Sri Lankan Government is moving forward with the agenda concerning the implementation of the VAT framework for non-resident providers of digital services. On April 11, 2025, the VAT Amending Act No. 04/2025 introduced amendments to the VAT imposition section, mandating the chargability of VAT 18% on supplies of digital services by non-resident service providers.
However, considering the surrounding uncertainty at that moment regarding the collection and remittance of VAT on digital services, the effectiveness of the Amending Act has been postponed. On July 1, 2025, the Inland Revenue issued an Implementing Resolution in this regard to remove any uncertainty concerning the “ VAT applicability for non-residents” as granted by the unexpected postponement.
The awaited, and now issued, implementing Regulation defines in detail the registration requirements for non-resident providers of digital services to Sri Lankan customers.
Timeframe
Starting from October 1, 2025, non-resident providers of digital services are obligated to register for VAT, charge, collect, and remit VAT for their B2C supplies.
Framework
Non-resident providers of digital services will be required to register for Sri Lanka VAT electronically using the simplified registration procedure, effective from October 1, 2025. The non-resident providers have the benefit of not being required to register from the first sale, but can “profit” from the following threshold:
- Rs. 60 million in the past 12 months, or
- Rs. 15 million in the past 3 months.
When it comes to the scope of digital services, which are seen from the “eyes” of the VAT Act as the taxable ones, the range is extensive. Some of the taxable digital services can be found within the following categories:
- Cloud computing
- Software as a service
- E-commerce services
- Digital Marketing and Advertising
- Cybersecurity Services
- FinTech services
- Marketplace platforms
- Streaming Services
The Regulation states that one of the possible penalties for non-compliant service providers is the blocking of their domain. The regulation also indicates that late payment fines will be defined under the VAT Act.
How to Stay Compliant
- Review the turnover of your sales to customers in Sri Lanka
- Determine who your customers are
- Determine whether you supply taxable digital services
- Register under new simplified regime
- Update your registration data if you are already registered
- Submit VAT returns and make VAT payments on time
- Follow the Invoicing and Recording requirements
Please contact us if you have any questions concerning the VAT registration process in Sri Lanka and your VAT compliance responsibilities for your business operations. Our tax team would be happy to assist you.
Act promptly to eliminate any potential late registration penalty.
Takeaway
The Government of Sri Lanka is demonstrating its strong commitment to aligning its tax policies on non-resident providers of digital services (both direct and platform-based) with OECD policies. The VAT framework for non-resident providers of digital services is introduced to equalize the VAT treatment of digital services provided by domestic and foreing businesses; as well as to raise the countrie’s tax revenue.
Aleksandar Delic
Starting from October 1,2025, non-resident providers of digital services that surpass the mandatory threshold should register for VAT following the designated requirements.
Indirect Tax Manager – E-Commerce