Sri Lanka corporate tax - guide for international expansion

Are you planning to do business in Sri Lanka? Then it's essential to understand how corporate income tax works and what it means for your company.

Understanding Sri Lanka's tax landscape is crucial for any business considering expansion into this strategic South Asian market. From navigating tax rates to ensuring compliance with local regulations, getting your corporate tax obligations right from the start can save you significant time and money down the line. Whether you're launching a new venture or expanding your existing operations, having a clear grasp of Sri Lanka's corporate tax system will help you make informed decisions and avoid costly mistakes.

If you're looking for smart ways to manage your international finances while expanding into Sri Lanka, Wise Business can help streamline your cross-border transactions and keep your finances running smoothly in local currency.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Sri Lanka corporate tax rate in 2025

The standard corporate income tax rate in Sri Lanka is 30%.¹ This rate applies to the taxable income of companies operating in Sri Lanka, making it one of the higher corporate tax rates in Asian region compared to regional averages.²

Sri Lanka operates a territorial tax system for non-resident companies, meaning they are only taxed on income sourced within Sri Lanka. Resident companies, however, are subject to tax on their worldwide income. The country also offers various tax incentives and concessions for specific industries and investment zones, which can significantly reduce the effective tax rate for qualifying businesses.³

Recent amendments to the Sri Lankan tax code have introduced a new tax regime that specifically impacts companies involved in service and goods exports. As of April 1, 2025, a flat corporate tax rate of 15% will be applied to the profits of companies engaged in service exports, such as IT and BPOs. To benefit from this reduced rate, companies must ensure their foreign earnings are remitted to Sri Lanka through the local banking system. This new rate aligns with international standards and replaces previous tax-exempt policies.⁴

Read more about Corporate Tax Planning best practices

How to pay corporate tax in Sri Lanka

Corporate tax payments in Sri Lanka are administered by the Inland Revenue Department (IRD) and must be paid in Sri Lankan Rupees (LKR). Companies are required to file their tax returns and make payments through the IRD's online system called RAMIS (Revenue Administration Management Information System), which provides a digital platform for all tax-related transactions. ^{5 6}

The tax year in Sri Lanka runs from 1 April to 31 March. Companies are required to make quarterly advance payments of their estimated tax liability and must file their annual tax returns within eight months of their accounting period's end. This means the typical due date is November 30 for companies following the standard tax year.⁷

A penalty for late filing of the tax return amounts to LKR 50,000 plus an additional LKR 10,000 for each month of delay, or 5% of the tax due plus 1% for each month of delay, whichever is greater. A separate interest charge applies to late payments of tax, which is calculated at a rate of 1.5% per month (equivalent to 18% per annum) on any unpaid amount from the due date.⁷

Let's calculate the annual tax liability for a company with a turnover of LKR 225 million (approximately £1.5 million at current exchange rates). Assuming a profit margin of 10%, the taxable profit would be LKR 22.5 million.

At Sri Lanka's standard corporate tax rate of 30%, the tax owed would be:

LKR 22.5 million × 30% = LKR 6.75 million

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Tax Compliance in Sri Lanka

A few tips that can keep your company fully compliant with the Sri Lankan tax regulations are:

• Register for a Taxpayer Identification Number (TIN): After incorporating your company, register for a TIN early to avoid penalties. This registration ensures you can meet obligations such as Corporate Income Tax (CIT), Value Added Tax (VAT), Pay-As-You-Earn (PAYE), and Advance Tax.
• Corporate income tax filing: All companies must file their annual corporate tax return on time. The filing deadline for the financial year ending 31 March 2025 (2024/25 assessment year) is 30 November 2025. Returns must be submitted through the Inland Revenue Department’s e-filing system, along with supporting documents such as audited financial statements, tax computation schedules, and certificates for withholding or advance income tax. Missing the deadline may result in penalties starting from Rs. 50,000.⁷ Proper filing also ensures eligibility for any corporate tax refund.
• Appoint a Company Secretary: Although not mandatory for every entity, appointing a secretary is highly recommended. A company secretary supports governance, maintains statutory records, ensures compliance with regulations, and assists with corporate tax management processes.⁸

International Expansion to Sri Lanka

Sri Lanka is becoming an attractive destination for businesses looking to grow in South Asia. Its proximity to the Indian subcontinent positions it as a gateway to a market of 1.9 billion people. At the same time, its location on key maritime routes connecting Asia, Europe, and the Americas makes it a central hub for global trade.⁹

The country has worked to attract international investors by offering strong protections and favorable agreements. Sri Lanka has signed Double Taxation Avoidance Agreements with 45 countries, helping foreign businesses avoid paying taxes twice on the same income. In addition, 26 Bilateral Investment Promotion and Protection Treaties provide security for foreign investments.⁹ Preferential trade agreements, such as the GSP+ scheme, allow duty-free exports to the EU.¹⁰ Meanwhile, free trade agreements enable duty-free access to India and Pakistan, two rapidly growing consumer markets.

Sri Lanka’s infrastructure also supports expansion. The Port of Colombo ranks #1 in South Asia and among the top 30 ports worldwide, while three other ports and four international airports ensure global connectivity. A strong road and rail network further supports logistics across the island. The country’s skilled labor force, backed by a 92% literacy rate, provides a reliable workforce for international businesses.¹¹

For businesses considering expansion, the Sri Lanka corporate tax rate and available corporate tax deductions are essential to review. The government provides a corporate tax helpline to support investors with compliance and corporate tax return preparation. By developing a clear corporate tax management strategy earlier, businesses can enter the Sri Lankan market with greater confidence and financial efficiency.

The steps to set up a business in Sri Lanka are:¹²

1. Conduct thorough market research and draft a solid business plan.
2. Choose a business name and arrange financing.
3. Register your company with the Registrar of Companies.
4. Register for tax with the Inland Revenue Department.
5. Open a local bank account to manage operations.

To sum up, Sri Lanka’s strategic location, strong trade links, and supportive investment policies make it a strong choice for businesses pursuing international expansion.

Discover the top 5 best Corporate Tax softwares

Incorporation of Business in Sri Lanka

To incorporate a business in Sri Lanka, companies must register with the Registrar of Companies (ROC) under the Companies Act No. 7 of 2007.¹³ The process involves submitting key information and ensuring compliance with regulatory requirements. Here’s what you’ll typically need:

• Company name: A unique business name approved by the Registrar of Companies.
• Type of company: You’ll need to decide on a business entity type (more on this below).
• Articles of Association: A document that outlines how the company will be governed.
• Registered office: A physical address in Sri Lanka that serves as the company’s legal location.
• Directors: At least one director must be appointed to oversee operations.
• Shareholders: The company must have at least one shareholder, who may also be the director.
• Share capital: Companies must declare their authorized and issued share capital.
• Company secretary: A mandatory appointment responsible for ensuring compliance and filings.

After approving registration, businesses can proceed with tax registration at the Inland Revenue Department (IRD), open a local bank account, and start operations.¹³ Timely compliance with tax filings is critical, as late corporate tax filing can result in penalties and delays in operations.

Business Types in Sri Lanka

Here are the common types of entities available under Sri Lankan law:¹⁴

• Private Limited Company (Pvt Ltd): The most common entity type for small to medium businesses. Shareholders have limited liability, and shares cannot be offered to the public.
• Public Limited Company (PLC): Suitable for larger enterprises intending to raise capital from the public. PLCs must meet higher disclosure and governance requirements.
• Branch Office: A foreign company can establish a branch in Sri Lanka to carry out the same activities as its parent company. The branch must be registered with the ROC and comply with local tax rules.
• Representative Office: Intended mainly for market research and liaison activities, not revenue generation.
• Sole Proprietorship or Partnership: Easier to set up, but does not offer limited liability protections.

Sri Lanka’s business setup system is flexible and supports different types of companies. Choosing the proper structure and staying compliant with local rules will be quite helpful!

International corporate tax best practices

Managing corporate tax obligations across multiple jurisdictions requires a strategic approach that balances compliance with cost efficiency. The key is to establish robust systems that ensure you meet all local requirements while optimising your overall tax position.

Stay compliant with local and international tax laws by completing all required registrations in each country where you operate. File tax returns on time to avoid penalties, and maintain up-to-date knowledge of local tax regulations. With the OECD's Base Erosion and Profit Shifting (BEPS) initiatives and Pillar Two Global Minimum Tax framework, companies must ensure transparency and avoid aggressive tax planning that could trigger additional scrutiny.

Leverage double taxation treaties (DTTs) to prevent being taxed twice on the same income. Sri Lanka has signed double taxation avoidance agreements with over 50 countries, including the UK, India, Singapore, and most EU member states. These treaties can significantly reduce withholding taxes on dividends, royalties, and interest payments between treaty countries.

Maintain comprehensive and transparent financial records to support accurate tax filings and simplify audit processes. Good record-keeping not only ensures compliance but also helps identify legitimate tax planning opportunities and supports your position during any tax authority reviews.

Take the complexity out of international expansion with Wise Business

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With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

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FAQs - Corporate tax in Sri Lanka

Who is liable for corporate tax in Sri Lanka?

All companies incorporated in Sri Lanka are considered resident companies and are liable for corporate tax on their worldwide income at the rate of 30%. This includes foreign companies with a permanent establishment in Sri Lanka or those earning income from Sri Lankan sources such as dividends, interest, royalties, or business profits.

Are there any tax incentives for businesses in Sri Lanka?

Yes, Sri Lanka offers various tax incentives through the Board of Investment (BOI) and other agencies. These include tax holidays for export-oriented industries, reduced rates for companies in designated economic zones, and special rates for strategic development projects. Technology and knowledge-based industries may qualify for additional incentives under the government's digital economy initiatives.

What is the tax treatment of dividends in Sri Lanka?

Dividends paid by resident companies to shareholders in Sri Lanka are subject to a 15% final withholding tax (WHT). This rate applies to both resident and non-resident shareholders. However, the rate for non-resident shareholders may be reduced under an applicable double taxation avoidance agreement (DTAA). A company distributing dividends must deduct the tax and remit it to the Inland Revenue Department (IRD) within 15 days after the end of each calendar month in which the payment was made.

What is the process for registering for corporate tax in Sri Lanka?

Companies must register with the Inland Revenue Department within 30 days of commencing business operations or within 3 months of incorporation, whichever is earlier. Registration is done through the RAMIS online system or at IRD offices. Required documents include the certificate of incorporation, memorandum and articles of association, and details of directors and shareholders. Once registered, companies receive a Tax Identification Number (TIN) which must be used for all tax-related transactions.

What are the common pitfalls to avoid regarding corporate tax in Sri Lanka?

Common mistakes include failing to register within the required timeframe, which can result in penalties; incorrectly calculating advance tax payments leading to interest charges; not maintaining proper books and records as required by law; and missing filing deadlines which attract both penalties and interest. Many companies also fail to claim available deductions and allowances, resulting in overpayment of taxes. It's crucial to understand the distinction between resident and non-resident tax obligations and ensure proper withholding tax compliance on payments to non-residents.

Sources used in this article:

1. Inland Revenue Department (IRD): Sri Lanka Tax Chart 2023-2024
2. Tax Foundation: Corporate Tax Rates by Country 2024
3. IRD: Income Tax Overview
4. Parliament of Sri Lanka: Inland Revenue Act (PDF)
5. IRD: Corporate Tax e-Filing Guide (PDF)
6. IRD: E-Services for Companies
7. Simplebooks: Corporate Tax Rate in Sri Lanka
8. Company Secretary: Do You Need a Company Secretary?
9. Invest in Sri Lanka: Why Sri Lanka
10. Investasian: Sri Lanka Country Guide
11. Port City Colombo: Why Invest in Sri Lanka
12. Simplebooks: Online Company Registration in Sri Lanka
13. Central Bank of Sri Lanka: Doing Business in Sri Lanka 2021 (PDF)
14. SF Consulting: Types of Companies in Sri Lanka

Sources last checked 24/09/2025