Effective October 1, 2025

๐Ÿ’ป Digital Just Got Taxed โ€“ Are You Ready?

The digital economy in Sri Lanka is entering a new era of regulation. With the enactment of the VAT (Amendment) Act No. 4 of 2025, Value Added Tax (VAT) will now apply to digital services offered by both resident and non-resident suppliers to customers in Sri Lanka.

To ensure smooth implementation, the Inland Revenue Department (IRD) has released detailed operational guidelines through Gazette Notification No. 2443/30, dated July 1, 2025.

This article breaks down the essentials you need to know to stay informed and compliant.

๐Ÿ‘ฅ Who Is Liable?

Any non-resident person who supplies digital services to a person in Sri Lanka via an electronic platform is liable for VAT.

Examples:

  • A cloud software provider billing Sri Lankan customers

  • A foreign e-commerce platform selling digital goods

  • An app store or streaming platform charging subscription fees

๐Ÿ“ How to Register for VAT

  1. Obtain a Tax Identification Number (TIN) from the IRD

  2. Apply for VAT registration through the IRD system

๐Ÿ“Œ Note: Registration is mandatory only if:

  • Supply value exceeds LKR 60 million in the last 12 months, or

  • LKR 15 million in any recent 3-month period

๐Ÿ’ณ How to Make VAT Payments

  • VAT must be paid by the non-resident supplier to the IRD

  • Payment deadline: 20th day of the month following the end of the taxable period

๐Ÿ“„ Filing VAT Returns

  • Returns must be filed no later than the last day of the month following the taxable period

  • Filing can be done electronically via the IRDโ€™s online platform

Digital City
Digital Board

What Counts as Digital Services?

Here are the key categories subject to VAT:

  • E-commerce Platforms & Services

  • Cloud Computing & SaaS

  • Digital Marketing & Online Advertising

  • IT Support & Managed Services

  • Streaming Services (Video, Music, etc.)

  • FinTech Services (e.g., payment gateways, mobile wallets)

  • Subscription & Membership Sites

  • Social Media & Content Platforms

  • On-Demand Service & Booking Apps

  • Gaming & Marketplace Platforms

  • Blockchain, NFT & Crypto Platforms

  • Hotel Booking & Ticketing Apps

What is the Value of Supply for VAT?

The supply value is the total amount received or receivable by the non-resident supplier or platform operator for providing digital services in Sri Lanka.

โš ๏ธ Important Exception:
If the platform only facilitates a transaction between an original supplier and the consumer, the VAT liability excludes the value of the goods/services supplied by the original party, even if the non-resident collects the full payment.

VAT Rate on Digital Services

A standard VAT rate of 18% applies to all qualifying digital services based on the value of supply.