From April 1, 2025, freelancers and independent contractors in Sri Lanka are subject to updated income tax rules, particularly concerning foreign currency income. Whether you offer digital services, work remotely, or run a side business, understanding how the Inland Revenue Department (IRD) classifies your income is crucial for staying compliant.
The IRD distinguishes between regular employees and contractors based on work structure. Employees are taxed under PAYE with no business expense deductions. Freelancers, however, must pay quarterly self-assessment taxes and are eligible to deduct legitimate business expenses.
Income earned from overseas and remitted through a licensed Sri Lankan bank is now taxed. A flat 15% rate applies to the portion exceeding the standard allowance, provided proper remittance is done. Always retain bank records and invoices to support your declaration.
Freelancers must file quarterly advance income tax and submit their annual return by November 30. Below are the quarterly deadlines for FY 2025–26:
| Quarter | Period Covered | Payment Due Date |
|---|---|---|
| Q1 | April 1 – June 30 | August 15 |
| Q2 | July 1 – September 30 | November 15 |
| Q3 | October 1 – December 31 | February 15 |
| Q4 | January 1 – March 31 | May 15 |
Freelancers can deduct necessary business-related expenses to reduce taxable income. Common deductions include:
Additionally, freelancers may depreciate capital assets like computers, desks, and office furniture at a rate of 20% per year, over a maximum of five years, as per Inland Revenue depreciation guidelines.
To stay compliant: register for a TIN, remit income via banks, maintain accurate income and expense records, and file returns on time. If in doubt, consult a tax professional familiar with Sri Lankan freelance tax law.