Insurance and Tax
We are one of the preferred law firms in Sri Lanka relating to Insurance and Tax related matters. We match the services for your unique goals and concerns within the insurance industry.
We advise across the full range of legal issues, affecting your line of work in a converging sphere of trading, and deal within all key finance and business strain. We are able to deliver a seamless and truly national and international service.
TAXATION FAQs
Corporate Tax & Structure
What is the corporate income tax rate in Sri Lanka?
The standard corporate income tax rate in Sri Lanka is 30% for most companies. Certain sectors may be taxed differently under specific rules.
Who must pay corporate tax?
Companies incorporated or managed in Sri Lanka and those deriving income from Sri Lankan sources must pay corporate income tax.
How is resident status for tax purposes determined?
A company is resident if it is incorporated in Sri Lanka or managed and controlled there.
Are exported services taxed differently?
Companies earning from exported services may qualify for a reduced tax regime, such as a 15% rate on foreign service exports, subject to conditions.
What is the tax year in Sri Lanka?
The tax year typically runs from 1 April to 31 March of the following year.
Do businesses need a Taxpayer Identification Number (TIN)?
Yes, all businesses must register for a TIN with the IRD for compliance.
What happens if tax returns are filed late?
Late filing can result in penalties and interest on tax due, calculated monthly.
Are tax returns filed online?
Yes, businesses file tax returns through the IRD’s e-services system.
What is withholding tax?
Withholding tax is tax deducted at source on payments such as dividends, interest, and service fees.
Are double taxation treaties available?
Sri Lanka has Double Taxation Avoidance Agreements (DTAAs) to reduce double taxation, subject to documentation and residency certification.
VALUE ADDED TAX (VAT) FAQs
What is VAT in Sri Lanka?
VAT is an indirect tax on the supply of goods and services and imports within Sri Lanka.
What is the standard VAT rate?
The standard VAT rate in Sri Lanka is 18%.
Who must register for VAT?
VAT registration is mandatory for businesses with annual turnover above the threshold, and for all importers and exporters.
Are digital service providers liable for VAT?
Nonresident digital service providers selling to Sri Lankan customers are subject to VAT.
Is VAT filed electronically?
Yes, VAT returns must be filed electronically via the IRD portal.
Can VAT be refunded?
Eligible businesses can claim VAT refunds under the VAT refund scheme.
Is VAT applied to imports?
Yes, VAT applies to imported goods as an indirect tax.
Are some goods exempt from VAT?
Some supplies, such as certain local products, may be VAT exempt per recent amendments.
What are the penalties for VAT non-compliance?
Penalties apply for failure to register, misreporting, or late VAT returns under IRD regulations.
Is the Simplified VAT (SVAT) scheme still in effect?
The SVAT scheme has been phased out and replaced by a VAT refund mechanism.
OTHER BUSINESS TAXES & LEVIES
What is the Social Security Contribution Levy (SSCL)?
SSCL is a 2.5% levy on turnover for businesses above specific thresholds (e.g., quarterly turnover over LKR 15 million).
What is Economic Service Charge (ESC)?
ESC is a tax on business turnover, payable under certain conditions and often set off against income tax.
Are there personal income taxes for employees?
Yes, employees and employers have tax obligations under the Advance Personal Income Tax (APIT) system.
Do employers contribute to social security funds?
Employers contribute to the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) under statutory requirements.
Is stamp duty applicable to business instruments?
Yes, stamp duty applies to specified legal instruments and agreements.
INSURANCE – BUSINESS OPERATIONS FAQs
Who regulates insurance in Sri Lanka?
The Insurance Regulatory Commission of Sri Lanka (IRCSL) oversees insurance industry regulation.
What law governs insurance in Sri Lanka?
The industry is governed by the Regulation of Insurance Industry Act, No. 43 of 2000 and its amendments.
Do insurance companies need registration?
Yes. Insurers must be registered with the IRCSL to lawfully operate.
Are brokers regulated?
Yes, insurance brokers must also be registered under the Act.
Can insurers carry out non-insurance business?
Generally no, unless ancillary financial services are approved.
BUSINESS INSURANCE TYPES
What types of commercial insurance exist in Sri Lanka?
Businesses commonly obtain property, liability, marine, motor, and employee-related insurances.
What is workmen’s compensation insurance?
Workmen’s compensation covers employer liabilities for employee injury and occupational disease.
Is marine insurance available for businesses?
Yes, marine hull and marine cargo insurance are available for businesses with shipping operations.
Why is property insurance important?
Property insurance protects against business asset loss from fire, theft, or perils.
Do businesses need liability insurance?
Liability insurance covers third-party claims for injury or property damage.
Is motor fleet insurance required?
Not mandatory, but essential for commercial vehicles to manage risk and liabilities.
Can businesses get cyber liability insurance?
Yes, cyber liability coverage is increasingly available to protect against data breach losses.
Do insurers provide employee health policies?
Many insurers offer corporate medical and personal accident covers.
Are SME insurance packages available?
Yes. SMEs can obtain tailored insurance solutions for business risk protection.
Is insurance compulsory for employers?
Not all insurance is mandatory, but workmen’s compensation is recommended and common practice.
INSURANCE & TAX INTERPLAY
Is insurance premium subject to VAT?
Non-life insurance premiums generally attract 15% VAT as part of non-life insurance taxation practices.
Can businesses deduct insurance costs?
Insurance expenses may be deductible for tax purposes if properly documented as business costs. (General tax practice.)
Are insurance brokers taxed?
Insurance brokers are taxed as service providers and must comply with VAT and income tax rules.
Are foreign insurers allowed?
Foreign insurers must register and comply with IRCSL licensing and regulations.
Does the IRCSL monitor solvency and conduct?
Yes, the IRCSL supervises insurer solvency and market conduct to protect policyholders.
BUSINESS TAX COMPLIANCE & PRACTICE
What is the Inland Revenue Department (IRD)?
The IRD administers tax laws, including income tax, VAT, and other levies.
What is a TIN for businesses?
A Taxpayer Identification Number (TIN) is required for all tax-registered businesses.
Are employers responsible for tax withholding?
Yes, employers must withhold tax on employee wages under APIT.
Can businesses claim tax refunds?
Businesses can claim refunds for overpaid taxes under applicable statutory provisions. (General tax practice.)
Are tax incentives available for investors?
Tax incentives may apply under investment schemes and specific policies for export-oriented industries.