Taxes in Sri Lanka in 2026

Tax rates in Sri Lanka in 2026: at a glance

Sri Lanka takes up to 36% from a resident on its scale, but for those who work for foreign clients and receive foreign currency through a local bank the rate never rises above 15%. On the other hand, capital gains became dearer on 3 June 2026, from 10% to 15%, and value added tax on financial services rose to 20.5% on 1 July. The main rates are in one table.

Amounts are in US dollars, with rupees in brackets, converted at the Central Bank of Sri Lanka mid rate of 330.60 rupees per US dollar and rounded up. The tax year runs from 1 April to 31 March, and taxes are collected by the Inland Revenue Department. Details and worked examples follow below.

Compare taxes in 146 countries: relocation taxes 2026

Sri Lanka tax residency rules: how to count days and confirm your status

In Sri Lanka, 183 days in any 12 months that start or end in the tax year from 1 April to 31 March make you resident. That is section 69 of the Inland Revenue Act of 2017. The window is flexible: a winter from November to April and an autumn trip easily add up to 183 days, although each on its own looks like a holiday.

Days are not the only test. A person becomes a Sri Lankan resident if at least one condition applies:

• they permanently reside in Sri Lanka;
• they are present in the country for 183 days or more during any 12-month period;
• they are an employee or an official of the state;
• they work on a Sri Lankan ship under the merchant shipping law.

Example. A winter stay from 1 November to 30 April is 181 days, not yet resident. Add two weeks in August, and the window from 1 November to 31 October holds 195 days: you are resident, and worldwide income falls into the scale.

A resident pays 6-36% progressive income tax on worldwide income, a non-resident only on Sri Lankan income. Living there permanently makes you resident without counting days.

How days are counted in different countries is covered in our article on the 183-day rule.

Mistakes here are costly: the rolling window catches trips from different tax years, and worldwide income falls under a scale of up to 36%. Murblz specialists count days across all windows, plan trips, obtain the residency certificate from the Inland Revenue Department and apply double tax treaties where they are in force.

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Income tax and contributions: the 2026 scale and a worked example

From the 2025/26 tax year the personal relief rose from $3,700 (1.2 million rupees) to $5,500 (1.8 million rupees) a year, and the 12% band was removed. Tax on annual income is calculated as follows:

A resident with income of $19,000 (6 million rupees) a year pays, in rupees: nothing on the first 1.8 million, 60,000 on the next million at 6%, 90,000, 120,000 and 150,000 on three bands of 500,000 at 18%, 24% and 30%, and 612,000 on the remaining 1.7 million at 36%. The total is $3,200 (1,032,000 rupees), or 17.2% of income. The employer withholds tax from salary monthly, and the total is reconciled in the annual return. If the same income comes from foreign clients in foreign currency through a local bank, the rate on the upper bands will not exceed 15%, and the tax will be noticeably lower.

Per month this is a salary of about $1,600 (500,000 rupees). Tax is about $270 (86,000 rupees), the employee pension contribution $130 (40,000 rupees), leaving about $1,200 (374,000 rupees) in take-home pay. On top of salary the employer pays another $230 (75,000 rupees) into the funds.

Payroll contributions

The Employees' Provident Fund saves money in the employee's personal account, and only the employer pays into the Employees' Trust Fund. Sri Lanka has no separate health contribution, so the total burden on salary is lower than in most countries with social insurance.

Income from services to foreign clients: no more than 15%

Until April 2025, income from services provided to foreign clients was exempt. From 1 April 2025 it is taxed, but at no more than 15%, if payment arrives in foreign currency through a bank in Sri Lanka. If the money does not pass through a local bank, the income falls under the general scale of up to 36%. Tax paid abroad is credited: if it is 15% or more, nothing extra is due, if lower, the difference is paid. For freelancers and remote specialists living on the island this is the key tax question, and the money route is worth setting up before the move.

Worked example. The same income of $19,000 (6 million rupees) a year, but received from foreign clients in foreign currency through a bank in Sri Lanka:

The difference is almost twofold: the first 1.8 million is tax-free, the next million is taxed at 6%, and everything above at 15% instead of 18-36%. From 3 June 2026 local clients also withhold tax when paying a wide range of professionals: doctors, engineers, consultants, IT specialists. Living on the island remotely is easier with the Sri Lanka digital nomad visa, and the local bank account the money will go through is our personal account in Sri Lanka service.

How to set up the money route in practice: open a foreign currency account with a bank in Sri Lanka, invoice foreign clients for payment to that account, keep bank transfer confirmations and contracts, and show this income on a separate line in the annual return. If some payments go to a card abroad, that part falls under the scale of up to 36%, so the route is best set up before the first invoice, not after.

Company taxes and dividends

The standard corporate income tax rate is 30%. From 1 April 2025 companies exporting services, for example in IT and business process outsourcing, pay 15%. The special 35% deduction for IT companies was repealed from 1 April 2025. From 1 April 2026, investments in fixed assets of $250,000 to $3 million can be written off 100% immediately with Board of Investment approval.

Dividends paid by a company to its owners bear 15% withholding tax. On top of profit tax, companies and businesses with turnover above the threshold pay the Social Security Contribution Levy - 2.5% of turnover, not profit, so even loss-making companies pay it. From what turnover does your company pay the levy? Ask an expert. We open company accounts under our business account in Sri Lanka service.

Worked example. A Sri Lankan company exports software development and makes $91,000 (30 million rupees) of profit a year. In rupees, profit tax at 15% is 4.5 million, and on the remaining 25.5 million paid to the owner as dividends 15% is withheld, another 3.825 million. In total $26,000 (8,325,000 rupees), or about 28% of profit. The same profit from domestic sales would cost 30% tax plus 15% on dividends - about 40.5%.

VAT and what changed in 2026

The standard value added tax rate is 18%. Registration is required for turnover above $190,000 (60 million rupees) a year, or $46,000 (15 million rupees) a quarter: the proposal to cut the threshold to $110,000 (36 million rupees) was dropped. From 1 July 2026 value added tax on financial services rose to 20.5%. A 2026 law requires foreign digital service providers to register if their sales to customers in Sri Lanka exceed the same thresholds, while services to local businesses registered for value added tax are exempt. From 1 April 2026 the tax number must be verified when opening a bank account or registering land.

Exports of goods and services are zero-rated: a company working for foreign clients charges no value added tax on that revenue but can credit input tax on its own costs. So value added tax registration also pays off for exporters, even when domestic turnover is small.

Capital gains, dividends, interest and rent

From 3 June 2026 individuals pay 15% tax on gains from investment assets instead of the previous 10%. The tax covers land and buildings other than a principal residence, apartments, shares and bonds. The sale of a personal car is not taxed: the 2026 law expressly excluded it. The gain is the difference between the sale price and the purchase cost plus transaction expenses.

Dividends are subject to 15% withholding. From 1 April 2025 banks withhold 10% on deposit interest instead of 5%, but a resident with no taxable income, for example a pensioner with modest deposits, can file a declaration with the bank and avoid the withholding. Rental income is part of the general scale, but a quarter of it is exempt as an allowance for upkeep. Tax withheld is credited in the annual return.

Buying property as a foreigner: rules and stamp duty

A foreigner cannot buy freehold land: it is taken on a long lease. A foreigner can buy a condominium apartment if the full price is paid by inward remittance from abroad before the transfer is executed. Stamp duty is paid on purchase: 3% on the first $310 (100,000 rupees) and 4% on the balance. Example: a flat for $190,000 (60 million rupees) carries duty of $7,300 (2,399,000 rupees). On sale, capital gains tax of 15% is paid on the profit, and rental income falls into the general scale.

We handle choosing the apartment, checking the developer and completing the deal: details are on the property in Sri Lanka page.

Non-residents, withholding taxes and treaties

A non-resident pays tax only on Sri Lankan income: salary for work on the island, rent from local property, dividends and interest from local companies and banks, and gains on local assets. The $5,500 (1.8 million rupees) personal relief is available only to residents. Tax on dividends and interest is withheld at payment, and a non-resident who rents out a flat on the island obtains a tax number and files a return by 30 November, just like a resident.

Withholding rates on payments to non-residents in 2026:

Where a double tax treaty applies between the countries, the rates are reduced once the recipient presents a certificate of residence of their country and confirms that the income belongs to them.

Treaties decide which country taxes income in case of dual residence and reduce withholding on dividends, interest and royalties. To use one you need a residence certificate from the country where you pay tax.

Deadlines, returns and penalties

The tax year runs from 1 April to 31 March. The return for 2025/26 is filed online by 30 November 2026. A tax number is needed in advance: from April 2026 a bank account cannot be opened or land registered without it. A tax residence certificate is issued by the Inland Revenue Department on application.

• tax is paid in four advance instalments: 15 August, 15 November, 15 February and 15 May;
• the balance for the year is due by 30 September;
• the annual return is due by 30 November;
• a late return costs the greater of two amounts: 5% of the tax plus 1% for each month of delay, or $160 (50,000 rupees), plus $35 (10,000 rupees) for each month;
• a tax number is now also needed to register a vehicle or a business and to transfer shares.

Mistakes cost more: a missed instalment, a wrongly applied 15% rate or forgotten foreign income turn into penalties and interest. We keep the payment calendar, prepare the return and answer tax office queries.

Who Sri Lanka suits: comparison with neighbours and what we do

The island suits remote specialists and freelancers who are paid by foreign clients through a local bank and pay no more than 15%, as well as companies exporting services at the 15% rate. It is less attractive for those with large income from a local business or domestic investments: the top rate is 36%, and capital gains tax has risen to 15%. A non-resident pays tax only on Sri Lankan income, so for short winter stays it is important not to exceed 183 days in the rolling window.

Who the island does not suit: owners of a large local business selling domestically, who face 30% on profit and 15% on dividends; those who want to own land outright, as a foreigner can only lease it long-term; and holders of a large portfolio of local shares and property: capital gains have been taxed at 15% since June 2026.

Our overview of taxes in every country helps compare the island with other countries.

Murblz specialists count days across the rolling window, set up the payment route from foreign clients so the 15% rate applies, obtain a tax number, prepare the return by 30 November, obtain a residence certificate and apply double tax treaties. If you need a local lawyer, our specialists can help. A manager will calculate the cost of our support in the chat.

What to know about taxes in Sri Lanka

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