Two people with the same job title and the same salary can have completely different payslips in Colombo — because one works inside the Port City Special Economic Zone and the other doesn’t. Here’s exactly why Port City employees can be tax-free, who still qualifies after the January 2026 law change, and when it ends.
Why do Port City employees pay no income tax?
Because the exemption is written into the Port City’s own law — not the normal tax law. Section 35 of the Colombo Port City Economic Commission Act No. 11 of 2021 says an employee of an “authorised person” (a company licensed to operate in the zone) is exempt from income tax on their employment income — whether they’re a Sri Lankan resident or a foreigner — on one strict condition: the salary must be paid in a designated foreign currency, not rupees.
The policy logic: Port City is meant to compete with Dubai and Singapore for offshore business, and an untaxed USD salary is part of the pitch. For a resident Sri Lankan, the exempt salary is also treated as a permissible credit to a personal foreign-currency account — you can legally bank it in dollars.
A salary paid in rupees never qualified. If a Port City company pays you in LKR, you were always a normal taxpayer.
The January 2026 change: the exemption is now on a timer
The Port City (Amendment) Act No. 1 of 2026, certified on 20 January 2026, rewrote Section 35. What matters now is when your employer was registered or licensed by the Port City Commission:
| Your employer was registered… | Your FX-paid salary is… |
|---|---|
| Before 20 January 2026 | Still exempt — but only for a 3-year transition, roughly February 2026 to 31 January 2029 |
| On or after 20 January 2026 | Taxable — the amendment says this income “shall be liable to income tax” from day one |
Source: s.3 of Amendment Act No. 1 of 2026, replacing s.35 of the principal Act; confirmed by Parliament’s Committee on Public Finance briefing. Note: this change came from the Port City law — not the Inland Revenue (Amendment) Act of 2025, which contains no Port City provision.
Port City vs a normal Sri Lankan employee, side by side
| Port City employee (FX-paid, exempt) | Normal employee | |
|---|---|---|
| Income tax on salary | None during the exemption | APIT: tax-free to Rs. 150,000/month, then 6–36% bands |
| Who deducts it | Nobody — nothing to withhold | Employer deducts monthly, remits to IRD by the 15th |
| Currency of pay | Must be a designated foreign currency | Usually LKR |
| EPF / ETF | Still applies — 8% you, 12% + 3% employer | Same |
| Annual tax return | Not for the exempt salary | Expected above the threshold; APIT is credited |
That EPF row surprises people: the Port City Act lists the laws that don’t apply in the zone, and the EPF and ETF Acts aren’t on the list — so retirement contributions continue exactly as for everyone else.
Want to see what the “normal employee” column means for your own salary? Run it through our free salary & APIT calculator.
What to do if you work (or will work) in Port City
- Confirm your employer’s registration date with HR — before or after 20 January 2026 is now the single fact that decides your tax.
- Check your currency. The exemption only ever attached to designated-foreign-currency pay. An LKR salary in the zone is taxable, full stop.
- Plan for 2029. If you’re in the transitional group, your exemption is scheduled to end around 31 January 2029 — a Rs. 500,000/month FX salary that pays zero tax today would face roughly Rs. 86,000/month in APIT under current tables. Budget for the cliff, don’t discover it.
- Negotiating an offer at a new-entrant company? Compare it net-of-tax against other offers — the “Port City premium” no longer includes a tax holiday for you. Check your APIT deduction before you sign.
This article summarises the law as at August 2026, and the IRD has not yet published Port City-specific payroll guidance — the withholding mechanics above follow from the Acts themselves. These are suggestions, not advice: always confirm your position with a Chartered Accountant or tax practitioner before acting on it.
Evidence for the claims above
- Original exemption & FX condition: CPCEC Act No. 11 of 2021, s.35
- 3-year transition & new-entrant taxability: CPCEC (Amendment) Act No. 1 of 2026, s.3 and the Committee on Public Finance statement
- Normal-employee APIT rules: IRD APIT Guideline, Y/A 2025/26 and IRD APIT Table 1
Quick answers on the zone.
Yes — if three things line up: your employer is an authorised person licensed by the Port City Commission, your salary is paid in a designated foreign currency (not rupees), and your employer was registered before 20 January 2026. Then it stays exempt through a three-year transition ending around 31 January 2029. Employees of companies registered after that date pay normal income tax from day one.
Yes. The Port City Act's schedules never excluded the EPF or ETF Acts, so the standard contributions apply: 8% deducted from you, plus 12% EPF and 3% ETF paid by your employer on top — even on a foreign-currency salary.
Under the 2026 amendment, the transitional exemption for employees of pre-2026 companies runs three years from the amendment's commencement — to roughly 31 January 2029. After that, on the law as it stands, Port City employment income becomes taxable like any other salary: APIT deducted monthly under the IRD's tables, with the Rs. 1.8 million annual personal relief. A future amendment could change this, so watch this space.
Wondering what the normal tax rules would cost you?
Whether your exemption is ending or you're comparing a Port City offer against an ordinary one, see the real monthly numbers — APIT, EPF and take-home pay — in seconds.
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