Income Tax

Income Tax (Amendments to the Inland Revenue Act, No.24 of 2017)

1.1 Exemptions

1.1.1 The Earnings by any non-resident person on any sovereign bond denominated in local or foreign currency will be exempted.

1.1.2 Interest income earned by any resident person on sovereign bonds denominated in foreign currency, including Sri Lanka Development Bonds (SLDB) will be exempted.

1.1.3 Interest income earned by any person on NRFC and RFC accounts will be exempted for 5 years

1.1.4 Interest income, up to Rs.5,000/- per month, earned by children of less than 18 years of age, in relation to any deposit account maintained in a financial institution, will be exempted.

1.1.5 Interest paid to any person outside Sri Lanka on loans granted by such person to any person in Sri Lanka will be exempted. This exemption will not be applicable to loans granted by a Non-resident company to its Holding company or a Subsidiary Company in Sri Lanka.

 

1.2 Withholding Tax (WHT)

1.2.1 Royalty payments not exceeding Rs.50,000 per month, subject to Rs.500,000/- for each year of         assessment, made to any resident individual will be exempted from WHT.

1.2.2 Rent payments not exceeding Rs.50,000 per month, subject to Rs.500,000/- for each year of assessment, made to any resident individual will be exempted from WHT.

 

Income Tax Incentive 

1.3 Incentives for Information Technology The requirement of minimum 50 employees in order to qualify for the additional deduction equal to 35% of the salary cost when calculating the income from the business of IT will be removed.

1.4 Investment Incentives for Existing Businesses Tax concessions by way of accelerated depreciation will be granted instead of regular depreciation for the new investments made by existing businesses.

 

Definition 

1.5 Definition of Gross Income The “gross income” referred to in item (iii) of the subparagraph (3) of paragraph 4 of First Schedule will be the total income excluding the investment income. The concessionary tax rate of 14% will be applied only on the income from an activity eligible for the concessionary tax rate. The investment income will be liable for tax at 28%.

 

1.6 High value Investment Incentives

Proposed Incentives to Accelerate High Value Domestic and Foreign Direct Investments

LARGE SCALE PROJECTS (INVESTMENT ABOVE $100 MILLION)

The incentive regime for large scale projects is as follows;

(a) Income tax computation for Investments over $100 mn:

A person that invests a total sum of US$ 100 mn or more in depreciable assets, excluding intangible assets, in a project approved by the Board of Investment of Sri Lanka established under Board of Investment Law No. 4 of 1978 shall be eligible for a deduction of 150% of such actual expenditure incurred in each of such years on such assets for a period of 10 years from commercial operations;

Applicable up-front taxes: Only during project implementation or construction period until commencement of commercial operations, the following exemptions from up-front taxes are proposed for investment projects above $100mn.

NBT: Exempt
PAL: Exempt
Cess: Cess will be exempt on all project related items
Duty and other taxes on negative list items: The negative list shall not apply and $100 mn projects may import project related items or purchase locally at their discretion.

 

Note: The necessary guidelines for claiming exemptions will be published.

Since it is difficult to separate project related items that are intended for use in residential components, in investments made in mixed development projects as long as the investment (depreciable assets excluding intangible assets, land, and residential units for sale) criteria is met, up-front tax exemptions will be applicable
for the residential component as well.

 

(b) Investments over US$ 1 Billion
For investments over US$ 1 billion, in addition to the benefits outlined in above, the period for deduction of unrelieved losses shall be 25 years.

The rate of dividend tax paid by the company to a non-resident shall be zero during the period that such dividends are paid out of profits sheltered by enhanced capital allowances.

Expatriate employees in a company investing more than US$ 1 billion shall be exempt from withholding tax on employment income during the period that profits are sheltered by enhanced capital allowances.

(c) Mid-size Investments over US$ 50 million
For investments over US$ 50 million but less than US$ 100 million, the additional deduction would be 100% on actual expenditure under the same conditions of above (a). The provisions of above (b) will also apply, whereby upfront taxes will be exempt for such investments during the period of construction, prior to commencement of commercial operations.

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