Sri Lanka to Impose 18% VAT on Digital Services from October 2025

 The new tax measure, introduced under the Value Added Tax (Amendment) Act No. 04 of 2025, is detailed in Extraordinary Gazette No. 2443/30 issued by the Inland Revenue Department (IRD) on July 1, 2025.

The tax targets non-resident digital service providers supplying services to Sri Lankan customers, both in business-to-business (B2B) and business-to-consumer (B2C) transactions. Foreign suppliers must register for VAT if their taxable digital service revenue exceeds Rs. 60 million annually or Rs. 15 million per quarter.

Taxable services include e-commerce, cloud computing, streaming platforms, SaaS, digital marketing, mobile apps, and fintech services, among others.

The IRD has launched a simplified online VAT registration process for foreign providers and is expected to issue more detailed guidelines and conduct awareness sessions in the coming months. The move aligns Sri Lanka’s tax framework with global standards and aims to increase revenue from the digital economy.