Tax Incentives
for Investors in Sri Lanka
Following the 2022 economic crisis, Sri Lanka implemented IMF-mandated fiscal reforms that raised the standard CIT to 30% and VAT to 18%. However, BOI incentive rates and Port City zero-tax provisions remain intact, preserving preferential treatment for qualifying investments.
1. Corporate Tax Rate Structure
Sri Lanka’s Inland Revenue Act No. 24 of 2017 (amended 2022) establishes a tiered corporate tax framework. BOI-registered enterprises and approved strategic projects enjoy substantially reduced rates compared to the standard 30% CIT.
| Tax Category | Rate | Applicable Entities |
|---|---|---|
| Standard Corporate Tax | 30% | General businesses, Banks & Financial institutions, Insurance companies, Betting/gaming/liquor businesses |
| BOI / Preferential Rate | 15% | BOI-approved qualifying enterprises, IT & BPO sector, SMEs with turnover ≤ LKR 500 million, Export-oriented manufacturers |
| Port City BSI Rate | 0% | Business Service entities in Port City — Financial services, logistics, tech hubs |
2. BOI Tax Holiday Framework
The Board of Investment grants income tax exemptions for qualifying periods, after which enterprises pay the reduced 15% concessionary rate. Tax holidays are determined by investment size, sector classification, and employment generation.
| Investment Category | Minimum Investment | Tax Holiday | Post-Holiday Rate | Employment |
|---|---|---|---|---|
| Small Qualifying Enterprise | US$250,000 | 3 years | 15% | 25 local employees |
| Medium Qualifying Enterprise | US$500,000 | 5 years | 15% | 50 local employees |
| Large Qualifying Enterprise | US$1,000,000 | 7 years | 15% | 100 local employees |
| Strategic Investment | US$50,000,000 | 12 years | 15% | 250 local employees |
| Mega Strategic Investment | US$100,000,000 | 25 years | 15% | 500 local employees |
| Export Processing Zone (EPZ) | US$250,000 | 5 yrs (export) / 2 yrs (domestic) | 12% (exports) | None specified |
| IT / BPO / Digital Services | US$100,000 | 3–6 years | 15% | 50 employees (BPO) |
3. Colombo Port City — BSI Tax Regime
The Colombo Port City Economic Commission Act No. 11 of 2021 established a separate economic zone with one of the most competitive tax regimes in the region.
Key Benefits for BSI-Registered Companies
- 0% Corporate Income Tax for qualifying financial, technology, logistics, and professional services
- Foreign currency operations: USD, EUR, GBP and other approved currencies
- 0% customs duties, VAT, and import levies on goods imported into the zone
- Flat 15% personal income tax for Port City employees
- 0% withholding tax on dividends to non-resident shareholders
Port City Approved Activities
4. Sector-Specific Tax Incentives
IT, BPO & Digital Services
- 15% CIT on IT & BPO income
- 0% on foreign exchange income from IT exports
- 3–6 year tax holiday for qualifying BPO setups
- 200% deduction on R&D spend
Agriculture & Agro-Processing
- 14% CIT for agro-processing and food manufacturing
- 0% on profits from identified agricultural crops
- Duty-free import of machinery for processing plants
- 5-year tax holiday for new plantation ventures
Manufacturing & Export
- 12% CIT on export proceeds (EPZ manufacturers)
- 5-year tax holiday for EPZ-located factories
- 0% import duties on raw materials (EPZ)
- Accelerated depreciation: 100% write-off Year 1
Renewable Energy
- 0% CIT for initial 7 years (solar/wind projects)
- 15% thereafter (reduced from 30%)
- Duty-free import of renewable energy equipment
- 0% VAT on qualifying renewable energy systems
Healthcare & Pharmaceuticals
- 15% CIT for private hospitals (300+ beds)
- 5-year tax holiday for pharmaceutical manufacturers
- Import duty exemption on medical equipment
- 0% VAT on pharmaceuticals and medical devices
Logistics & Shipping
- 15% CIT for qualifying freight & logistics firms
- Ship registration fees: highly competitive schedule
- Bunker fuel: partial duty relief for transshipment
- Port City: 0% tax on shipping company profits (BSI)
5. VAT & Indirect Tax Framework
| Tax / Levy | Rate | Applicability | Investment Impact |
|---|---|---|---|
| VAT (Standard) | 18% | Most goods & services | Input VAT reclaimable for registered businesses |
| VAT (Zero-rated) | 0% | Exports, EPZ supplies, certain machinery | Favourable for export-oriented and EPZ businesses |
| Customs Import Duty | 0–30% | Most imported goods | BOI & EPZ enterprises: 0% on capital goods & raw materials |
| Social Security Contribution Levy (SSCL) | 2.5% | Taxable turnover > LKR 120M/qtr | Applies to most qualifying enterprises |
| Stamp Duty | Varies | Property transfer, share transfers | Concessionary rates for BOI project-related transactions |
6. Withholding Tax Rates for Investors
| Payment Type | Resident WHT | Non-Resident WHT | DTAA Reduced Rate |
|---|---|---|---|
| Dividends (listed/unlisted) | 15% | 15% | 5–15% (treaty dependent) |
| Interest — T-Bills/T-Bonds | 10% | 10% | 0–5% (some treaties nil) |
| Interest — Bank Deposits | 10% | 10% | 0–10% (treaty dependent) |
| Royalties | 14% | 14% | 10–15% (treaty dependent) |
| Port City BSI — Dividends | N/A | 0% | N/A (special regime) |
| Port City BSI — Interest | N/A | 0% | N/A (special regime) |
7. Double Taxation Avoidance Agreement Network
Sri Lanka has 47 active DTAAs, with several more under negotiation. These treaties provide reduced withholding tax rates and eliminate double taxation of business profits.
| Country | Dividends | Interest | Royalties |
|---|---|---|---|
| 🇮🇳 India | 7.5–15% | 10% | 10% |
| 🇨🇳 China | 10% | 10% | 10% |
| 🇸🇬 Singapore | 7.5% | 10% | 10% |
| 🇬🇧 United Kingdom | 15% | 10% | 15% |
| 🇯🇵 Japan | 12.5% | 10% | 10% |
| 🇩🇪 Germany | 15% | 10% | 10% |
| 🇫🇷 France | 12.5% | 10% | 10% |
| 🇦🇺 Australia | 15% | 10% | 10% |
| 🇦🇪 UAE | 0% | 0% | 0% |
Ready to Benefit from Sri Lanka’s Tax Incentives?
Whether through the BOI’s 15% concessionary rate, Port City’s 0% BSI regime, or sector-specific tax holidays, Sri Lanka offers one of the most competitive tax frameworks in South Asia for qualifying investors. Our team can help you navigate the structure that maximises your investment returns.
Inland Revenue Department — ird.gov.lk · BOI Sri Lanka — investsrilanka.com · CPCEC Port City — portcitycolombo.com