Sri Lanka Investment Income Tax Guide 2026

Overview — Withholding Tax on Investment Income

Sri Lanka imposes withholding tax (WHT) on various types of investment income. The tax is deducted at source by the payer and remitted to the Inland Revenue Department (IRD). The rates differ for residents and non-residents. WHT is generally a final tax for residents, meaning no further tax is payable on that income (though the income and tax may need to be declared). For non-residents, WHT is often the final tax liability. The tax year runs from 1 April to 31 March.

Dividends — 15% WHT

Dividends paid by a Sri Lankan resident company are subject to withholding tax at 15% for both resident and non-resident shareholders. Key points:

• The company declaring the dividend must withhold the tax and remit it to the IRD
• For resident individual shareholders, the 15% WHT is generally a final tax (no further IIT due on the dividend)
• For resident corporate shareholders, dividends are generally exempt from tax (no WHT applies on dividends paid to a resident company)
• For non-resident shareholders, the 15% WHT is the final tax; no further assessment applies
• Dividends paid out of exempt profits (e.g., BOI-approved companies) may be exempt from WHT

Interest — 5% WHT (Resident), 15% (Non-Resident)

Interest income is subject to withholding tax at different rates depending on the recipient:

• Resident individuals: 5% WHT on interest from banks, financial institutions, and licensed finance companies
• Resident companies: 5% WHT on interest income (unless the company is in the business of lending)
• Non-residents: 15% WHT on interest paid by Sri Lankan sources
• Interest on government securities (Treasury bills and bonds) is subject to 5% WHT for residents

Interest income for residents is generally subject to final WHT, meaning no further assessment. Certain categories of interest (e.g., interest on savings accounts below LKR 50,000) may be exempt.

Royalties — 10% WHT (15% Non-Resident)

Royalty payments for the use of intellectual property, copyrights, patents, trademarks, and similar assets are subject to WHT:

• Resident recipients: 10% WHT (generally a final tax)
• Non-resident recipients: 15% WHT (subject to reduction under applicable double tax treaties)

Rent — 10% WHT

Rental payments for the use of immovable property (land, buildings) are subject to WHT at 10%:

• Applicable to rent paid to both resident and non-resident landlords
• The tenant (payer) must withhold the tax and remit to the IRD
• For resident landlords, the 10% WHT is a withholding against their final IIT liability (not a final tax — rental income must be declared and is subject to progressive IIT rates)
• The landlord can claim credit for WHT deducted when filing the annual return

Unit Trusts — Special Tax Treatment

Unit trusts in Sri Lanka receive special tax treatment. The trust itself is generally not taxed on its income; instead, the income is attributed to the unitholders. Distributions from unit trusts are subject to WHT at the applicable rate depending on the nature of the distribution (interest, dividend, or capital gain). The tax treatment depends on whether the unit trust is classified as an equity fund, debt fund, or balanced fund. Unitholders are taxed on distributions in the same manner as the underlying income type.

Government Securities — 5% WHT

Interest on Sri Lankan government securities (Treasury bills, Treasury bonds, and Sri Lanka Development Bonds) is subject to WHT at 5% for resident investors. The tax treatment depends on the holding period and investor classification. Non-residents investing in government securities may be subject to the 15% non-resident interest WHT, unless a reduced rate applies under a double tax treaty. Gains on the secondary market trading of government securities may be subject to CGT at 10%.

FAQs

Is WHT a final tax for residents?

For most investment income types (dividends, interest, royalties), WHT is a final tax for resident individuals, meaning they do not need to include this income in their annual return. Rental income WHT is not final — the rental income must be declared.

Can non-residents claim a reduced WHT rate under a tax treaty?

Yes, Sri Lanka has double tax treaties with many countries that may reduce WHT rates on dividends, interest, and royalties. The reduced rate must be claimed through the relevant procedure with the IRD.

What about capital gains on investments?

Capital gains from the sale of shares, bonds, and other investments are subject to CGT at 10% (14% for non-residents), not WHT. This is separate from the WHT on income distributions.

Disclaimer

This guide provides general information about Sri Lankan investment income taxation for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Sri Lankan tax advisor or the Inland Revenue Department directly for advice specific to your situation. InvestmentKit does not provide tax advice.