividends Income Received from a resident company during the period from 01.04.2022 to the 30.09.2022 – That part of the taxable income is taxed at 14%

For 2^nd three months period - Dividends Income Received from a resident company during the period from 01.10.2022 to the 31.12.2022 – That part of the taxable income is taxed at 15%

For 3^rd three months period - Dividends Income Received from a resident company during the period from 01.01.2023 to the 31.03.2023 – (Mandatory AIT 15% is in operation). dividends paid by a resident company is a final withholding payment FWHP in the hands of the recipient.

From 1 April 2023, dividends paid by a resident company is a FWHP in the hands of the recipient.

Dividends declared from dividends received from another resident company will be exempt only if WHT has been deducted from such dividends received.

Dividends paid by a resident company to any non-resident person was exempt from income tax during the period from 1 January 2020 up to 1 October 2022.