Understanding VAT in Sri Lanka: A Quick Guide for Businesses
Value Added Tax (VAT) is a key component of the Sri Lankan tax system, applicable to various types of businesses and transactions. Here's a quick overview of VAT chargeability, registration thresholds, applicable rates, and the responsibilities of registered persons as per the regulations effective from 01st January 2024.
Chargeability for VAT
VAT applies to the following categories of suppliers and businesses:
- Manufacturers
- Importers
- Exporters
- Service Providers
- Suppliers under Tender Agreements
- Wholesale and Retail Traders
- Non-Resident Persons Supplying Services through Electronic Platforms
Registration Threshold
As of 01.01.2024, registration for VAT is mandatory for any person or entity (including those in wholesale and retail trade) if:
- Quarterly taxable supply exceeds Rs. 15 million, or
- Annual taxable supply exceeds Rs. 60 million
These thresholds exclude financial services.
VAT Rate
The standard VAT rate applicable from 01st January 2024 is 18%.
Responsibilities of a VAT Registered Person
Once registered for VAT, businesses are legally bound to:
- Display the VAT Certificate at a visible location in the business premises.
- Issue Tax Invoices for transactions with other VAT-registered persons.
- Maintain proper accounts for the relevant tax periods.
- Pay VAT and file returns on time.
- Notify the Inland Revenue Department (IRD) promptly about any changes such as:
- Business name
- Location
- Ownership
- Nature of business
VAT Payment & Returns
- Payment Deadline: On or before the 20th of the following month for each taxable month.
- Filing VAT Returns: Due on or before the last day of the month following the end of each taxable period (monthly or quarterly).
Staying compliant with VAT requirements is essential for businesses to avoid penalties and maintain smooth operations. Make sure your business stays updated with the latest regulations from the Inland Revenue Department (IRD) to ensure full compliance.