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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)
Qualifying Activity Core Conditions Income Tax Incentives
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$500,000
Year 1 -5 0%
Year 6 -7 10%
Year 8 onwards 20%
Tourism and Recreation or
construction and operationof hotels North/EastProvince
Regional Development outside
Colombo/Gampaha Districts
New Company
Minimum Investment Rs.40Mn
Minimum employees - 25
Year 1 -15 0%
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Information Technology (Normal Tax
Regime)
Qualifying Activity Core Conditions Income Tax Incentives
Information Technology
and allied services
Company
New Undertaking on orafter 01/04/2006 withinminimum Investment
Rs.50Mn-Incorporationpre 01/04/2002
Rs.10Mn-Incorporationpost01/04/2002
Year 1 -5
0%
Year 6-710%
Year 8 onwards20%(15% if export oriented)
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Information Technology (BOI Regime)
Qualifying Activity Core Conditions Income Tax Incentives
Information technologyand / or informationtechnology enabledservices
Company
Minimum InvestmentUS$ 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)
Qualifying Activity Core Conditions Income Tax Incentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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$500,000
Year 1 50%
Year 6 -710%
Year 8 onwards20%
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Small Scale Infrastructure (BOI Regime)
Qualifying Activity Core Conditions Income TaxIncentives
Infrastructure orconstruction activity
approved by the Board
MinimumInvestment US$
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)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
Training Institutions Company
Minimum Investment US$100,000
Provide training for not lessthan 250 students perannum and 500 studentsper annum if already inexistence
Year 1 5/120%
First two years10%
Thereafter20%
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BPO Industries (BOI Regime)
Qualifying Activity Core Conditions Income TaxIncentives
Business ProcessOutsourcing
Company
Minimum InvestmentUS$ 150,000
70% of turnover inforeign currency
Year 1 - 3/120%
First two years
10%
Thereafter15%
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Apparel (BOI Regime)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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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Export Oriented Manufacture and Services
(BOI Regime)
Qualifying Activity Core Conditions Income Tax Incentives
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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Export Oriented Manufacture and Services
(BOI Regime)
Qualifying Activity Core Conditions Income TaxIncentives
Export Trading Housesfor rural sector
New CompanyCollection centers are to beestablished outside Colomboand GampahaExport 100%
Minimum Investment US$150,000
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
Minimum Investment US$150,000
Year 1 -5
0%
Thereafter15%
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Research and Development(Normal Tax
Regime)
Qualifying Activity Core Conditions Income TaxIncentives
Engaged solely inResearch andDevelopment*
*Research and Developmentincludes any systematic orintensive study carried out inthe field of science ortechnology with the object ofusing results thereof for theproduction or improvement of
materials , devices , productsor process.
Company
New undertaking
Minimum InvestmentRs.2 Mn within 1 yearfrom commencementof undertaking
Year 1 -50%
Year 5 onwards15%
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Qualifying Activity Core Conditions Income TaxIncentives
Engaged in researchand development
New Company
Minimum Investment
US$ 100,000
Year 1 -50%
Year 6 onwards15%
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Industry and Services (Normal Tax
Regime)
Qualifying Activity Core Conditions Income TaxIncentives
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)
Qualifying Activity Core Conditions Income TaxIncentives
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