Sri Lanka has introduced new tax changes for 2025 with the enactment of the Inland Revenue (Amendment) Act, No. 02 of 2025. These changes affect individual income tax (IIT), corporate income tax (CIT), advance personal income tax (APIT), advance income tax (AIT), personal income tax relief (tax-free threshold), refund limits, and the time frame for claiming refunds.
Below is a summary of the changes to Sri Lanka’s tax system starting April 1, 2025.
New tax changes for 2025 Sri Lanka
New Personal Income Tax Relief
The tax-free threshold for individuals has increased to Rs. 1,800,000 per year, starting from the 2025/2026 assessment year. This is up from the previous threshold of Rs. 1,200,000 per year.
If you’re earning less than Rs. 150,000 per month, and your total annual taxable income doesn’t exceed Rs. 1,800,000, you won’t be liable for income tax in Sri Lanka starting April 2025.
Personal income tax relief is available for:
- Resident citizens
- Resident non-citizens
- Non-resident citizens
However, non-resident non-citizen individuals are not eligible for personal income tax relief.
New Income Tax Rates for resident and non-resident persons in Sri Lanka
Individual Income Tax Rates (IIT)
| Taxable Income (LKR) | Tax Payable |
| Not exceeding Rs. 1,000,000 | 6% of the amount in excess of Rs. 0 |
| Exceeding Rs. 1,000,000 but not exceeding Rs. 1,500,000 | Rs. 60,000 + 18% of the amount in excess of Rs. 1,000,000 |
| Exceeding Rs. 1,500,000 but not exceeding Rs. 2,000,000 | Rs. 150,000 + 24% of the amount in excess of Rs. 1,500,000 |
| Exceeding Rs. 2,000,000 but not exceeding Rs. 2,500,000 | Rs. 270,000 + 30% of the amount in excess of Rs. 2,000,000 |
| Exceeding Rs. 2,500,000 | Rs. 420,000 + 36% of the amount in excess of Rs. 2,500,000 |
New Corporate Income Tax Rates (CIT)
- Betting and gaming businesses- 45%
- Manufacture, import, and sale of liquor or tobacco products- 45%
- Exporting liquor or tobacco products – 30%
- Service exports – 15%
- Foreign-sourced income – 15%
Special 15% Tax Rate for Export Service Income
The new 15% tax applies to individuals and companies earning profits from providing services abroad. This means, from April 1, 2025, service exports and foreign-sourced income will no longer be tax-exempt.
Export service income includes:
- Income from services provided in or outside Sri Lanka, as long as the service is utilized outside Sri Lanka and payments are received in foreign currency and sent through a bank to Sri Lanka. Common examples include IT services, financial consulting, marketing, and customer service.
- Income from any foreign source, as long as it is earned in foreign currency and remitted through a bank to Sri Lanka.
This tax applies only to the profit after deducting business expenses and capital allowances, not to salaries or the full dollar income. So, if you’re a freelancer earning from multiple overseas clients, you can treat your income as business income and deduct your business expenses. Business profits exceeding Rs. 1.8 million annually will be taxed, with the first Rs. 1 million taxed at 6%, and anything above that taxed up to 15%.
If you’ve already paid taxes on your foreign earnings in another country, you won’t get taxed again in Sri Lanka. You can claim any taxes paid in those countries as a foreign tax credit when filing your tax return.
Advance Income Tax
Advance Income Tax (also known as withholding tax) on interest and discount payments will be 10% w.e.f April 2025.
This means that starting from April 2025, banks and other withholding agents will deduct 10% from any interest or discount payments you receive.
The IRD will publish the updated Advance Personal Income Tax (APIT) Tables and Withholding Tax Circulars in due course.
Changes to Income Tax Refunds
Resident individuals can claim tax refunds of up to 180,000 LKR per year and will receive the refund within three months of the claim, before a tax audit.
Similarly, senior citizens who are not installment taxpayers and whose quarterly refund claim does not exceed 40,000 LKR for any quarter or 180,000 LKR for a year will receive their refund within three months of the claim.
Refund claims for the 2024/2025 assessment year must be submitted within 30 months from the last date of the year of assessment.
Key Takeaways from the 2025 Tax Changes in Sri Lanka
Income tax slabs and rates revised for individuals: The personal income tax rates for individuals have been revised. The first Rs. 1 million will be taxed at 6%, with higher income subject to rates up to 36% for earnings above Rs. 2.5 million.
CIT rates for certain business sectors increased: The corporate income tax rates have been increased for industries like betting and gaming, and the manufacture and sale of liquor or tobacco products, which will now be taxed at 45%. Service exports and foreign-sourced income will be taxed at a 15% flat rate.
Increased tax refund limits with stricter claim deadlines: Refund claims up to 180,000 LKR per year for individuals will now be processed within three months, but the claim must be submitted within 30 months.
Special 15% tax rates for Dollar earnings: A new 15% tax will apply to income earned from services abroad and foreign sources, ending the previous exemption.
The tax-free threshold raised to Rs. 1.8 Million: New tax changes for 2025 have increased the tax-free threshold from Rs. 1.2 million to Rs. 1.8 million per year, allowing individuals to earn more before being subject to income tax.
