If you work from Sri Lanka for foreign clients — developer, designer, writer, consultant — and get paid in dollars, euros or pounds, your tax rules changed on 1 April 2025. The old answer (“it’s exempt”) is now wrong, and quoting it can cost you penalties. Here’s the current position, with the law to back it up.
The rule in one paragraph
Foreign-currency income you earn for services used outside Sri Lanka is taxable from 1 April 2025 — but at a maximum rate of 15%, provided two conditions are met: you receive the payment in foreign currency, and you remit it through a bank to Sri Lanka. Miss either condition and the income falls back to the normal 6–36% bands. Source: IRD Notice PN/IT/2025-01, implementing the Inland Revenue (Amendment) Act No. 2 of 2025.
What changed — and why your old advice is stale
| Period | FX service income (used abroad, banked in SL) |
|---|---|
| Jan 2020 – Mar 2025 | Exempt — no income tax at all |
| From 1 Apr 2025 | Taxable, capped at 15% — normal slabs apply but never above 15% on this income |
The exemption lived in the Third Schedule of the Inland Revenue Act and was end-dated by the 2025 amendment; the 15% ceiling was inserted as First Schedule paragraph 1(6).
One practical comfort: the 15% ceiling mostly matters to higher earners. After your Rs. 1.8 million personal relief, the normal slabs (6%, then 18/24/30/36%) only average above 15% once your annual income passes roughly Rs. 4 million. Below that, you simply pay the ordinary slab amounts.
How you actually pay: nobody withholds for you
Your foreign client is not a Sri Lankan withholding agent, so no tax is deducted before the money lands. You are what the law calls an instalment payer:
- Register — a TIN is mandatory for every Sri Lankan aged 18+, and you add the Income Tax type once your income passes the relief threshold (IRD e-Services).
- Estimate and pay quarterly — instalments on 15 August, 15 November, 15 February and 15 May, based on your Statement of Estimated Tax (IRA s.90; IRD Tax Calendar).
- Settle and file — final balance by 30 September, annual return by 30 November.
Legitimate ways to keep your bill down
- Protect the 15% cap. Invoice in foreign currency and route every payment through a Sri Lankan bank account. Cash apps, crypto, or money kept offshore can break the “remitted through a bank” condition — and with it, the cap.
- Deduct your real business costs. Contracting income is business income, so expenses incurred in producing it are deductible (IRA s.11): internet and software subscriptions, a co-working desk, professional fees, subcontractors. Equipment like laptops is claimed over 5 years as capital allowances (Fourth Schedule).
- Keep payments traceable. Cash payments of Rs. 500,000 or more (per day/transaction) are non-deductible by law — pay suppliers through the bank.
- Use the full Rs. 1.8M relief — it applies to your business income just as it would to a salary.
- Don’t skip instalments. Late payment attracts interest and penalties that wipe out careful planning — four calendar reminders cost nothing.
- Keep records for 5 years (IRA s.120) — invoices, bank remittance advices, and contracts showing the service was used abroad are exactly what proves your 15% eligibility if asked.
The IRD has said further guidance on this regime is coming, and edge cases (part-local part-foreign work, income kept offshore, mixed currencies) turn on your specific facts. These are suggestions, not advice — confirm your position with a Chartered Accountant or tax practitioner before acting on it.
Evidence for the claims above
- 15% ceiling, both conditions, and removal of the exemption: IRD Notice PN/IT/2025-01 (26.03.2025); statutory text in the Amendment Act No. 2 of 2025
- Instalment dates, return deadline, records, deductions: Inland Revenue Act, consolidated text (ss.11, 90, 93, 120) and the IRD Tax Calendar
- TIN registration: IRD registration notice (27.12.2023)
Serving local clients too? Different rules apply to that side of your income — see our guide to self-employed tax in Sri Lanka. And if part of your income is salary, check the deduction with the salary & APIT calculator.
What FX earners ask most.
No. The exemption for foreign-currency service income ended on 31 March 2025. From 1 April 2025 it is taxable — but capped at a maximum 15% rate if you receive the payment in foreign currency and remit it through a bank to Sri Lanka, and the service is used outside Sri Lanka. Income that doesn't meet those conditions is taxed at the normal 6–36% bands.
At roughly Rs. 300 to the dollar, that's about Rs. 3.6 million a year. After the Rs. 1.8 million personal relief, your taxable income is about Rs. 1.8 million: the first Rs. 1 million at 6% (Rs. 60,000), the next Rs. 500,000 at 18% (Rs. 90,000) and the last Rs. 300,000 at 24% (Rs. 72,000) — around Rs. 222,000 for the year, an effective rate of about 6% of your gross. The 15% ceiling doesn't even come into play at this level. Deductible business expenses reduce it further.
Yes. A TIN has been mandatory for every Sri Lankan aged 18 or over since January 2024, and once your income exceeds the personal relief threshold you register for the Income Tax type and pay by quarterly instalments — 15 August, 15 November, 15 February and 15 May — with the annual return due by 30 November. Your foreign client won't withhold anything, so meeting these deadlines is entirely on you.
Your foreign income needs a return. We make that the easy part.
LankanTax turns your invoices, bank remittances and expenses into a ready-to-lodge return — free for individuals, reviewed and lodged by a Chartered Accountant who can also confirm your 15% eligibility.
Free for individuals. Your CA’s professional fee is the only cost — shown upfront.