Guide to Property Taxes in Sri Lanka

Nonresident individuals are generally subject to Sri Lankan income tax on Sri Lankan-source income, including income arising from real estate situated in Sri Lanka.

Sri Lanka's tax year, referred to as the year of assessment, generally runs from 1 April to 31 March.

Rental Income Tax

Rental income derived by a nonresident individual from property situated in Sri Lanka is considered Sri Lankan-source income and is therefore taxable in Sri Lanka.

Rent paid to a nonresident person is generally subject to 14% withholding tax, subject to relief available under an applicable Double Taxation Avoidance Agreement.

However, the withholding rate should not necessarily be interpreted as the ultimate effective tax burden in every case. The underlying taxation of the nonresident and any filing obligations depend on the application of Sri Lanka's income-tax rules and treaty provisions.

For the 2025/26 year of assessment, ordinary taxable income of individuals is subject to the following progressive rates:

A personal relief of LKR 1.8 million is available to resident individuals and nonresident Sri Lankan citizens. Consequently, an ordinary foreign nonresident individual should not automatically be assumed to qualify for this personal relief.

Sri Lanka also provides a 25% rental-income relief for resident individuals in certain circumstances. The Inland Revenue Department's current rules specifically describe this relief as applying to resident individuals. Accordingly, the 25% statutory rental relief should not be assumed to apply to a foreign nonresident landlord.

For an ordinary foreign nonresident property investor, the most relevant collection rate for rental payments is therefore the 14% nonresident rental withholding rate, subject to the final tax treatment and any applicable treaty.

Capital Gains Tax

Sri Lanka imposes Capital Gains Tax on gains arising from the realization of an investment asset, which includes land and buildings held as investments.

The taxable capital gain is generally determined as the consideration received less the tax cost of the investment asset, subject to the statutory valuation and cost rules.

For property already held as of 30 September 2017, special rules generally establish the property's market value at that date as its tax cost.

For individuals, the Capital Gains Tax rate was increased from 10% to 15% with effect from 3 June 2026.

Accordingly, a nonresident individual disposing of Sri Lankan investment property after that date should generally use 15% of the taxable capital gain as the headline CGT rate.

A qualifying individual's principal residence can fall outside the definition of an investment asset where the statutory ownership and occupation requirements are satisfied. This exemption is generally relevant where the individual owned the residence continuously for the three years before disposal and lived in it for at least two of those three years.

Corporate Tax

The standard Sri Lankan Corporate Income Tax rate is 30%.

A company earning rental income from Sri Lankan property is generally subject to corporate income tax on its net taxable business profits, rather than on gross rental receipts.

Qualifying expenses incurred in producing taxable income can generally be deducted subject to the applicable Sri Lankan tax rules.

The ordinary 30% corporate rate applies to companies unless a specific preferential or special rate applies to the particular activity.

Capital gains realized by companies from the disposal of investment assets are also subject to the applicable corporate capital-gains rules. Following the 2026 changes, the treatment of investment-asset gains should be considered separately from ordinary rental profits.

Foreign companies carrying on business through a Sri Lankan presence can also be subject to additional rules, including the applicable remittance tax on profits transferred abroad.

Property Buying Costs and Taxes in Sri Lanka

Property Holding Tax

Sri Lanka does not impose a single nationwide annual property tax comparable to the national property taxes found in some jurisdictions.

Instead, local authorities can impose property rates on real estate situated within their jurisdictions. These charges are generally determined with reference to the property's assessed annual value and the applicable local authority's rate.

Consequently, the annual property-tax burden depends heavily on the municipality, urban council or other local authority in which the property is situated.