Sri Lanka will implement an 18% VAT on foreign digital services supplied to local consumers starting October 2025.

Sri Lanka will implement an 18% Value Added Tax (VAT) on digital services supplied by non-resident companies to local consumers, effective 1 October 2025.

This measure is introduced under the Value Added Tax (Amendment) Act No. 4 of 2025 and detailed in the Inland Revenue Department’s (IRD) Gazette Notification No. 2443/30 dated 1 July 2025.

The new VAT regulation mandates that foreign digital service providers must register for VAT in Sri Lanka, charge 18% VAT on taxable supplies, and remit the collected tax to the IRD. Registration requires obtaining a Tax Identification Number (TIN). It is compulsory if the value of taxable supplies exceeds LKR 60 million in the preceding 12 months or LKR 15 million in the last three months. Failure to comply with registration and remittance obligations may result in penalties.

The scope of taxable digital services includes, but is not limited to:

  • Cloud Computing: hosting, storage, and computing power services
  • Software as a Service (SaaS): web-based applications
  • E-commerce Services: online stores, payment gateways, and order fulfilment
  • Digital Marketing and Advertising: SEO, social media marketing, PPC ads, email marketing
  • Cybersecurity Services: threat detection, firewall protection, data encryption
  • IT Support and Managed Services: remote support, IT consulting, helpdesk solutions
  • Streaming Services: video, music, live content platforms
  • Financial Technology (FinTech): online banking, payment processors (e.g., PayPal, Stripe, cryptocurrency exchanges)
  • E-commerce, Social Media, On-Demand Service, Content Sharing, Cloud Collaboration, Marketplace, and Gaming Platforms
  • Blockchain and NFT Platforms: OpenSea, Binance, Ethereum-based apps
  • Subscription and Membership Websites
  • Apps for hotel booking and ticket reservations

The Gazette notification clarifies that digital services not explicitly listed may still be subject to VAT if they fall within the described scope of taxable supplies.

This regulation aims to align Sri Lanka’s VAT system with global digital tax standards and ensure tax compliance from foreign digital service providers serving the local market.