Sri Lanka
Corporate - Taxes on corporate income
Last reviewed - 02 August 2023Resident 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 (%) | ||
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 are 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 WHT has been deducted is taxed as follows:
- For December ending companies:
- For first six months period: 14%.
- For second six months period: 15%.
- For March ending companies:
- For first six months period: 14%.
- For second three months period: 15%.
- For third three months period: Mandatory advance income tax (AIT) 15% is in operation; dividends paid by a resident company is a final withholding payment in the hands of the recipient.
From 1 April 2023, dividends paid by a resident company is a final withholding payment 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.
Local income taxes
There is no local or provincial income tax applicable to corporates in Sri Lanka.