Rules should know

COST OF DOING BUSINESS IN SRI LANKA 

Taxation

Corporate Income Tax Rates

Standard rate other than those taxed at special rates

28%

Income tax on dividends

10%

Remittance tax on non-residential companies

10%

Qualified export profits and income of a company

12%

Source: Sri LankaInland Revenue Department
http://www.ird.gov.lk/en/publications/SitePages/Tax%20Chart.aspx?menuid=1404


Value Added Tax (VAT)

Item

Rate

Export of goods and services

Zero rate

Exempt items

As listed in VAT exempt list in the VAT Act

General items

Standard rate (15%)

Source: Sri LankaInland Revenue Department
http://www.ird.gov.lk/en/publications/SitePages/Tax%20Chart.aspx?menuid=1404

Customs duty structure

Item

Rate

Essential items, basic raw materials and machinery

0%

Semi processed items

5%

Intermediate products

15%

Finished goods

30%

Source: Sri LankaInland Revenue Department
http://www.ird.gov.lk/en/publications/SitePages/Tax%20Chart.aspx?menuid=1404
                 

Individual Tax

      Tax free allowance for residents/non - resident citizens of Sri Lanka is Rs. 500,000/-

    Additional allowance by way of qualifying payment (maximum​​m) of Rs.250, 000 is granted on employment income. (Maximum tax rate applicable 16%)

Taxable income

Rate

First Rs 500,000/-

4%

Next Rs 500,000/-

8%

Next Rs 500,000/-

12%

Next Rs 500,000/-

16%

Next Rs 1,000,000/-

20%

More than Rs 1,000,000/-

24%

Source: Sri LankaInland Revenue Department
http://www.ird.gov.lk/en/publications/SitePages/Tax%20Chart.aspx?menuid=1404

Recent Change in the Sri Lanka’s Tax System

Tax Category

Proposed Rate

With effective  from

Value Added Tax( VAT)

15%

1st August 2002

Last Amendment: 30th April 2015

Nations Building Tax (NBT)

2%

11th March 2009

Last Amendment: 30th July 2018 

Income Tax

Non-Corporate Income Tax

Employment Income     

Profits from profession or vocation

Profits from the following trade and business

Financial and trading activities

Liquor, Tobacco, Lottery, Betting and Gaming

Profits from trade and businesses other than stated above

Income from sources such as rent income, net annual value

Corporate income tax

Banking, Insurance and financial service and trading activities

Liquor, Tobacco, Lottery, Betting and Gaming

Profits and income from trade and businesses other than stated above

 

 

16%

17.5%

 

 
24%


40%

 17.5%

 

Max of 24%

 

28%


 40%

 
17.5%

31st March 2006

Last Amendment: 30th April 2015 

Withholding Tax

2.5%

-

Economic Service Charge (ESC)

0.50%

31st March 2006

Last Amendment: 17th May 2017 

Source: SriLankaInland Revenue Department
http://www.ird.gov.lk/en/publications/SitePages/Tax%20Chart.aspx?menuid=1404

Employment 

Payment and Overtime

Employees of BOI enterprises will be paid wages in accordance with such rates as may be notified by the BOI from time to time.

Payment of Wages

All employees are entitled to be paid a monthly wage. Payment of wages based on a daily rate or on contract basis will not be permitted. The employees shall be paid their wages within ten days of the expiry of the wage period.

Only authorized deductions such as cash advances, loans obtained by the employees, etc with the consent of the employees, income tax, employees contribution to EPF and any other deductions approved by the commissioner of labour can be made from wages. The aggregate of such deductions should not exceed83;

a) 50% of the wages due for the period in the case of employees covered by decisions of wages boards for all trades other than tea, rubber,      cocoa and coconut growing trades, and

b) 60% of the wages due for the period in the case of office employees.

Aggregate deductions do not include deductions authorized to be made from employees' wages by any written law such as Inland Revenue act, EPF act, etc.

For the purpose of calculating no-pay deductions, holiday payments etc., the daily salary shall be arrived at by dividing the monthly salary by 30 days in the case of office employees and the monthly wages by 25, 26 or 30 according to the relevant wages board, decisions in the case of factory employees ex: 25 in the case of motor transport trade, nursing home trade, security service, 26 in the case of garment manufacturing trade, hosiery manufacturing trade and textile manufacturing trade and 30 in the case of printing trade, tyre, tube manufacturing, tyre re-building, rubber and plastic goods manufacturing trade84.

Proper wages records indicating basic wage, allowances, overtime, Sunday/ public holiday earnings and deductions shall be maintained and kept in the enterprise, as required by the relevant law. Employees should be paid wages for the days on which the employer is unable to provide work.

On termination of services, an employee's salary shall be paid within two (2) working days of such termination.

Payment of Overtime

Any work performed in excess of the normal working day to be treated as overtime work and shall be remunerated accordingly. Every hour of such work should be paid at 1 ½ times the normal hourly rate of wages which is determined by dividing the monthly rate of wages by 200 in the case of factory employees, unless otherwise determined by the relevant wages board for any trade and 240 in the case of office employees85.

In calculating hours of overtime employment, any fraction of an hour less than half an hour shall be treated as half an hour, unless otherwise determined by the relevant wages board for any trade. For example, under the decisions of the wages boards for the garments manufacturing trade, hosiery manufacturing trade and textile manufacturing trade overtime rate for any fraction of an hour will be determined proportionately86.

No factory employee who is-

a) A female shall be employed on overtime work in excess of 60 hours a month, and

b) Under the age of 18 years shall be employed on overtime work in excess of 50 hours a month

Foreign Employment

The percentage of foreign employees for a particular foreign business in Sri Lanka is dependent on the nature and value of investment. Once the company is approved under the Board of Investment in Sri Lanka, the investor can seek for permission on this regards from the Investment Appraisal Department of the BOI. The Board of Investment in Sri Lanka is the key decision maker in this regard87.

Social Security and Industrial Safety

Below are the guidelines provided by the Board of Investments in Sri Lanka with regard to social security and industrial safety88.

  • Every moving part of prime movers, every part of the transmission machinery and every dangerous part of other machinery should be guarded.
  • Practicable steps should be taken to prevent any person falling into vessels, structures, sumps or pits which contain dangerous liquids either by covering or fencing them.

  • Employees engaged in hazardous work should be provided with suitable personal protective equipment such as gloves, goggles, ear protectors, respirators etc., as necessary.

  • Female workers would not be employed in cleaning or lubricating any machinery which is in motion.

  • Hoists, lifts, cranes and other lifting machines should be protected and also be tested by a control person at least once in every 12 months. Safe working loads should be marked on such machines.

  • Chains, ropes and lifting tackle should be maintained in good condition. Safe working loads must be marked on them and such limits should not be exceeded.

  • All practicable steps should be taken to remove any fumes which may be present and to prevent ingress of fumes, before workers are employed in confined spaces such as tanks, vats, pits, pipes etc. persons entering should be provided with suitable breathing apparatus belts and ropes.

  • Steps should be taken to prevent fires and explosions in processes which could give rise to accumulation of dust, gases or vapor.

  • Fired and non-fired pressure vessels and their fittings should be manufactured to the British standard or any other equivalent standard.

  • Boilers and all fittings should be properly maintained. They should be tested and certified at least once in every period of 12 months by an authorized officer.

  • Every steam receiver, air receiver and gas receiver should be properly maintained and "safe working pressure" marked on it. Such receivers should be tested and certified at least once in two years by an authorized officer.

  • In stacking material in stores areas, pathways free of obstruction should conform to the requirements of the Ceylon Electricity Board.

  • Electrical wiring and fittings should be maintained properly and should conform to the requirements of the Ceylon electricity board.

  • All doors in a factory except the sliding doors should be constructed to open outwards. Such doors should not be locked or fastened in such a manner that they cannot be easily and immediately opened from inside.

  • A fire alarm and means of escape in case of fire should be provided in every factory. Such means of escape and pathways should be properly maintained and kept free from obstruction.

  • A plan for the evacuation of employees in an emergency such as fire or an explosion to be prepared and practiced, so that all persons employed are familiar with the routine to be followed in such situation.

Rental fee

Office/Factory Rent

As of August 2016, rental fee for office premises in Colombo 1-3 is approximately 250Sri Lankan rupees per square foot per month. However, these fees are subject to infrastructure and other facilities that are provided in the office. Therefore, the prices may vary.

Cargo

Import Charges as of September 201889

Documentation charges

 

Per consignment

850 Sri Lankan rupees

Other charges include handling charges, break bulk charges for consolidated cargo, survey charges and storage charges which are based on chargeable weight.

Export charges as of September 201890 

Handling

 

Per consignment

* USD 4.00 or equivalent in local currency

Documentation

AWB fee

* USD 2.00 or equivalent in local currency

Other charges include for dangerous goods and fuel surcharge

Service fee 

Electricity 

Electricity charges differ based on the sector/consumer group and the consumption levels. For industries, hotels and larger commercial establishments tariffs vary depending on the time of day. The table below provides the electricity tariffs for commercial, hotel and industry sectors:

Electricity charges as of September 201891

Customer Category

Energy Charge

(LKR/kWh)

Fixed Charge

(LKR/ Month)

Maximum Demand Charge per month

(LKR/kVA)

Fuel adjustment Charge (% of Energy Change)

 

Peak

(18.30hr-22.30hr)

Off Peak

(22.30hr-05.30hr)

Day

(05.30hr-18.30hr)

 

 

 

General

GP-1

<211kWh per month

>210kWh per month

18.30

22.85

240

240

-

-

25

25

GP-2

26.60

15.40

21.80

3000

1100

25

GP-3

25.50

14.35

20.70

3000

1000

25

Government

GV-1

14.65

600

 

0 or 25

GV-2

14.55

3000

1100

GV-3

14.35

3000

1000

Hotels

H-1

21.50

600

 

15

H-2

23.50

09.80

14.65

3000

1100

15

H-3

22.50

08.80

13.70

3000

1000

15

Industry                     GP-1<301kWh per month = 10.80

                                          >300kWh per month = 12.20

I-1

12.50

600

 

15

I-2

20.50

6.85

11.00

3000

1100

15

I-3

23.50

5.90

10.25

3000

1000

15

Street Lighting

17.00

None

None

0

Source: Ceylon Electricity Board - http://www.ceb.lk/for-your-business/

• Water charges as of September 2018

Sector

Usage charge (Rs/unit)

Export Processing zones and the BOI

61.00

Small and Medium industries

56.00

Other industries& Government institutes

58.00

Commercial Institutions, Private Hospitals, Non State Institutions, Tourist Hotels and Guest Houses

75.00

All charges are liable to VAT 11%.

Source: National Water Supply and Drainage Board - http://www.investsrilanka.com/setting_up_in/export_Processing_charges

In addition to the Usage charge a monthly service charge is levied on all consuming entities. The monthly charge differs based on the level of consumption and the sector.


Telephone and Internet 

Given below are the telecommunication charges for different telephone and broadband packages offered by Sri Lanka Telecom.

Connection Charges as of September 2018

 

Service offered

Calling Plan

Free Services

Connection charge

Triple Play

Telephone, Broadband, PeoTV

Mega home or Mega Office

Triple play VAS Bundle

LKR 10,000

Double Play

Telephone+ Broadband or PeoTV

Mega Home or Mega office

Double play VAS Bundle

LKR 7000-11000

Single Play

Telephone

Mega Home or Mage Office

Single Play VAS Bundle

LKR 12000

Source : Sri Lanka Telecom - https://www.slt.lk/


Monthly Rental as of 
September 2018

 

SLT Owned Instruments

Customer Owned Instruments

Home

310

170

Business

499

454

Religious

50

50

Source : Sri Lanka Telecom - https://www.slt.lk/


Call Charges as of 
September 2018

 

Voice Only

Voice + Broadband Internet or PEO TV

Voice + Broadband Internet + PEO TV

 

Office

Office

Office

Call Type

Up to 3rd Minute

Beyond 3rd Minute

Up to 3rd Minute

Beyond 3rd Minute

Up to 3rd Minute

Beyond 3rd Minute

SLT to SLT

1.90

1.00

1.70

1.00

1.50

1.00

SLT to Other

2.90

2.00

2.70

2.00

2.50

2.00

SLT internet Dial up access charge

0.50

0.50

0.50

0.50

0.50

0.50

Source : Sri Lanka Telecom - https://www.slt.lk/
                        

Fuel Cost 

Ceylon Petroleum Cooperation (CPC), a state owned enterprise, takes control of oil prices in Sri Lanka. The CPC, set up by Act. No. 28 of 1961 with the related-subsequent amendments, is mandated to carry on business as an importer, exporter, seller, supplier, and distributor of petroleum products in Sri Lanka. It is also responsible for exploiting, producing, and refining petroleum as well as carrying on other related businesses that are incidental or conducive to achieving such objectives.

In Sri Lanka, the oil prices tend to fluctuate from time to time, which is a result of the influence of both internal and external factors. Internal factors affecting domestic oil prices are, among others, the high production cost of domestic oil refinery and an ineffective outdated pricing formula. For example, the world price of crude oil today has been on a slump; however, the oil prices in Sri Lanka were not adjusted accordingly in a timelier manner. This is partially a result of an existing ineffective pricing formula, which does not help effectively adjust domestic fuel prices in accordance with the fluctuation of the global fuel prices. In addition to the domestic factors, the internal oil prices are also determined by other external factors such as world oil prices, exchange rates, and supply and demand volumes.

As an attempt to address the ineffective adjustment of the domestic oil prices, the Ministry of Petroleum has finally devised a new pricing formula, and submitted it to the Cabinet for approval in 2015. It is hoped that such new formula will soon be enacted and implemented in the near future. For the latest oil prices, please visit http://www.ceypetco.gov.lk/Marketing.htm