Sri Lankans who are already paying taxes in foreign countries, such as the US or UK, and whose tax payments exceed 15%, will be exempt from paying additional taxes in Sri Lanka, according to Minister of Labour and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando.
The proposed 15% tax on foreign income applies exclusively to Sri Lankans receiving salaries from abroad while continuing to reside in the country. However, if the foreign tax is lower than 15%, the individual will be required to pay the difference to meet Sri Lanka’s minimum tax obligation.
Prof. Fernando also dismissed misconceptions that foreign remittances from Sri Lankans working overseas would be taxed.
“There was a proposal to impose a tax rate of 30%, but we settled at 15% due to the global minimum tax rate, which requires income to be taxed at least at 15%,” he explained. “Currently, we are competing with the world and it is crucial to align our policies accordingly.”
Prof. Fernando said that this tax would not affect individuals sending remittances from abroad, but would be strictly applied to those residing in Sri Lanka and earning a salary from a foreign employer.
“An individual residing in Sri Lanka and earning Rs. 500,000 per month would typically be subject to a 36% tax rate. However, for those receiving salaries from abroad via digital means while remaining in Sri Lanka, a different structure applies,” he stated.
Under the new taxation system, Sri Lankans earning foreign salaries will be exempt from tax on the first Rs. 150,000. The next Rs. 83,000 will be taxed at 6%, and any amount exceeding this threshold will be taxed at a flat rate of 15%.
Furthermore, individuals can deduct expenses incurred in the process of providing services before paying taxes.
“There is a benefit to this system. If Sri Lanka does not tax this income, then the country where the service is provided may impose the tax instead. This regulation ensures compliance with legal formalities while maximising the benefits of our taxation system,” he added.
Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma highlighted the benefits of the 15% tax on digital exports, emphasising that freelancers and entities earning foreign exchange would not face automatic tax deductions by banks.
Instead, they will have the flexibility to file tax returns after deducting business-related expenses, such as equipment, software, and utilities. This system provides a timing advantage, allowing taxpayers to manage their cash flow efficiently.