Tax rates by business type, Y/A 2025/26
| Business form | Income tax on profits | Who files |
|---|---|---|
| Sole proprietor / freelancer | Personal bands after Rs 1,800,000 relief: 6% on the first Rs 1M, then 18%, 24%, 30%, 36% on each next Rs 500,000 and the balance | The individual, on their own return |
| Partnership | 0% on divisible profit up to Rs 1,000,000; 6% on the excess, paid by the partnership. Each partner then includes their share in personal income and credits their share of the 6% | Partnership return plus each partner’s return |
| Private limited company | 30% standard rate | The company; shareholders pay 15% WHT on dividends |
| Any form: gains on investment assets | 15% for individuals and partnerships from 3 June 2026 (10% before); 30% for companies | Separate CGT return |
IRD Tax Chart Y/A 2025/26; Inland Revenue Act No. 24 of 2017 as amended by Acts No. 2 of 2025 and No. 11 of 2026.
The company tax rate in Sri Lanka
The standard corporate income tax rate is 30%. Higher rates apply to betting, gaming, liquor and tobacco (45%). Foreign-source income remitted through a bank is capped at 15%. Earlier concessionary rates for small and medium enterprises have lapsed; a small company pays the same 30% as a large one, which is the main reason many small traders stay as sole proprietors until profits are large enough for the company’s retained-earnings advantage to matter.
Sole proprietor: registering and paying
- Register the business name with the Divisional Secretariat of the area where you trade (Provincial Business Names registration). You receive a business registration certificate. A freelancer trading under their own name does not strictly need this, but banks and larger clients ask for it.
- Use your personal TIN. There is no separate business TIN for a sole proprietor.
- Keep records of income and expenses for five years. Business expenses are deductible: rent, staff, materials, transport, a proportion of home-office costs, and capital allowances on equipment (20% a year straight line).
- Pay quarterly instalments of estimated tax on 15 August, 15 November, 15 February and 15 May, with the final payment by 30 September after the year ends.
- File the return by 30 November. Any 5% WHT your clients deducted from fees is credited.
Work it through in the income tax calculator, which has a self-employed line, and read the self-employed and freelancer guide for deductions.
Partnership tax
A partnership registers for its own TIN and files a partnership return. It pays tax at the partnership level: nothing on the first Rs 1 million of divisible profit and 6% above that. Partners then include their share of profit in their own returns at personal rates and credit their share of the tax the partnership already paid, so the same profit is not taxed twice. Gains on the partnership’s investment assets are taxed at 15% (from 3 June 2026).
Turnover taxes: SSCL and VAT
| Tax | Rate | Registration threshold |
|---|---|---|
| SSCL | 2.5% of liable turnover | Rs 9M a quarter or Rs 36M over four quarters (from 1 July 2026) |
| VAT | 18% | Rs 15M a quarter or Rs 60M in 12 months |
Both are separate from income tax and have their own returns. SSCL paid is a deductible expense for income tax.
Withholding tax on what you pay and what you are paid
If clients pay you more than Rs 100,000 a month for services, they deduct 5% WHT and you credit it on your return. If you pay rent above Rs 100,000 a month, or fees above Rs 100,000 a month to an individual, you are the withholding agent: deduct 10% or 5%, remit it to the IRD by the 15th of the next month, and issue a certificate free of charge. Full rates are in the withholding tax guide.
Tax invoice format in Sri Lanka
Only a VAT-registered business may issue a tax invoice, and it must issue one to a registered customer within 28 days of the supply. A non-registered business issues an ordinary invoice and must not show VAT. Under section 20 of the VAT Act a tax invoice must carry:
| Element | Example |
|---|---|
| The words “TAX INVOICE” prominently | TAX INVOICE |
| Supplier name, address and VAT registration number | Perera Engineering, 12 Galle Road, Colombo 03. VAT No. 123456789-7000 |
| Serial number and date of issue | INV-2026-0418, 3 September 2026 |
| Customer name and address (and VAT number if registered) | ABC Holdings PLC, 45 Union Place, Colombo 02 |
| Description, quantity and value of goods or services | Structural design, Phase 2: Rs 1,000,000 |
| SSCL, if registered, shown separately | SSCL 2.5%: Rs 25,000 |
| VAT rate and VAT amount | VAT 18% on Rs 1,025,000: Rs 184,500 |
| Total payable | Rs 1,209,500 |
Layout is up to you; the elements are not. Keep a copy of every tax invoice for six years. Your customer can only reclaim input VAT against a compliant invoice.
The small business tax calendar
- 15th of each month: remit WHT deducted the previous month; APIT for staff.
- 20th of each month: SSCL monthly payment (if registered).
- Last day of the month after the period: VAT return and payment (if registered).
- 15 Aug, 15 Nov, 15 Feb, 15 May: income tax instalments.
- 30 September: final income tax payment for the year ended 31 March.
- 30 November: income tax return.
All dates, with penalties for missing them, are on the tax deadlines page.