Sri Lanka taxes residents on worldwide income and non-residents on Sri Lanka-source income only. Sri Lanka operates a self-assessment system, with the Inland Revenue Department (IRD) conducting post-filing review and audit.
The Sri Lankan tax year runs 1 April to 31 March. The individual filing deadline is generally 30 November following the tax year-end.
30% standard rate (14% for exports and qualifying education/healthcare; 40% for gambling and liquor); part of IMF-supported fiscal reforms since 2022-2023.
Progressive, 6% to 36% (significantly increased from January 2023 under IMF-supported reforms).
18% standard VAT (raised from 15% in January 2024).
An individual is a Sri Lankan tax resident if physically present in Sri Lanka for 183 days or more within the year of assessment (April 1 - March 31); the concepts of domicile and citizenship are not directly relevant to this test. Once resident for two or more consecutive years, an individual remains deemed resident until absent from Sri Lanka for a continuous period of 12 months. A company is resident if incorporated in Sri Lanka or if its management and control are exercised there. Residents are taxed on worldwide income; non-residents only on Sri Lanka-source income.
A non-Sri-Lankan entity has a Sri Lanka permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Sri Lanka on the entity's behalf, following the OECD Model Treaty definition as applied under Sri Lankan domestic law and any applicable tax treaty.
Sri Lanka has no Controlled Foreign Company regime.
Sri Lanka's thin capitalization regime restricts deductible finance costs where debt exceeds 3 times equity for manufacturers or 4 times equity for other businesses. Interest exceeding the applicable ratio may be carried forward up to 6 years and claimed in later years subject to the same limitation.
Sri Lanka does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Sri Lanka does not have a comprehensive ATAD2-style anti-hybrid regime.
No foreign bank account or foreign financial asset reporting regime exists in Sri Lanka requiring residents to separately disclose foreign accounts.
Sri Lanka does not have a Controlled Foreign Company regime (confirmed earlier on this page) and does not provide a broad participation exemption for foreign dividends in the European sense; foreign dividends received by a Sri Lankan company are generally taxable, with relief from double taxation available through Sri Lanka's foreign tax credit system.
Sri Lanka has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Sri Lanka, capped at the Sri Lankan tax otherwise due on that income.
Sri Lanka has entered into double tax avoidance agreements with 44 countries. Sri Lanka's treaty network has recently been under modernization pressure: a Protocol to the India-Sri Lanka DTAA (signed December 2024) entered into force June 19, 2026, introducing a Principal Purpose Test and clarifying the treaty's preamble against treaty-shopping - Deloitte has flagged this as a signal that Sri Lanka's broader treaty network may need similar updates.