Global

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  • Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 5/9/2014

Sri Lanka - Tax reforms affecting foreign investors 

May 9:  Recent tax developments in Sri Lanka include a new income tax treaty with Bahrain and proposals affecting foreign investors, as announced in the country’s 2014 budget.

New treaty with Bahrain

Sri Lanka agreed to an income tax treaty with Bahrain, as reported in the official gazette in late January 2014.

2014 tax reforms

The 2014 budget proposals concerning foreign investors include:


  • Redistribution of offshore dividend income - The Inland Revenue Amendment Bill exempts the redistribution of offshore dividend income from dividend tax, provided the company makes the redistribution within three months from receipt.
  • Foreign source royalty income - The bill exempts foreign royalty income of residents from internationally recognized intellectual property (as of 1 April 2014), provided such royalties are earned in foreign currency and remitted to Sri Lanka through a bank. The cost of acquiring intellectual property related to international brands is tax-deductible.

The legislation also provides a range of tax holidays (depending on the value of the investment and the sectors in which the investment is made).


For investments made to expand an existing business, the time limit for qualifying payment relief has been advanced to April 2014. However, for investments in plant and machinery acquired to improve energy efficiency, upgrade technology, introduce a new technology or generate power using renewable energy resources, the time limit for making an expansion investment is 1 April 2015.


As of 1 April 2014, the exemption for investments in companies engaged in research and development (R&D) activities has been repealed.


Read a May 2014 report prepared by KPMG: Sri Lanka - new treaty with Bahrain, 2014 tax reforms




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