Employer Tax Guide 2025
Employers in Sri Lanka must navigate a complex but essential set of tax regulations covering company taxes, employee deductions, and compliance obligations. Staying updated with the latest tax changes is critical to ensure proper payroll processing and avoid penalties.
Corporate Income Tax
Companies in Sri Lanka are generally taxed at 30% of their net income, although the exact rate can vary depending on the business sector and total earnings. Certain industries, such as gaming, alcohol, and tobacco, will see higher tax rates—up to 45% starting April 1, 2025.
VAT in Sri Lanka
Standard Rate
18%
Effective January 1, 2024
Digital Services
18%
For non-residents, effective April 1, 2025
Zero-Rated
0%
Exports and specific tourism services
Registration Threshold
LKR 60M
Annual turnover
Advance Personal Income Tax (APIT)
The APIT system replaced the former PAYE method and applies to income above LKR 150,000/month starting April 1, 2025.
Employer Duties
- ✓ Withhold and remit APIT to the Inland Revenue Department (IRD)
- ✓ Ensure consent from employees before deductions
- ✓ Submit monthly and annual filings (April 30 deadline for annual returns)
Mandatory Employer Contributions
EPF
Employer contributes 12% and employee contributes 8%, totaling 20% of monthly salary to Employee Provident Fund
ETF
3% of employee's salary to Employer Trust Fund
SSCL
2.5% Social Security Contribution Levy since January 2024
Tax Incentives & Relief Options
Tax-Free Interest
Interest earned on foreign currency accounts
Dividend Exemptions
Tax exemptions on dividends for non-residents
Renewable Energy
Seven-year tax holiday for renewable energy projects
Construction Materials
Five-year tax exemption for recycled construction material sales
Agro Farming
Special tax concessions for agro farming initiatives
Need Help with Tax Compliance?
Our team of experts can help you navigate Sri Lankan tax regulations and ensure full compliance while optimizing your tax position.