The government has introduced a two-band value added tax on all products and services.
A lower rate of 10 per cent is applicable on all essential goods and services such as:
- medical, agriculture and fisheries equipment
A standard rate of 20 per cent applies for all other products.
Sri Lanka and Australia signed a double taxation agreement in 1991 whereby Australian companies operating in Sri Lanka receive concessionary or zero tax breaks in Australia if they have paid taxes in Sri Lanka. Reduced rates are levied on dividends (15 per cent), interest and royalty payments (10 per cent).
All Sri Lankan businesses are subject to taxation unless they have been exempted under special provisions for a specific period e.g. if they are companies approved by the Board of Investment. Both resident and non-resident companies are liable for a corporate income tax of 35 per cent with an additional surcharge of 20 per cent. Non-resident companies are also subject to an additional tax of 33.33 per cent on remittances of profits – limited to 11.11 per cent of taxable income.
Dividends declared from tax exempt profits are tax-free in the hands of the shareholder during the tax holiday period and one year thereafter. A withholding tax of 15 per cent is generally payable on all dividend income other than quoted public companies, though non-resident shareholders of public quoted companies are subject to this tax.
Residents are taxed on a sliding scale from 10 per cent up to a maximum of 35 per cent while expatriate employees are taxed at a concessionary rate of 15 per cent for the first five years and thereafter are subject to the same rates as residents. Expatriates employed in flagship companies with investments of US$50 million or more are not subject to any personal income taxes for five years.
Non-nationals are not subject to transfer tax on shares purchased on the stock market. The removal of stamp duty on all share market transactions, the abolition of capital gains tax, and exemption from income tax/capital gains on sale of debt and listed securities are some of the measures established to stimulate the stock market. Other general information:
- An Export Development Board charge of 10 per cent is levied on imports subject to duties of 50 per cent or more.
- A levy of one per cent is charged on the declared cost, insurance and freight (CIF) value of all cargo imported to Sri Lanka Export industry inputs are exempted.
- Excise duties are levied on cigarettes and liquor products.