TAX GUIDE 2025 / 2026
For Sri Lankan Citizens Living Abroad | Dual Citizens | Foreign Investors
Overview & Tax Residency Framework
Sri Lanka’s tax system is governed primarily by the Inland Revenue Act No. 24 of 2017 (IRA), as amended by the Inland Revenue (Amendment) Act No. 2 of 2025. The fiscal year runs from 1 April to 31 March. Tax liability depends heavily on an individual’s residency status. The Central Bank’s Department of Foreign Exchange (DFE) governs capital flow regulations, while the Board of Investment (BOI) and the Economic Commission of Sri Lanka (under the Economic Transformation Act No. 45 of 2024) oversee FDI incentives.
1.1 Residency Status Definitions
| Category | Definition | Tax Basis | Governing Law |
|---|---|---|---|
| Sri Lankan Citizen Resident | Physically present in Sri Lanka ≥ 183 days in any 12-month period | Worldwide income (global) | IRA s.82 |
| Non-Resident Sri Lankan Citizen (Diaspora) | Sri Lankan citizen living abroad; present <183 days/year in Sri Lanka | Sri Lanka-sourced income ONLY. Foreign income is exempt. | IRA s.82; teliaudit.lk 2025/26 guidance |
| Dual Citizen | Holds both Sri Lankan & a foreign passport under Citizenship Act No. 18 of 2003. Tax residency determined by physical presence (183-day rule), not citizenship. | Same rules as above – determined by days present | IRA s.82; Citizenship Act No.18/2003 |
| Foreigner / Non-Resident Non-Citizen | Foreign national without Sri Lankan citizenship | Sri Lanka-sourced income ONLY | IRA s.84 |
| Golden Paradise Resident Visa Holder | Special long-stay visa; holder deemed NON-RESIDENT for tax purposes regardless of days present | Sri Lanka-sourced income only (deemed non-resident) | IRA Amendment 2025 Budget Proposal |
Personal Income Tax Rates (Y/A 2025/2026)
Effective from 1 April 2025, the individual income tax-free threshold has been raised to LKR 1,800,000 per year (LKR 150,000/month). Progressive rates apply above this threshold.
2.1 Individual Tax Slab Rates — Residents
| Annual Taxable Income (after LKR 1.8 Mn relief) | Monthly Equivalent | Tax Rate |
|---|---|---|
| First LKR 1,800,000 (Personal Relief) | LKR 150,000 | 0% — Tax Free |
| Next LKR 1,000,000 (up to LKR 2.8 Mn) | up to ~LKR 233,000 | 6% |
| Next LKR 500,000 (up to LKR 3.3 Mn) | up to ~LKR 275,000 | 18% |
| Next LKR 500,000 (up to LKR 3.8 Mn) | up to ~LKR 317,000 | 24% |
| Next LKR 500,000 (up to LKR 4.3 Mn) | up to ~LKR 358,000 | 30% |
| Balance above LKR 4.3 Mn | > LKR 358,000 | 36% |
Source: Inland Revenue Department, Tax Chart 2025/26 — www.ird.gov.lk
2.2 Special Reduced Rates — All Investor Categories
| Income / Investment Type | Applicable Rate | Notes |
|---|---|---|
| Interest Income (bank deposits, bonds) | 10% WHT (Final) | Raised from 5% to 10% effective 1 April 2025. WHT is the final tax. |
| Dividend Income (local companies, CSE) | 15% WHT (Final) | Final withholding tax since 1 Jan 2023. |
| Capital Gains — CSE Listed Shares | 0% CGT | Statutory exemption; most favourable tax treatment in Sri Lanka. |
| Capital Gains — Unlisted Shares & Property | 10% CGT | 10% flat rate; no indexation relief. Applies to gains after 1 Oct 2017. |
| Royalties | 14% WHT | Subject to DTAA relief where applicable. |
| Rental Income (Residents) | 10% WHT | Can be offset against expenses; progressive rates may apply. |
| Rental Income (Non-Residents) | 14% WHT | Higher rate for non-residents; subject to DTAA. |
Withholding Tax (WHT) Rates 2025/2026
Withholding Tax is deducted at source by the paying entity (bank, company, etc.) and serves as either a final tax or an advance income tax payment. Key change effective 1 April 2025: WHT on interest income increased from 5% → 10%.
| Payment Type | Resident Company | Resident Individual | Non-Resident Company | Non-Resident Individual | Notes |
|---|---|---|---|---|---|
| Interest (deposits, loans, bonds) | 10% | 10% | 10% | 10% | Raised from 5% → 10% (1 Apr 2025). Final WHT if only source of income. |
| Dividends | 15% | 15% | 15% | 15% | Final WHT since 1 Jan 2023. Subject to DTAA reduction. |
| Rental Income | 10% | 10% | 14% | 14% | Higher rate for non-residents; subject to DTAA. |
| Service Fees | N/A | 5% | 14% | 14% | Non-resident rate per IRA s.84. Subject to DTAA. |
| Royalties | 14% | 14% | 14% | 14% | Subject to DTAA relief where applicable. |
| Branch Remittance Tax | 14% | — | 14% | — | On repatriation of branch profits abroad. |
| CSE Share Dividends | 15% | 15% | 15% | 15% | Capital gains on CSE shares: 0% CGT (exempted). |
Sources: Inland Revenue Act No. 24 of 2017; Bookkeeping.lk WHT Update June 2025; Moore Global Sri Lanka Tax Guide 2024; KPMG Tax Alert Jan 2025.
Investment-by-Investment Tax Guide (4.1–4.5)
The tables below break down the tax treatment of each major investment vehicle for the three investor categories:
Non-Resident Sri Lankan Citizens (Diaspora)
- Sri Lankan passport holder
- Residing abroad <183 days/yr in SL
- Taxed on SL-source income only
Dual Citizens
- Holds SL & foreign passport
- Tax residency by 183-day rule
- Same rules as diaspora if non-resident
Foreigners / Non-Resident Non-Citizens
- No Sri Lankan citizenship
- Taxed on SL-source income only
- Special ownership restrictions apply
| Tax Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| Interest WHT Rate | 10% (Final) | 10% (Final) | 10% (Final) |
| Account Type Required | NRFC or RFC | NRFC or RFC account | Inward Investment Account (IIA) via licensed bank |
| Currency | Foreign currency (USD, GBP, EUR, etc.) | Foreign currency or LKR | Foreign currency only via IIA |
| Repatriation | Freely repatriable | Freely repatriable | Freely repatriable via IIA |
| Foreign Interest Earned Abroad | Exempt | Exempt (if non-resident) | Exempt |
| Tax Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| Capital Gains Tax (CGT) | 0% CGT | 0% CGT | 0% CGT |
| Dividend WHT | 15% (Final) | 15% (Final) | 15% (Final) |
| Ownership Restrictions | None — up to 100% | None — up to 100% | Generally up to 100% in listed companies (sector restrictions apply) |
| Investment Account | SIERA | SIERA or standard account | SIERA required |
| Repatriation | Freely repatriable via SIERA | Freely repatriable | Freely repatriable via SIERA |
| Tax Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| WHT on Interest | 10% (Final) | 10% (Final) | 10% (Final) |
| Capital Gains (Secondary Market) | Exempt | Exempt | Exempt |
| Access / Eligibility | Via licensed primary dealers; foreign currency | Via licensed primary dealers | Via licensed primary dealers using IIA |
| Repatriation | Freely repatriable | Freely repatriable | Freely repatriable via IIA |
| Tax Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| WHT on Income Distributions | 10% | 10% | 10% |
| Capital Gains (Listed Units) | Exempt | Exempt | Exempt |
| Tax Inside the Fund | Unit trust itself is tax-exempt under IRA Schedule 1 | ||
| Eligibility | Open to all; foreign currency investment allowed | Open to all | Open to all; via IIA or SIERA |
| Tax Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| WHT on Interest | 10% (Final) | 10% (Final) | 10% (Final) |
| Capital Gains (Listed Debentures) | 0% (Exempt) | 0% (Exempt) | 0% (Exempt) |
| Capital Gains (Unlisted) | 10% CGT | 10% CGT | 10% CGT |
Real Estate & Property Investments
Real estate is among the most regulated investment categories for non-residents and foreigners in Sri Lanka. The Land (Restrictions on Alienation) Act No. 38 of 2014 (as amended in 2017 and 2018) is the primary law governing property ownership. Key restrictions apply to foreigners and overseas investors.
| Tax / Legal Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| Land Ownership (Freehold) | ✅ Permitted (Sri Lankan citizen) | ✅ Permitted (Sri Lankan citizen) | ❌ Prohibited from owning land/bare land in own name |
| Apartment / Condominium | ✅ Permitted — all floors | ✅ Permitted — all floors | ⚠️ Permitted on 4th floor & above only |
| Purchase via Company | Via SL-registered company; stamp duty applies | Via SL-registered company | Via company with ≥51% Sri Lankan shareholding |
| Transfer Tax / Stamp Duty | 3% of value (standard) | 3% of value (standard) | 100% land transfer tax on land value (2014 Act) |
| Rental Income WHT | 10% | 10% | 14% |
| Capital Gains on Sale | 10% CGT | 10% CGT | 10% CGT |
| Long-term Lease (99-year) | ✅ Permitted | ✅ Permitted | ✅ Permitted (common alternative) |
Sources: The Property Planners — tpp.lk | D.L. & F. De Saram — desaram.com | property-srilanka.com
Business & Company Investment (FDI)
Sri Lanka actively encourages Foreign Direct Investment (FDI) through the Board of Investment (BOI) and the recently enacted Economic Transformation Act No. 45 of 2024 (ETA), which is progressively replacing the BOI framework with the Economic Commission of Sri Lanka (EC).
Corporate Tax Rates
| Company / Sector Type | Standard Rate | Notes |
|---|---|---|
| Standard Corporate Tax Rate | 30% | Applicable to all companies not otherwise specified |
| Small & Medium Enterprises (SMEs) | 14% | Annual turnover < LKR 500 Mn |
| Export-Oriented Businesses | 14% | Qualifying exporters under IRA; applicable to export income |
| IT & BPO / Tech Companies | 14% | On qualifying IT/BPO income (software, IT services) |
| Startups (BOI / EC Approved) | 0–14% | Concessionary rates; 5-year tax holiday possible under ETA |
| Tourism / Hospitality | 18% | Reduced rate for qualifying registered tourism establishments |
| Banking & Financial Services | 30% | Licensed banks; also subject to Debt Repayment Levy (DRL) |
| Branch of Foreign Company | 30% | Plus 14% Branch Remittance Tax on repatriated profits |
FDI Structural Options
| Structure | Foreign Ownership | Min. Capital | Key Notes |
|---|---|---|---|
| Private Limited Company (Pvt Ltd) | Up to 100% (most sectors) | USD 250,000 (non-BOI) / USD 200,000 (BOI) | Most common structure for FDI |
| BOI / EC Enterprise | Up to 100% | USD 250,000+ (sector-dependent) | Enhanced incentives; tax holidays up to 7 years |
| Branch Office | 100% foreign | No minimum | 14% branch remittance tax applies |
| Joint Venture | Any percentage | Negotiated | Common in restricted sectors (land, media) |
| Representative / Liaison Office | 100% foreign | USD 50,000/yr remittance | Cannot generate local income |
Sources: BOI Sri Lanka — investsrilanka.com | Economic Commission: ETA No.45/2024 | D.L. & F. De Saram — desaram.com
Agricultural & Plantation Investments
| Tax / Legal Element | Category A — Diaspora | Category B — Dual Citizen | Category C — Foreigner |
|---|---|---|---|
| Corporate Tax (Agri Company) | 14% | 14% | 14% |
| Land Ownership | ✅ Permitted as SL citizen | ✅ Permitted as SL citizen | ❌ Not permitted directly |
| Investment via Company | ✅ Permitted | ✅ Permitted | Only via company with ≥51% SL shareholding, or BOI approval |
| Long-term Lease | ✅ Available (up to 99 years) | ✅ Available | ✅ Available (common pathway) |
| Export Incentive | 14% reduced rate on qualifying export income | 14% on qualifying export income | 14% on qualifying export income (via SL entity) |
| Plantation Sector Specifics | Tea, rubber and coconut plantations may fall under the Plantations (Labour) Act and specific CBSL/BOI regulations. State Land Leases governed by Land Development Ordinance. | ||
Investment Accounts, DTAAs, BOI Incentives, Tax Filing & More
Sections 5 through 10 provide comprehensive coverage of the following topics in the downloadable PDF guide:
| Section | Topic | Key Contents |
|---|---|---|
| 5 | Investment Account Types & Fund Routing | NRFC, RFC, SIERA, IIA account types; CBSL/DFE routing; repatriation procedures |
| 6 | Double Taxation Avoidance Agreements (DTAAs) | Sri Lanka’s 45+ DTAA treaty network; key countries; how to claim relief; DTAA certificates |
| 7 | BOI / Investment Incentives Summary (2025) | BOI tax holidays; capital allowances; ETA incentives; sector-specific benefits; application process |
| 8 | Tax Filing, Compliance & Deadlines | Return filing dates; payment deadlines; self-assessment; e-filing via IRD portal |
| 8.1 | Penalties for Non-Compliance | Late filing penalties; interest charges; criminal sanctions; voluntary disclosure provisions |
| 9 | Quick Reference: Tax Rates by Investment Type | Single-page summary matrix of all rates across all investor categories |
| 10 | Other Applicable Taxes | VAT (18%), Social Security Contribution Levy (SSCL 2.5%), Economic Service Charge, Customs Duty |
Key Legislation, Government Links, Resources & Investor Checklists
Sections 11 and 12 provide comprehensive legislative references and practical checklists for every investor type:
| Section | Topic | Key Contents |
|---|---|---|
| 11.1 | Primary Legislation | Inland Revenue Act No. 24 of 2017; IRA Amendment Act No. 2 of 2025; Economic Transformation Act No. 45 of 2024; Land (Restrictions on Alienation) Act No. 38 of 2014; Citizenship Act No. 18 of 2003 |
| 11.2 | Official Government Websites | IRD (ird.gov.lk), CBSL/DFE (dfe.lk), BOI (investsrilanka.com), CSE (cse.lk), SEC (sec.gov.lk) |
| 11.3 | Professional & Third-Party Resources | KPMG Sri Lanka, Moore Global, D.L. & F. De Saram, TaxPro.lk, CAL, PricewaterhouseCoopers Sri Lanka |
| 12.1 | Checklist for Non-Resident Sri Lankan Citizens | NRFC/RFC account setup; TIN registration; WHT refund claims; annual return obligations; DTAA claim procedures |
| 12.2 | Checklist for Dual Citizens | 183-day tracking; residency determination; account type selection; dual filing obligations |
| 12.3 | Checklist for Foreigners / Foreign Investors | IIA setup; BOI/EC registration; visa requirements; restricted sector clearances; nominee avoidance; repatriation approvals |
This guide has been compiled based on publicly available information from official Sri Lankan government sources, leading law firms, and international tax advisory firms as of April 2026 (covering Assessment Year 2025/2026). Tax laws in Sri Lanka are subject to frequent amendment — particularly following each National Budget (typically presented in November).
ALWAYS verify current rates and rules with: (1) Inland Revenue Department at www.ird.gov.lk, (2) Department of Foreign Exchange at www.dfe.lk, and (3) a qualified Sri Lankan tax advisor or attorney.
Currency: All LKR amounts are in Sri Lankan Rupees. | Document prepared: April 2026 | Sources: IRD, CBSL/DFE, BOI, CSE/SEC, Moore Global, KPMG, D.L. & F. De Saram, CAL, TaxPro.lk.