- Expansion of VAT to Digital Services: Sri Lanka is introducing an 18% Value Added Tax (VAT) on digital services provided by non-resident companies to local consumers, effective October 1, 2025. This requires foreign service providers to register for VAT in Sri Lanka and collect the tax on their services.
- Key Definitions and Compliance Requirements: The new VAT rules define terms such as “electronic platform” and “non-resident person,” and impose obligations on foreign digital service providers to charge and remit VAT on various services, including streaming, online gaming, and software as a service (SaaS). Electronic marketplace facilitators may also be liable for VAT reporting on third-party sales.
- B2B Transactions and Global Alignment: Business-to-Business (B2B) transactions will utilize a reverse charge mechanism for VAT, aligning Sri Lanka’s tax practices with over 120 other countries that have implemented similar measures for digital services from non-resident entities. Non-compliance with registration requirements could lead to penalties from the Inland Revenue Department.
Source Fonoa
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