Sri Lanka Will Impose 18% VAT on Foreign Digital Services from October 2025

Sri Lanka will implement an 18% Value Added Tax (VAT) on digital services provided by foreign companies to Sri Lankan consumers starting October 1, 2025. This regulation, enacted under the VAT (Amendment) Act No. 4 of 2025 and detailed in Gazette Notification No. 2443/30, marks a major policy shift aimed at expanding the country’s tax base and aligning with global digital tax practices.

The rule applies to non-resident companies offering digital services in Sri Lanka, including platforms for cloud storage, software-as-a-service (SaaS), online advertising, streaming, gaming, FinTech tools, e-commerce, ticketing, and even blockchain or NFT-related services. If a foreign provider earns over LKR 60 million annually or LKR 15 million in any three-month period from Sri Lankan customers, they are required to register for VAT, charge it at the point of sale, and remit payments to the Inland Revenue Department on a quarterly basis.

This move brings Sri Lanka in line with countries like India, Indonesia, Australia, and the EU, which have already adopted destination-based VAT models to ensure tax fairness between local and foreign service providers. For Sri Lankan consumers and businesses, this means potential price increases on services billed from abroad. For foreign companies, it introduces new compliance responsibilities.

The government expects the reform to increase revenue while promoting fair competition. Local digital providers have long been subject to VAT, and this policy ensures a level playing field in an increasingly digital economy.

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