Which Exchange Rate for Foreign Income Tax in Sri Lanka?

You got paid USD 2,000. By the time it reaches your return, it has to be a rupee figure. So which exchange rate do you use? The rate the day you invoiced? The day the money landed? The rate your bank gave you? A year-end average to keep it simple?

The answer matters more than it looks, because the rupee moves, and the wrong rate either inflates your income or understates it. Both are a problem if the Inland Revenue Department ever asks you to show your working.

Here's the short version of the exchange rate for foreign income tax in Sri Lanka: you use the official Central Bank of Sri Lanka (CBSL) rate for the specific date the income counts for tax. Not an average. Not your bank's rate. And the date you use depends on whether you're a freelancer or an employee. Let's walk through it.

Which exchange rate do I use for foreign income on my tax return?

The law is specific. Under Section 26(6) of the Inland Revenue Act, any amount in a foreign currency must be converted to Sri Lankan rupees using the Central Bank of Sri Lanka exchange rate prevailing on the date the amount is taken into account for tax purposes.

Three things follow from that, and each one rules out a shortcut people commonly take:

• It's the CBSL rate, not your bank's rate. The rate Commercial Bank or HNB actually credited you with, after their margin, is not the figure the law asks for. You use the Central Bank's published rate for the date.
• It's a daily rate, not an average. You convert each payment at the rate for its own date. A single year-end rate or a 12-month average is not allowed, even though it would be easier.
• It's tied to a specific date. And that date is where freelancers and employees part ways, which is the part most people get wrong.

Do I convert on the date I was paid or the date I invoiced?

This is the question that trips people up, and the answer splits by who you are.

Freelancers use the invoice date (accrual basis)

If you freelance or run a one-person service business, the law treats you as conducting a business. Under Section 21(3), a person conducting business must account on the accrual basis. On the accrual basis, you derive income when it becomes receivable, which Section 23(2) defines as the point you become entitled to it. In plain terms, that's when you raise the invoice or finish the work, not when the client eventually pays.

So you convert each payment using the CBSL rate on the date you invoiced, even if the money arrives weeks later at a different rate.

This has a real consequence at year-end. If you invoice a client on March 28, 2026 but they pay you in May, that income belongs to the 2025/2026 tax year, because that's when you became entitled to it. You convert it at the late-March rate and declare it in the 2025/2026 return.

Employees use the payment date (cash basis)

If you work remotely for a foreign company as an employee, your foreign salary is employment income, not business income. Under Section 21(2), an individual accounts for employment income on the cash basis. That means you recognise each salary payment when you actually receive it, and you convert it at the CBSL rate on that receipt date.

Same currency, same Central Bank rate, different date. Our guide on how Sri Lanka taxes foreign employment income covers the rest of the remote-employee picture.

Where do I find the official CBSL rate for a given date?

The Central Bank of Sri Lanka publishes daily exchange rates for major currencies. For each payment, you want the rate for the relevant date (the invoice date if you're a freelancer, the receipt date if you're an employee).

Two practical notes. First, the Central Bank doesn't publish a rate on weekends and public holidays, so for a date that falls on one, use the published rate for that date as the Central Bank presents it for the period. Second, keep the rate you used on record at the time, because rebuilding a year of historical rates the night before filing is miserable and error-prone.

Do I convert the gross amount or what landed after fees?

Convert the gross. This is the second thing the original "just use the receipt amount" instinct gets wrong.

When PayPal, Wise, or Payoneer pays you, they skim a processing fee first, so less arrives than you billed. It's tempting to convert only what landed. But under Section 6, your taxable business income is the full service fee you earned, the gross amount, before any third-party deduction. The platform fee doesn't reduce your income at the conversion step.

Instead, the fee is a separate deduction. Because it's incurred to earn your income, it's deductible under Section 11. And for service exporters specifically, Section 72(3), added by the Inland Revenue (Amendment) Act No. 11 of 2026, lets a fee paid to a foreign-based platform be directly deducted in calculating your income from exporting services.

So the flow is: declare the gross as income, then claim the fee as an expense. You land at the same net profit, but you've reported it the way the law requires, and your deductions are visible rather than quietly buried. For the wider list of what you can claim, see what expenses a Sri Lankan freelancer can deduct.

How do I convert a USD payment to LKR? (worked example)

Take a freelancer who invoices a US client for USD 2,000 on a day the CBSL rate is Rs. 300 to the dollar. PayPal deducts a USD 100 fee before paying out, and the money clears a week later when the rate has moved to Rs. 303.

Here's how it's reported:

1. Income (gross, at the invoice-date rate): USD 2,000 × 300 = Rs. 600,000. This is recognised on the invoice date because you're on the accrual basis.
2. Platform fee (deductible expense): USD 100 × 300 = Rs. 30,000, claimed as a business expense.
3. Net profit from this job: Rs. 600,000 − Rs. 30,000 = Rs. 570,000.

Notice the later Rs. 303 payout rate doesn't enter the income calculation at all. You became entitled to the fee at invoice time, so the invoice-date rate governs. The bank may credit you slightly more or less when it actually converts, but that banking gain or loss is a separate matter from the income figure on your return.

Compare that to a remote employee paid a USD 2,000 salary instalment that lands on a day the CBSL rate is Rs. 305. They convert on receipt: USD 2,000 × 305 = Rs. 610,000, recognised on the day it arrived. No invoice, no platform fee, no accrual timing. Just the receipt-date rate.

What if I get paid in instalments or across the year-end?

Each receipt or each invoice is converted on its own date. There's no bundling.

If a client pays you in three instalments, a freelancer converts each instalment's portion at the rate on the date that portion became receivable, and an employee converts each instalment at its receipt-date rate. You don't average the three.

The year-end boundary is where this bites hardest for freelancers. Because you're on the accrual basis, an invoice you raised before March 31 belongs to that tax year even if it's still unpaid. Convert it at the rate for the date you raised it, and declare it. Don't wait for the cash and roll it into the next year, because that puts the income in the wrong year of assessment.

What records should I keep to defend my figures?

If the IRD queries a figure, you want to show it traces to the official rate on the correct date, not to a number you estimated. For each foreign payment, keep:

• The invoice (freelancer) or payment advice (employee) showing the date and the foreign-currency amount.
• The CBSL rate you applied and the date it corresponds to.
• The platform fee record, so your deduction is supported.

A simple dated log of payments, rates, and fees does the job. The goal is that any figure on your return can be reconstructed from your own records in minutes.

So, which exchange rate do you use for foreign income tax in Sri Lanka? The official CBSL rate for the date the income counts, the invoice date if you freelance, the receipt date if you're employed, applied to the gross amount with fees deducted separately. Get those three things right and every figure on your return will hold up. If you want to see how this folds into your overall bill, our income tax calculation guide walks through the rest.