Sri Lanka's Inland Revenue Department issued Circular No. SEC/2026/E/04 on 8 June 2026, which sets withholding tax rates ranging from 2% to 15% across payments including service fees, interest, dividends, and rent, identifies exemptions, and outlines withholding agent registration, remittance, and certification obligations.
The Sri Lanka Inland Revenue Department issued Circular No. SEC/2026/E/04 on 8 June 2026, providing withholding agents with guidelines and explanatory notes on the deduction of withholding tax and advance income tax from various types of payments.
Effective from June 2026, this Circular replaces Circular No. SEC/2022/E/03, and details specific tax rates for various payments, including service fees, interest, dividends, and rent, while also identifying certain exemptions.
Beyond mere rates, the circular outlines the legal obligations for agents, such as the mandatory issuance of tax certificates to recipients and the strict deadlines for remitting funds to the government.
Withholding tax (WHT) rates
WHT must be deducted at the following rates for payments sourced in Sri Lanka:
- 2%: Payments to non-resident persons for land, sea, air transport, or telecommunication services.
- 2.5%: Sale price for gems sold at National Gem & Jewellery Authority auctions.
- 5%: Service fees paid to resident individuals (doctors, engineers, accountants, lecturers, IT specialists) if aggregate monthly payment exceeds Rs/LKR 100,000, with withholding on the full amount.
- 10%: Interest and discount payments.
- 10%: Rent payments to resident persons if the aggregate monthly amount exceeds Rs/LKR 100,000, with withholding on the full amount.
- 14%: Lottery winnings, betting or gambling rewards, natural resource payments, royalties, rent, service fees, or insurance premiums paid to non-resident persons.
- 15%: Dividend payments.
Key exemptions
WHT is not required to be deducted on:
- Lottery winnings where the gross amount does not exceed LKR 500,000.
- Payments made by the Sri Lanka Government (excluding public corporations, universities, and state-owned entities) or by individuals unless they are conducting a business.
- Interest paid to financial institutions on ordinary loans/advances, or interest/discounts paid on Security/Treasury Bonds and Bills.
- Dividends paid by resident companies engaged in specific Board of Investment (BOI) approved businesses (e.g., entrepot trade, offshore business, logistics) or dividends derived from another dividend received by a resident company.
- Interest/discounts on foreign currency sovereign bonds (like Sri Lanka Development Bonds) and income subject to diplomatic immunity.
Calculation and timing
WHT is calculated on the gross amount excluding VAT. If the payer settles the full invoiced amount without deduction, the invoice amount is treated as the net figure and must be grossed up for WHT calculation purposes. Foreign currency payments use the Central Bank’s selling exchange rate as of the payment date. The WHT obligation arises at the precise moment the amount is paid, credited, reinvested, accumulated, capitalised, or made available to the payee.
Withholding agent (WHA) obligations
Withholding agents must register with the CGIR at least 30 days before commencing WHT deductions.
Deducted taxes must be remitted to the CGIR within 15 days after the end of each calendar month via either the Online Tax Payments Platform (OTPP) or Peoples Bank using tax codes 43 (WHT/AIT on Interest) and 44 (WHT on Other Payments).
Withholding agents are required to issue a WHT certificate to the withholdee free of charge within 30 days after the end of the month in which the deduction occurred.
Records must be maintained properly and Schedules submitted to Annual Statements electronically in Excel CSV format; hard copies are permitted only where fewer than 20 taxpayers are involved.
Non-compliance with procedures, formats, and schedules may result in penalties of up to LKR 200,000.
