On 19 February 2020, the Sri Lankan tax authority published an amended version of a notice to the Implementation of Proposed Amendments to the Inland Revenue Act, No. 24 of 2017. Although the formal amendments are pending, the changes are generally effective from 1 January 2020 as instructed by the Ministry of Finance. The notice includes the following provisions:
Removal of Withholding Tax (WHT) on the payments for Resident Persons
Requirement for deduction of WHT (including PAYE) on any payment which is due and payable to any of the following persons by any Withholding Agent (WHA) is removed;
- Resident employee in respect of the services performed (employment) by such employee. (However, retaining part of the payment of terminal benefits in lieu of income tax by the employer/ETF/Provident Fund is required. A separate guideline is published for this purpose)
- Resident person in respect of the dividend, interest, discount, charge, natural resource payment, rent, royalty, premium or retirement payment received and /or on service performed by such individual
- Resident partner in respect of the partner’s share of profit allocated by the partnership
- Resident individual in respect of any service fee paid (referred to in section 85(1)(a) of the IRA as published in the notice on 01.01.2020).
WHT on the payments to Non-Resident Persons
Deduction of WHT is applicable by any person on or after January 1, 2020, on any payment which has a source in Sri Lanka and is due and payable to any non-resident person.
The tax (WHT) shall be deducted at the rate as appended, subject to the provisions of relevant Double Tax Avoidance Agreement (DTAA), on any of the following payments;
- Dividend – Exempt
- Interest (Excluding exempt Interest) – 5%
However, deduction of WHT on interest payments to any non-resident individual but who is a citizen, should be made, if his aggregate interest income from a bank/financial institution exceeds Rs. 250,000 per month or Rs. 3,000,000 for the year of assessment (for the period from 01.01.2020 to 31.03.2020 if exceeds Rs. 750,000)
- Any other payment (excluding the payments under section 85(2)) – 14%.
Deduction of WHT under section 85(2) and Extraordinary Gazette Notification No. 2064/51 dated April 1, 2018, remains unchanged. Accordingly, when a resident person makes a payment to a non-resident person with respect to land, sea, air transport or telecommunication service is subject to WHT at 2% of the payment, subject to the provisions of relevant DTAA.
Revision of Income tax rates for Companies
- 24% corporate tax rate applies on taxable income of a company;
- 14% rates applies on gains and profits from Small and Medium enterprises, Exporting goods, Educational services, Promotion of tourism, Construction services, Agro processing, Health care services, Dividends received from a resident company;
- on gains and profits from Manufacturing – 18%;
- on gains and profits from conducting betting and gaming – 28%;
- on gains and profits from manufacture and sale or import and sale of any liquor or tobacco products – 28%.
Reliefs and Qualifying payments
- With effect from April 1, 2019, any sum paid to the consolidated Fund by a public corporation as required by the law by or under which such corporation is established.
Personal relief for residents or non-residents but citizens for each year of assessment – Rs. 3,000,000.
