Sri Lanka’s 2025 E-Commerce and Digital Tax Guide: What They Mean for Your Business (2025)
“🚨 New 18 % VAT on digital services—are you ready?”
“Cross-border orders facing surprise taxes—learn how to stay compliant.”
Let’s say there’s Ruwan, a small business owner from Negombo who loves finding unique tech gadgets online. One evening, he scrolls through Temu and spots a cool mini projector for just LKR 5,000. Great deal, right? Without thinking twice, he places the order.
But here’s where things take a turn.
A few weeks later, he gets a call from the courier. “Sir, your parcel is at customs… but to release it, you need to pay LKR 11,200 in taxes.”
Wait, what?! That’s more than double what he paid.
Turns out, since Ruwan is buying as an individual — not a registered business, not VAT-registered, not importing under a company name — he can’t claim any of that tax back. No refunds, no credits. It’s just an extra cost for him. On the other hand, if a registered company had imported that same item for resale or business use, it could’ve reclaimed the 18% VAT in their monthly return.
In other words, the tax system gives relief to businesses, not individuals — even if they’re both importing the exact same thing.
So next time Ruwan’s tempted by a flashy online deal, he’ll think twice. Because now, the “cheap” product online might just cost more than what’s in the local store — after all the surprise taxes are added.
Sri Lanka is transforming how it taxes e-commerce and digital businesses. If you run an online business in Sri Lanka or sell digital services from abroad, you need to understand the sweeping changes coming into effect in 2025. These policies will impact pricing, compliance, profitability, and your long-term digital strategy.
Here’s what you need to know.
🔍 Overview: Why Is Sri Lanka Taxing E-Commerce Now? Sri Lanka’s 2025 E-Commerce and Digital Tax Guide
Under economic pressure and IMF agreements, Sri Lanka is broadening its tax base. The government is now bringing the long under-regulated digital economy into the tax fold. The government is targeting two major areas:
- Foreign digital service providers (Netflix, Meta, Google, Zoom, etc.)
- Local e-commerce platforms and sellers
Additionally, there’s a renewed focus on cross-border imports from global e-commerce sites like AliExpress, Temu, and eBay.
🧾 1. 18% VAT on Foreign Digital Services (Effective 2025)
Starting 2025, all non-resident digital service providers offering services to Sri Lankans will be required to collect and remit 18% Value Added Tax (VAT).
Key Points:
- Applies to services like streaming, cloud storage, social media advertising, SaaS, and e-commerce platforms.
- Threshold: If a company makes more than LKR 60 million/year or 15 million/quarter, they must register for Sri Lankan VAT.
- Filing: File the returns online quarterly through the Inland Revenue Department (IRD).
- Enforcement: Non-compliant companies may face penalties or service restrictions in Sri Lanka.
What This Means for You:
If you’re using foreign platforms (for ads, cloud, design tools), expect prices to increase. As a business, factor this VAT into your costs or shift to local alternatives where possible.
If you’re using foreign platforms say, running Facebook ads, storing files on Google Drive, or designing in Canva brace yourself. Thanks to the new 18% VAT, those bills are getting heavier. For example, your $100 ad campaign on Meta might suddenly become $118.
In other words, your digital tools are about to cost more than your morning coffee addiction. So, before your accountant faints, either start budgeting smarter or consider local alternatives—because even your Canva subscription just got a tax upgrade.
💼 2. Income Tax on Digital Profits
For Foreign Digital Service Providers:
Starting April 2025, the government will tax profits that foreign service providers earn from Sri Lankan customers at a 15% rate.
For Local IT and Digital Businesses:
Export services like software development or outsourcing will now also face 15% corporate income tax, ending the previous full tax exemption.
What This Means for You:
If you export digital services, you’re no longer tax-exempt. Plan ahead by updating your accounting structure and tax planning accordingly.
🛒 3. Local E-Commerce Businesses: No New Tax, But Stricter Enforcement
Local online sellers are being pulled into the formal tax structure:
- VAT: 18% VAT applies if your turnover exceeds LKR 60M/year.
- Income Tax: Standard 30% corporate tax on net profits.
- Social Security Contribution Levy (SSCL): Additional 2.5% turnover tax if above LKR 60M/year.
What This Means for You:
If you’re selling online in Sri Lanka, compliance is no longer optional. Your site must generate tax invoices, track revenue properly, and file on time.
📦 4. Taxes on Cross-Border E-Commerce Orders (AliExpress, Temu, etc.)
The government has shut down the informal “flat-rate per kilo” tax system that let small packages from abroad enter tax-free. Now:
- All parcels must go through standard customs.
- Expect VAT (18%), SSCL (2.5%), import duty, and handling fees.
- Even low-value items can face very high tax bills due to minimum tax rules.
Example:
A Temu order worth LKR 500 can be taxed up to LKR 37,000 due to multiple levies.
What This Means for You:
Think twice before ordering small items from abroad. If you’re a local importer or reseller, prepare for increased customs scrutiny and tax obligations.
🧭 Future Reforms: What’s Coming Next?
To fix current chaos at customs and ensure fairness, two major reforms are under discussion:
- De Minimis Thresholds – Set a minimum value below which small imports are tax-free.
- Checkout Tax Collection – Let major e-commerce platforms collect VAT at checkout and remit to Sri Lanka.
These reforms could make things smoother for consumers and small businesses — but until then, expect delays, taxes, and friction on most global e-commerce imports.
💬 Final Thoughts: It’s Time to Get Tax-Ready
These aren’t just technical changes. They affect how you price products, pay service providers, handle compliance, and manage your profit margins. Whether you’re a local entrepreneur or a global digital seller, compliance is now a must.
✅ Don’t wait until you’re penalized. Get your VAT registration sorted, consult a tax advisor, or work with experts who understand the digital space.
How to register for a tax in Sri Lanka
Tax Type:
Register for IIT, PIT, VAT, VAT on FS, WHT, PAYE or NBT
Get the guide from here
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