Sri Lanka – VAT for Non-Resident Providers of Digital Services from 2025

The President of Sri Lanka has presented a proposal for key tax reforms for 2025 before the national Parliament. One of the principal VAT changes is the introduction of the VAT levy for foreign providers of digital services starting next year. 

In the following weeks, the Parliament will consider the 2025 Budget Plan and address the proposed tax reforms.

Timeline 

Starting April 1, 2025, non-resident providers of digital services will be obliged to charge, collect, and remit VAT for their supplies of electronic services to customers residing in Sri Lanka. 

Foreign Providers and Imposition of VAT 

After introducing the VAT levy for domestic providers of digital services to local customers, the Sri Lankan government is pushing for additional tax reform considering the scope of taxable persons providing this type of service. 

To equalize the service market, the Government, after the discussion with the IMF, is looking to introduce the VAT obligation for foreign service providers(digital service providers and platforms) to charge, collect, and remit local VAT to tax authorities when the service is provided, performed and received in the country. 

A standard VAT rate of 18% should be levied on these services. After more than a few Asian countries have introduced this liability for non-resident providers of digital services, Sri Lanka is looking to do the same in the upcoming months. 

Besides implementing the VAT system for non-resident providers of digital services, the Ministry of Finance has also proposed the introduction of CIT for these service providers. 

The introduction of the VAT obligation for non-resident providers of digital services starting next year will significantly change the tax landscape for all parties involved. The tax authorities will need to shape a new technical framework for the registration, collection, and remittance of taxes, customers will probably experience a rise in prices for this type of service, and service providers will experience compliance costs. 

Taxable persons(platform operators and third-party service providers) should start, if they haven’t already started, to review the VAT compliance requirements for their operations in Sri Lanka and if they belong to the groups of businesses that the new changes will impact.