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For Year of Assessment 2025/2026, foreign service income earned by Sri Lankan residents is taxed at a maximum rate of 15% instead of climbing all the way up the standard progressive slabs that top out at 36%. This concession applies from April 1, 2025 onwards.
| Slab | Rate |
|---|---|
| Personal relief (deducted first) | Rs. 1,800,000 |
| First Rs. 1,000,000 of taxable income (foreign income only) | 6% |
| Balance of the foreign income | 15% |
A Sri Lankan freelancer earning Rs. 5,000,000 in foreign service income pays: Rs. 0 on the first Rs. 1,800,000 (covered by personal relief), Rs. 60,000 on the next Rs. 1,000,000 (at 6%), and Rs. 330,000 on the remaining Rs. 2,200,000 (at 15%) — a total of Rs. 390,000, or an effective rate of about 7.8% on the full Rs. 5,000,000. This example assumes foreign income is the only income. If you also have local income, both kinds share one set of progressive slabs, with the foreign portion capped at 15%, so your total tax can differ.
Two categories of Sri Lankan resident benefit from the 15% ceiling, with slightly different rules:
Foreign currency income must be converted to LKR using the official Central Bank of Sri Lanka (CBSL) exchange rate on the date the amount is taken into account. For cash-basis taxpayers, that is the date of receipt — when the money lands in your bank account, not the invoice date. The income must arrive through an authorised Sri Lankan bank to qualify for the concession; payments in LKR from a foreign client, or cash channels, fall outside it.
Common follow-ups on this topic.
Up to and including March 31, 2025, foreign service income earned in foreign currency through a Sri Lankan bank was fully exempt. From April 1, 2025, under the Inland Revenue Amendment Act No. 2 of 2025, that exemption was replaced with a concessionary maximum rate of 15%.
Sri Lankan residents who earn foreign currency for services consumed outside Sri Lanka, with the payment remitted through an authorised Sri Lankan bank. This covers Individual Service Exporters (freelancers earning from overseas clients) and remote employees of foreign companies with no Sri Lankan presence.
Foreign currency must be converted to LKR using the official Central Bank of Sri Lanka (CBSL) exchange rate on the date the amount is taken into account — date of receipt for cash-basis taxpayers, date receivable for accrual-basis. The invoice date does not matter; the receipt date does.
Yes. Remote employees of foreign companies with no Sri Lankan presence get the same 15% ceiling. But unlike freelancers, they cannot deduct business expenses, and they pay tax monthly (within 15 days after each month end) rather than quarterly. The income is classified under Tax Table No. 08.
Yes. Sri Lankan residents are taxed on worldwide income regardless of source. The concessionary rate applies specifically to qualifying foreign service income remitted through a bank. Other foreign income (e.g. foreign dividends or interest) may fall under different rules — check the specifics for your income type.
Taxable handles personal relief, slabs, quarterly instalments, WHT, and APIT credits automatically as you record transactions.
Verified against the Inland Revenue Act No. 24 of 2017 (as amended by Amendment Act No. 2 of 2025). Last reviewed .