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8.1.1. Corporate Income Tax

Sri Lanka's standard corporate tax rate is 24% (28% until 31 December 2019). For the year of assessment 2020-21, a one-off surcharge tax applies at the rate of 25% for companies with taxable income exceeding LKR 2 billion. For group companies, the threshold of LKR 2 billion applies on the aggregate income of all the subsidiaries and the holding company of the group. The following must be excluded while determining the aggregate income:

  • Gains and profits from dividends received by the holding company from its subsidiaries must be excluded; and
  • Where any subsidiary or holding company has a nil amount of taxable income due to losses or unrelieved losses, such losses or nil amount must be excluded.

Further, a number of other rates apply as follows:

  • 40% rate applies for companies with income from betting, gaming, or from the manufacture, import, and sale of any liquor or tobacco products;
  • 18% rate applies for manufacturing companies;
  • 14% rate applies to income derived from the following specific businesses:
    • small and medium enterprises (i.e. SMEs with annual revenue of less than LKR 500 million);
    • export of goods and services;
    • * agro-processing;
    • educational services;
    • promotion of tourism;
    • information technology and enabled services (until 31 December 2019; thereafter exempt from tax0;
    • health care services;
    • construction services (effective 1 April 2019); and
    • sale of goods or merchandise where the payment for such sale is received in foreign currency and remitted through a bank to Sri Lanka (effective 1 January 2020).

For the application of the 14% rate for certain business types, income from the relevant business type must represent at least 80% of the company's gross income (gross income excludes investment income).

*Effective 1 April 2019, profits and gains derived from the sale of products of an agro-farming undertaking, without subjecting it to any process of production or manufacture, are exempt for a period of 5 years. Agro-farming refers to the tillage of the soil and cultivation of land with plants of any description, rearing of fish, or animal husbandry, including poultry farms, and veterinary and artificial insemination services.

  • 14% rate applies for companies listed between 1 January 2021 and 31 December 2021 on the Colombo Stock Exchange licensed by the Securities and Exchange Commission of Sri Lanka (other than gains from the realization of investment assets) for three years of assessment commencing from 1 April 2022 (2022-23 to 2024-25). Further, the aggregate tax payable (other than on gains from the realization of investment assets) by such companies may be reduced by 50% commencing from the year of assessment 1 April 2021. The investment income of companies qualifying for the reduced rate is subject to the standard corporate tax rate;
  • 10% rate applies on gains from the realization of investment assets (capital gains) effective from 1 April 2018. Gains from the alienation of shares listed on an exchange licensed by the Securities and Exchange Commission of Sri Lanka are exempt, although the 0.3% share transaction levy applies to both the seller and buyer;
  • Tax on partnerships is 0% for income of up to LKR 1 million and 6% on the excess over LKR 1 million. Note that the tax due by the partnership is available as a pro-rata credit to the partners against their own tax liability on partnership income;
  • Effective 1 December 2019, income derived from services rendered in or outside Sri Lanka to any person to be utilized outside Sri Lanka, where the payment for such services is received in foreign currency and remitted through a bank to Sri Lanka is exempt from tax; and
  • The requirement of withholding tax levy is removed in respect of dividends, interest, natural resource payment, rent, and royalty paid to resident persons. However, effective 1 April 2020, on the request of the resident person (recipient), an advance income tax may be deducted by the payer on payments that are regular fixed payments (interest, rent, etc.) if such payer is a withholding agent. The rate of advance income tax on interest income is 24% for resident companies.