General

VAT/GST registration

VAT/GST compliance

VAT/GST recovery

Invoices

Special indirect tax rules

Rulings

Other indirect taxes

Contacts

Type of indirect tax:

VAT.

Standard rate:

15 percent.

What supplies are liable to the standard rate?

All supplies of goods or services that do not come under zero-rated or exempt supplies are liable at the standard rate.

Are there any reduced rates, zero- rates or exemptions and if so, what do they apply to?

Zero-rated supplies include exports of goods and certain services that are specified in the VAT Act.

Exempt supplies comprise specified goods and services and certain imported goods, including wheat; wheat flour; drugs; medicines; aids and implements used by disabled persons; ayurvedic preparations; locally developed software, etc.

A reduced rate of 5 percent is applicable to the importation of certain goods.

A special rate of 7 percent has been introduced for the period from 1 June 2019 to 31 March 2020 for hotels and tour operators registered with the Sri Lanka Tourism Development Authority.

Who is required to register and what is the threshold?

• local buying and selling (wholesale and retail):12.5 million Sri Lankan rupee (LKR) for every 3 months
• supply of goods and services (including financial services): LKR3 million for every 3 months or 12 million for every 12 months
• importation: every importer has to register and there is no threshold limit.

Is voluntary registration possible?

No.

Is voluntary registration available for an overseas company or a fiscal representative?

No; note that specific regulations are applicable to overseas companies.

What is the typical frequency of returns?

Quarterly, but exporters and certain VAT registrants must file monthly.

Are there any items that a registered business cannot recover VAT on?

There are specific rules governing input tax credit claims. For example, input tax incurred in relation to exempt supplies and on expenses in relation to vehicles used for travelling cannot be claimed.

Can an overseas company recover VAT if it is not registered?

No.

How long does it typically take to obtain a VAT refund following a return filing?

As per the law, a refund should be received within 3 years of filing of the VAT returns, although in practice, this is not always the case and the process can take a substantial time.

Are there specific requirements for the content of invoices to be considered valid for VAT purposes?

Yes, a tax invoice shall set out the following:

• the name, address and the registration number of the supplier
• the name, address and registration number of the person to whom the supply was made
• the date on which the tax invoice was issued and its serial number should not exceed 40 characters
• the date of supply and description of the goods or services
• the quantity or volume of the supply
• the value of the supply, the tax charged and the consideration for the supply
• the words ‘TAX INVOICE’ in a prominent place on such invoice.

It should be noted that the Inland Revenue Department (“IRD”) does not allow input tax credit claims if the invoice is not issued in the prescribed format.

Does a reverse charge or indirect tax withholding mechanism apply?

No.

Is it possible to apply for formal or informal advance rulings from the tax authority?

Yes, there is a committee that can issue advanced formal rulings. However the IRD verbally indicated that formal rulings would only be issued for Income Tax purposes under the New Inland Revenue Act.

Are there any other indirect taxes that apply in the jurisdiction?

Other indirect taxes include the following:

• nation building tax 
• customs duty 
• excise duty
• stamp duty
• cess
• ports and airports development levy.

Suresh R I Perera
Principal – Tax & Regulatory
KPMG in Sri Lanka
T: +94 1 1542 6502
E: sperera@kpmg.com

All information within this guide is provided by KPMG professionals in Sri Lanka and based on information available as of September 2019.