Tax System SriLanka

7/31/2019 Tax System SriLanka

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Tax System of Sri LankaThe Sri Lankan government offers a wide range of incent ives for investors.

These incent ives are available foreign provided the investment is undertaken

through a company incorporated in Sri Lanka

Incent ives offered fall under two classes or "regimes" and the investor may be

eligible for inducements provided by either of these regimes.

BOI Incentives under Section 17 of the BOI Law General incentives under the 'normal laws' of the country


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Tax structure of Sri Lanka


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The tax is levied on the Income of any person arising in or

derived from Sri Lanka.

A resident is taxable on world income Any other person is taxable only on income arising or derived in

Sri Lanka.

Income tax


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Economic Service Charge (ESC)

An Economic Service Charge is imposed on any person

carrying on a t rade, business , profession or vocat ion.

The rate of ESC is 0.25% to 1% on total turnover or receipts

it is exceeds SRL 7.5Mn or USD 75,000 per quarter.

This can be set off against the income tax payable and can be

carried forward for four years , but no refund is due.


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Custom Duty Sri Lanka Customs is a key state organization

operational at the frontiers and its main functions

center around revenue collection and enforcingCustoms law and other related rules and regulations

In the process the department endeavors to ensure

smooth movement of people and goods across theborder.

Custom duty is applicable for the import and export

procedures.


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Remittance Tax

In addit ion to paying the

Standard corporate income

tax , remittances made by a

branch to a foreign head

office are subject to a 10%

tax.

Social Responsibility

Levy( SRL)SRL is imposed on Companies

at 1.5% of the income tax

liability


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Value Added Tax (VAT) and Turnover Tax (TT)

VAT is levied on supply of most goods and services , as well as the

most import of goods. Standard rate is 12% with a reduced rate of

5% applying to essential items. Certain supplies are zero-rated or

exempt.

Retail and wholesale businesses that supply goods are subject to a

turnover t ax of 1%


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Nation Building Tax (NBT) The Government has imposed a new

levy termed the Nation Building

Levy akin to the National SecurityLevy which prevailed at the rate of

3% on turnover.

Importers , Manufactures and

Providers of services are liable forNBT.

The levy is payable for any quarter

where turnover for the quarter

exceeds Rs.100,000.


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Tax Concessions for Qualifying

Activities

Tax concessions are dealt under two regimes;

Board of Investment (BOI) Regime in terms ofregulat ions under the BOI law.

Normal Tax Regime statutorily mandated in

terms of the Inland Revenue ACT and amendment

thereto.


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Tax Concessions for Qualifying

Activities

Incentives under BOI regime are legally enforced in terms of

agreements concluded under BOI law and hence would prevailfor the specified period as stipulated therein and are valid for

the lifet ime of the Company.

Incentives under the Sri Lanka tax status which are time

based would legally prevail for the time period as mandated

statute. Transactions based incentives , could be withdrawn

by amendment to legislat ion at a future date prospect ively.


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Agriculture (Normal Tax Regime)


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Agriculture (Normal Tax Regime)

Qualifying Activity Core Conditions Income Tax

Incentives

Agriculture and Agro processing

Agriculture Cultivation of land

with plants of any descript ion ,

rearing of fish or animal

husbandry including poultryfarms , veterinary and art ificial

insemination services and other

support services.

Agro processing Processing of

any agricultural product or fishing

product including deep sea fishing.

Company

New undertaking

on or after 01/04/2006

with minimumInvestment

Rs.50Mn

Incorporated pre

01/04/2002

Rs.10Mn

Incorporated post

01/04/2002

Year 1 -5

0%

Year 6 -7

10%

Year 8

onwards

15%


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Agriculture ( BOI Regime)


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Agriculture ( BOI Regime)

Qualifying Activity Core Conditions Income Tax Incentives

North /East Province Cultivation andprocessing

Dairy farming andlivestock development

Cultivation andprocessing of fruits

and vegetables

Rice Mill for thegrinding of rice and/orthe making of rice

based products

Regionaldevelopment outsideColombo andGampaha District

New Company

Minimum Investment Rs.15Mn

Minimum Employees- 20

Year 1 - 15/200%


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Tourism and Recreation (Normal Tax Regime)


Providing accommodation toTourists in Manor Houses orThematic Bungalows

Registered with CeylonTourist Board on or after01/04/2003

Provide accommodation for10 years from date ofregistration with Tourist Board

Year 1 3 0%

Exhibition of any

cinematographic Film

Exhibition of

cinematographic film on orafter April 2007

In new cinema orupgraded cinema defined

Year 1 5/10 0%


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Tourism and Recreation (Normal Tax

Regime)

Qualifying Activity Core Conditions Income TaxIncentives

InfrastructureDevelopment Tourismand Recreation

Company

Minimum InvestmentRs.10Mn

Investment to be madewithin 1 year fromcommencement of

undertaking

Year 1 50%

Year 6 710%

Year 8 onwards20%


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Tourism and Recreation (BOI Regime)Qualifying Activity Core Conditions Income Tax

IncentivesTourism and /or Recreation New Company

Minimum Investment US$500,000

Year 1 -5 0%

Year 6 -7 10%

Year 8 onwards 20%

Tourism and Recreation or

construction and operationof hotels North/EastProvince

Regional Development outside

Colombo/Gampaha Districts

New Company

Minimum Investment Rs.40Mn

Minimum employees - 25

Year 1 -15 0%


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Information Technology (Normal Tax

Regime)


Information Technology

and allied services

Company

New Undertaking on orafter 01/04/2006 withinminimum Investment

Rs.50Mn-Incorporationpre 01/04/2002

Rs.10Mn-Incorporationpost01/04/2002

Year 1 -5

0%

Year 6-710%

Year 8 onwards20%(15% if export oriented)


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Information Technology (BOI Regime)


Information technologyand / or informationtechnology enabledservices

Company

Minimum InvestmentUS$ 150,000

Employing minimum of15 technically qualifiedlocal persons

Year 1 -5/120%

First two years10%

Thereafter20%(15% if export turnover >70% in foreign currency)


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Small Scale Infrastructure(Normal Tax

Regime)


Power Generation

Tourism and Recreation

Ware housing and coldstorage

Garbage collection ordisposal

Construction of houses

Construction of hospitals

Company

Minimum InvestmentRs.10 Mn within 1 yearfrom commencement of

undertaking

Year 1 -50%

Year 6 -710%

Year 8 onwards 20%


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Small Scale Infrastructure (BOI Regime)


Power GenerationTourism and RecreationConstruction and/or operation ofwarehousesGarbage collection and /ordisposalConstruction of supermarketsConstruction of housesConstruction of hospitalsWater supplyInfrastructure required for film or

cinema industrySpecial project as approved bycabinet of Ministers/Cabinet subcommittee on investmentfacilitation

New Company

MinimumInvestment US$500,000

Year 1 50%

Year 6 -710%

Year 8 onwards20%


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Small Scale Infrastructure (BOI Regime)


Infrastructure orconstruction activity

approved by the Board

MinimumInvestment US$

5Mn

Mew Company

Year 1 -50%

Year 6-710%

Year 8 onwards

20%


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Large Scale Infrastructure(Normal Tax

Regime)Qualifying Activity Core Conditions Income Tax Incentives

Power generation,transmission or distributionSea ports, air ports,highways or railwaysIndustrial parksWarehouses or stores

Sanitation facility or solidwaste management systemWater servicesUrban housing or towncenter development

CompanyMinimum InvestmentRs.1,000Mn

Rs.2,500Mn

Rs.5,000Mn

Rs.7,500MnInvestment to be completedwithin 1 year fromcommencement of operation

Year 1-6 0%Year 7 onwards 15%

Year 1 -8 0%Year 9 onwards 15%

Year 1-10 0%Year 11 0nwards 15%

Year 1 -12 0%Year 13 0nwards 15%


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Large Scale Infrastructure (BOI Regime)


Establishment of industrialestates includingdevelopment andmanagement of IndustrialEstates and SpecialEconomics Zones

New Company

Minimum Investment US$ 500,000

Year 1 -3/150%

Thereafter15%


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Large Scale Investments(Normal Tax

Regime)Qualifying Activity Core Conditions Income Tax Incentives

Pioneering Nature No activity gazetted todate

Company

Minimum InvestmentRs.250Mn 999Mn

Rs.1,000Mn-2,499Mn

Above Rs.2,500mn

New undertaking on 0rafter 01/04/2006

Year 1 -50%

Year 1 -8 0%

Year 1 -10 0%

Post tax holiday

First 2 years10%Thereafter20%


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Large Scale Investments(Normal Tax

Regime)


Industrial or otherbusiness activityconnected to advance

technology or which ofpioneering nature

New Company

Minimum Investment

US$ 5Mn

Year 1 -50%

Year 6 -710%

Year 8 onwards20%

(15% if >80% exported/ >70% of turnover inforeign currency)


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Large Scale Investments(BOI Regime)


Petroleum and petroleum productsAgriculture, agro processing services

other than processing of black tea in bulkPower generation , transmission &distributionDevelopment of sea ports , air ports,highways , railways , water services ,

public transportAny other infrastructure project approvedby the BOI with the concurrence of theMinisterLarge scale manufacturing of serviceindustry project or any business activity forexport as approved by board

Company

MinimumInvestment US$ 12.5Mn

Year 1 5/15 0%

Thereafter 15%


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Education and Training(BOI Regime)


Training Institutions Company


Provide training for not lessthan 250 students perannum and 500 studentsper annum if already inexistence

Year 1 5/120%

First two years10%

Thereafter20%


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BPO Industries (BOI Regime)


Business ProcessOutsourcing

Company

Minimum InvestmentUS$ 150,000

70% of turnover inforeign currency

Year 1 - 3/120%

First two years

10%

Thereafter15%


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Apparel (BOI Regime)


Production / Manufacturingof textile for exportincluding fabricmanufacturing , printing ,dyeing , washing andfinishing

New Company

MinimumInvestment US$500,000

Minimum export 80% of output

Year 1 -5/150%

First two years10%

Thereafter15%


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Apparel (BOI Regime)


North /East Province Manufacture of textileand apparel

Regional Developmentoutside Colombo andGampaha Districts

New Company

Minimum InvestmentRs.40Mn

Minimum Employees -100

Year 1 -150%


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Export Oriented Manufacture and Services

(Normal Tax Regime)


Export of non-traditionalproducts* including deemedexports

*Goods other than black teain bulk , crepe rubber , scraprubber , latex and freshcoconuts.

Export production villagecompany

CompanyNew undertaking on oafter 01/04/2006 withminimum Investment

Rs.50Mn-Incorporated pre01/04/2002Rs10Mn Incorporatedpost 01/04/2002

Minimum export 80%

Minimum export 80%

Year 1 50%

Year 6 -710%

Year 8 onwards15%

Year 1 -50%Year 6 -710%Year 8 onwards15%


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(BOI Regime)


Production/Manufacture of nontraditional goods for export,including deemed exports

New CompanyMinimum InvestmentUS$250,000Minimum export 80% ofoutput

Year 1-3/7 0%First 2 years 10%Thereafter 15%

Export of services as determinedby the BOI

New CompanyMinimum Investment US$ 500,00070% of Turnover inconvertible foreign currency

Year 1 -5 0%Year 6-7 10%Year 8 onwards 15%

Export Trading Houses/Entreport Trade

New CompanyWarehouse within custombonded areaExport -100%

Annual TurnoverUS$ 5-10Mn 10%US$ 10-25Mn 5%>US$ 25Mn(1-5Yrs) 0%Thereafter 15%


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(BOI Regime)


Export Trading Housesfor rural sector

New CompanyCollection centers are to beestablished outside Colomboand GampahaExport 100%


Year 1 -50%

Year 6 75%

Year 8 onwards15%

Modernization of food

and beverages ,processing units in theexport plantation sectorto qualify HACCP orinternational accreditation

Company


Year 1 -5

0%

Thereafter15%


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Research and Development(Normal Tax

Regime)


Engaged solely inResearch andDevelopment*

*Research and Developmentincludes any systematic orintensive study carried out inthe field of science ortechnology with the object ofusing results thereof for theproduction or improvement of

materials , devices , productsor process.

Company

New undertaking

Minimum InvestmentRs.2 Mn within 1 yearfrom commencementof undertaking

Year 1 -50%

Year 5 onwards15%


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Engaged in researchand development

New Company

Minimum Investment

US$ 100,000

Year 1 -50%

Year 6 onwards15%


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Industry and Services (Normal Tax

Regime)


Manufacture ofmachinery, industrialand machine tools

Electronics

CompanyNew undertaking onor after 01/04/2006with minimuminvestment

Rs.50 Mn Incorporation pre01/04/2002

Rs.10Mn Incorporation post01/04/2002

Year 1- 50%

Year 6 -710%

Year 8 onwards20%


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Industry and Services (Normal Tax

Regime)


Manufacture of ceramics ,glassware or other mineralbased products

Manufacture of rubber

based products

Light and heavyengineering industries

Refrigerated transportservices or cold roomstorage services

Company

New undertaking

Minimum Investment

Rs.50Mn

No reduction orwithdrawal ofinvestment duringperiod of exemption

Year 1 -50%Year 6 710%Year 8 onwards

20%


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Industry and Services (BOI Regime)Qualifying Activity Core Conditions Income Tax Incentives

Manufacture of industrial tools ,equipment ,

components and/Machinery

New CompanyMinimum Investment US$

150,000

Year 1-5 0%Year 6-7 10%

Year 8 onwards 20%

Industrial or other business activityconnected to advanced technology orwhich is of pioneering nature

New CompanyMinimum Investment US$5,000,000

Year 1 -5 0%Year 5-6 10%Year 6 onwards 20%(15% if export oriented

and>80%of the productsto be exported or morethan 70%of export TO inforeign currency)

Large scale manufacturing/serviceindustry or business activity for export

New CompanyMinimum Investment US$12.5Mn

Year 1- 6/15 0%Thereafter 15%


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General other concessions for BOI

enterprises

Duty free of import of capital goods during the project implementation

stage is ordinary enabled for contracting enterprises engaged in

infrastructure developm ent,IT developm ent , regional headquarters, agriculture , research and developm ent.

Duty free exemption on both capital and raw material is enabled only in t he

case of export oriented manufacture.

It appears that the BOI grant s contract ing enterprises exclusion from

exchange cont rol only if engaged in export oriented manufacture or services.

The agreements with the BOI prevail for the lifetime of the Company.

Income tax exemptions grants would however be for the time period as

specified in the agreement .


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Transfer Tax

A non-citizen who acquires immovable property in Sri Lanka

must pay additional stamp duty of 100% of the value of

property.

Any Company which has been approved by t he BOI , obtains

a land under exempted sectors ( to be satisfied with I nvestmentrequirement) will be exempted from payment of 100% land

transfer t ax provided the total value of land is met by inward

remittances of foreign currency.


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Useful Websites

www.inlandrevenue.gov.lk

www.boi.lk


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Thank You

Documents

Tax System SriLanka