SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
5.3 Available Tax Credits/Incentives Sri Lanka offers a range of tax incentives and credits aimed at promoting investment, exports, innovation and sectoral development. These incentives are primarily made available under: • the Inland Revenue Act, No 24 of 2017; • the Board of Investment of Sri Lanka Law, No 4 of 1978; and • the Strategic Development Projects Act, No 14 of 2008. Under the Inland Revenue Act, eligible busi - nesses may claim enhanced capital allowances for qualifying investments in plant, machinery and infrastructure, particularly in priority sec - tors such as renewable energy, agriculture and manufacturing. Enterprises approved by the BOI may benefit from customs duty exemptions and simpli - fied administrative procedures, depending on the scale of investment, export orientation and employment generation. These benefits are typi - cally granted through an agreement entered into with the BOI and are subject to compliance with the policy guidelines. Projects recognised as Strategic Development Projects (SDPs) under the Strategic Develop - ment Projects Act, No 14 of 2008 may be grant - ed significant tax concessions, including the following. • Tax holidays of up to 25 years. • Exemptions from VAT, customs duty and PAL on imports of project-related goods and services. • Exemptions from income tax and other levies, subject to meeting prescribed thresholds in relation to capital investment, job creation and national economic importance. Approval
VAT and SSCL Value added tax (VAT) is currently levied at a standard rate of 18%. The Simplified VAT (SVAT) scheme previously available to exporters and BOI companies is being phased out, and VAT- registered entities must now rely on a refund mechanism to recover input VAT. A 2.5% Social Security Contribution Levy (SSCL) applies to businesses with quarterly turnover exceeding LKR15 million or annual turnover exceeding LKR60 million, unless exempt. The SSCL is calculated on turnover, not on profit, and is separate from income tax. Other Taxes In addition to the foregoing, companies must pay stamp duty on specified instruments and customs and excise duties depending on the nature of the business. The OECD’s Two-Pillar Solution As of July 2025, Sri Lanka has not implemented Pillar Two of the OECD’s Two-Pillar Solution and has not introduced a Qualified Domestic Mini - mum Top-Up Tax (QDMTT). The country has not signed the OECD/G20 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, and is therefore not expected to qualify for safe har - bour treatment under the OECD’s transitional rules. Companies operating in Sri Lanka that are part of multinational groups above the EUR750 million threshold should monitor developments, particularly if the parent entity is in a Pillar Two- adopting jurisdiction, as top-up taxes may be triggered at the group level under the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR).
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