On 5 March 2019 Sri Lanka’s Government proposed its National Budget 2019 to the Parliament. The Budget includes following tax measures:

-Income tax exemption for interest income accrued to a resident on sovereign bonds in foreign currency, as well as exemptions for certain accounts in foreign currency, interest earned by minors, interest of persons outside Sri Lanka.

-Exemption from withholding tax on certain royalty and rent payments made to a resident individual. In addition, interest on loans earned by a foreign person is exempt; however, the exemption is inapplicable if the loan is granted by a foreign holding company or foreign subsidiary of a Sri Lanka company.

-Investment income of a company eligible for a concessionary rate of 14% is to be taxed at 28%. The concessionary rate of 14% is granted under the IR Act for companies predominantly conducting specified businesses (80% or more calculated based on gross income).

The following additional incentives are to be granted for the investment exceeds US$100 million or more:

-Extended period of 25 years for the deduction of unrelieved losses;

-A person investing US$100 million or more on depreciable assets, other than intangibles in a project approved by the Board will be eligible for a 150% deduction on the actual cost incurred each year over a 10-year period;

-Dividends distributed out of profits sheltered by enhanced capital allowances, to a non-resident, will be exempt;

-Amending the conditions for the 35% additional deduction of salary expenses under the incentive for IT service companies with the waiver of the condition that a company employs at least 50 people during one year; and

-size investments over US$50 million up to USD 100 million, a 100% deduction of expenditure incurred on depreciable assets for a period of 10 years beginning after the commencement of commercial operations.

The tax proposals generally applies from 01 April 2019.