Tax on property income in Sri Lanka
Taxation Researcher | January 15, 2021
Effective Tax Rate on Rental Income
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Global Property Guide
Nonresidents are taxed only on profits and income derived from Sri Lankan sources. Married couples are assessed and taxed separately.
The tax year is from 01 April of the current year to 31 March of the succeeding year. The tax year 2020-2021 is from 01 April 2020 to 31 March 2021. The tax year 2021-2022 is from 01 April 2021 to 31 March 2022.
Income is classified as follows in Sri Lanka: (1) income from any trade, business, profession or vocation, (2) income from employment, (3) net annual value of land and improvements occupied by or on behalf of the owner, (4) net annual value of land and improvements occupied rent-free or at rent less than the net annual value, (5) dividends, interest, or discounts, (6) charges or annuity, and (7) rent, royalty, or premium, and (8) other income.
Taxable income is computed by deducting allowable expenditure, qualifying payments, and personal allowances from the gross income.
Income is generally taxed at progressive rates.
INCOME TAX 2018-2020
|TAXABLE INCOME, LKR (US$)||TAX RATE|
|Up to 3,000,000 (US$20,690)||6%|
|3,000,000 – 6,000,000 (US$41,379)||12% on band over US$20,690|
|Over 6,000,000 (US$841,379)||18% on band over US$41,379|
|Source: Global Property Guide|
Rental income earned by nonresidents is taxed at a flat rate of 20%. Rates paid by the owners or the estimated annual rental value of the property as assessed by the local governments are deductible to arrive at the assessable income. Then, a standard deduction of 25% of the assessable income is given to all taxpayers earning rental or leasing income to account for income-generating expenses.
Subject to certain conditions, rental income earned from residential properties is exempt from taxation for five years from construction.
Capital Gains Tax (CGT) was abolished in April 2002.
Stamp Duty on Sale of Property
Stamp duty is levied on transfer of property. The applicable duty rates are set by the provincial and central governments.
There are no property taxes in Sri Lanka.
Income and capital gains earned by companies are subject to corporate income tax at a flat rate of 30%. Taxable income is calculated by deducting income-generating expenses from the gross income.