Foreign service export tax in Sri Lanka: when 15% applies

Last verified against the primary sources on 28 October 2026.

Updated 28 October 2026: removed the link to the foreign service export calculator, which works out an individual's monthly tax, not a company's.

Take two hypothetical Colombo services firms that both bill overseas customers in foreign currency. The first keeps each contract, separates the export income in its ledger and files the bank's inward remittance advice against every invoice. The second assumes all of its income qualifies for 15 percent and moves on. If the Inland Revenue Department (IRD) later asks for support, the first firm hands over a file. The second has to rebuild it, and any income it cannot show qualifies is taxed at the standard rate, with interest on the tax that should have been paid in instalments.

The difference is not the client base. It is whether the company can prove that the conditions for the 15 percent rate were met.

This guide explains where the 15 percent rate comes from, what it requires, what documents matter, how it affects instalments, and the VAT and SSCL position. For why SSCL on a supplier invoice cannot be claimed, see SSCL and input VAT.

The rule, and when it started

The First Schedule to the Inland Revenue Act, paragraph 4(2C)(a), taxes at 15 percent "gains and profits earned or derived from any service rendered in or outside Sri Lanka to any person to be utilized outside Sri Lanka, where the payment for such services is received in foreign currency and remitted through a bank to Sri Lanka" [1]. It was introduced by the Inland Revenue (Amendment) Act No. 2 of 2025 and applies from 1 April 2025, that is from the year of assessment 2025/26 [2].

The rate is new. Before 1 April 2025 these service exports were exempt; the IRD's notice puts it as "Effective from April 1st 2025, income tax exemptions on service exports and foreign sources income have been removed" [3]. A company that last looked at this question before 2025 is working from the wrong rule.

15% vs 30%: why this is an evidence problem before it is a calculation problem

For most companies the standard corporate income tax rate is 30 percent [1]. The 15 percent rate applies only to the gains and profits that meet paragraph 4(2C)(a).

In practice, this is a classification and evidence problem before it becomes a calculation problem. If the company cannot separate qualifying income cleanly, trace the foreign currency receipts and support the treatment in the tax file, it should not assume the lower rate.

Use the main corporate income tax guide for the wider framework. This article focuses only on the 15 percent question. For an individual paid from abroad, see freelancer tax on foreign income.

When the 15% rate applies

Paragraph 4(2C)(a) sets three conditions, and all three must be met for the income in question [1]:

• The service is utilised outside Sri Lanka. It may be rendered in or outside Sri Lanka, but it must be used outside the country.
• Payment is received in foreign currency.
• The payment is remitted through a bank to Sri Lanka.

There is no revenue share test. The rate applies to the qualifying gains and profits themselves, so a company with both export and local income splits its income: the qualifying part is taxed at 15 percent and the rest at the rate that normally applies [1]. Paragraph 4(2C)(a) also sets no BOI or Export Development Board condition.

The practical mistake is assuming the customer's location is enough. It is not. A foreign customer whose service is used in Sri Lanka, or a payment that arrives in rupees or never passes through a bank in Sri Lanka, fails the test. If local recharges, local support revenue or poorly documented receipts are mixed into the same bucket, the 15 percent position becomes harder to defend.

Build this evidence file during the year, not at the filing deadline

If the company wants to use the 15 percent rate, the working-paper file should be built during the year, not reconstructed at the filing deadline.

• Customer contracts or statements of work showing where the service is used.
• Invoices and ledger mapping that isolate the qualifying revenue stream from other income.
• Bank inward remittance advice, bank statements and foreign currency receipt records.
• Foreign exchange conversion support used in the accounts and the tax computation.
• A revenue bridge from total revenue to qualifying revenue, with the cost allocation behind the qualifying profit.
• Management or reviewer sign-off showing who approved the 15 percent treatment in the instalment and annual return file.

Build the evidence pack as if the return will be challenged later. That discipline prevents last-minute reversals.

How the 15% rate changes cash-flow planning and instalments

The rate difference is material. If qualifying income is taxed at 15 percent instead of 30 percent, quarterly instalments and the cash-flow forecast can move sharply. That is useful only if the assumption is sound.

Interest on tax paid late, including instalments, runs at 1.5 percent a month [1]. Do not cut quarterly instalments simply because management expects a lower final rate. Refresh the basis, document it, and reconcile it back to the live income mix. The Statement of Estimated Tax has been discontinued and instalments now follow the amended section 90(3) [4]; our guide to quarterly instalments after SET covers the method. The tax calculator is useful for general modelling, but the 15 percent question should be reviewed against the company's own computation schedule.

If the business uses a non-March reporting cycle, align the review with the filing calendar in the year-end change guide so the treatment is tested against the correct period.

Where the evidence is still incomplete, the safer planning move is to keep instalments at the standard rate until the qualifying position is documented properly.

VAT and SSCL on the same income

The indirect tax treatment follows similar conditions. A service supplied to a person outside Sri Lanka and consumed there is zero-rated for VAT, but only where payment is received in foreign currency through a licensed bank in Sri Lanka within six months of the end of the taxable period [5]. Export of services paid in foreign currency remitted through a bank is exempt from SSCL [6]. The VAT (Amendment) Act No. 14 of 2026 did not change either position, apart from zero rating services of a registered garment buying office to overseas buyers from 1 October 2025 [7].

The same bank trail therefore supports three positions at once: the 15 percent income tax rate, VAT zero rating and the SSCL exemption.

The six filing errors that turn a 15% rate into a 30% liability

• Treating every foreign client invoice as automatically eligible for the 15 percent rate.
• Failing to split qualifying income and its costs from other income before applying the rate.
• Keeping invoice copies but not the banking trail that proves foreign currency receipt.
• Ignoring where the service is actually used.
• Reducing instalments before the basis is updated and reviewed.
• Leaving the issue to year-end even though the answer affects quarterly cash planning all year.

Companies that handle this well review the qualifying position each quarter and keep the evidence file current.

What to review before filing the annual return

1. Isolate the income stream treated at 15 percent and separate it, with its costs, from all other taxable income.
2. Test each condition in paragraph 4(2C)(a) against the current year, not against last year's assumptions.
3. Reconcile invoices, bank receipts and ledger balances so the foreign currency trail is complete.
4. Update the instalment working if the final income mix moved during the year.
5. Make sure the return file and the RAMIS filing guide support pack tell the same story.
6. Escalate the file for review if the company has mixed income streams or group-company charges.

The first filing move should be evidence review, not rate selection.

Frequently asked questions

Does every foreign client invoice qualify for the 15% rate?

No. The service must be utilised outside Sri Lanka and paid in foreign currency remitted through a bank to Sri Lanka [1]. A foreign customer on its own is not enough.

Is there a minimum share of export revenue?

No. Paragraph 4(2C)(a) has no revenue share test; it applies to the qualifying gains and profits [1].

Can one company have income taxed at 15% and other income taxed at 30%?

Yes. A mixed-income company separates qualifying income from other taxable income in the computation. If the revenue streams are blended and the support file is weak, the lower-rate position becomes harder to defend.

Were service exports always taxed at 15%?

No. They were exempt until 31 March 2025, and the 15 percent rate applies from 1 April 2025 [3].

Why does the banking trail matter so much?

Because the rate depends on how the money arrives. You need to show that the payment was received in foreign currency and remitted through a bank to Sri Lanka, tied back to the qualifying revenue stream [1]. The same trail supports VAT zero rating [5].

Talk to us. If you earn foreign currency service income and want the 15 percent position tested before you file, our tax team can review it with you; reach us through our contact page.

This guide is general information on the law as at 15 October 2026 and is not advice on your specific situation.

References

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated, First Schedule paras 2 and 4(2C)(a); ss.157 and 159(1). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 2 of 2025, certified 20 March 2025, operative from 1 April 2025. https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No_02-2025_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Notice to Taxpayers, PN/IT/2025-01 (26 March 2025). https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/666/PN_IT_2025-01_26032025_E.pdf . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 11 of 2026, certified 3 June 2026, s.16 (amending s.90(3)). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No_11-2026_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Value Added Tax Act, No. 14 of 2002, consolidated version up to 2025, s.7(1)(c). https://www.ird.gov.lk/en/publications/Value%20Added%20Tax_Acts/VAT_Act_No_14%5BE%5D_2002_%28Consolidation_2025%29.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Social Security Contribution Levy Act, No. 25 of 2022, consolidated up to 2026, First Schedule Part II item 16. https://www.ird.gov.lk/si/publications/Acts_SSCL/SSCL_Cons_Act_-_2026_Changes.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Notice to the Taxpayers: Amendments to the Value Added Tax Act, SEC/PN/VAT/2026-03 (3 July 2026), item 2. https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/799/PN_VAT_2026-03_New_E.pdf . Primary. Accessed 15 October 2026.