[Global IDT Insights] Sri Lanka to Levy 18% VAT on Digital Services by Non-Resident Providers

Editorial Team – [2025] 176 taxmann.com 646 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. Sri Lanka to impose 18% VAT on Digital Services provided by Non-Resident service providers

Effective October 1, 2025, Sri Lanka will impose Value Added Tax (VAT) on digital services provided by non-resident suppliers. A standard VAT rate of 18 percent will apply to such services.

The following services, when supplied through an electronic platform, are treated as taxable supplies and include but are not limited to:

• Cloud computing – hosting, storage, and computing power services
• Software as a service (SaaS) – web-based applications
• E-commerce services – online stores, payment gateways, and order fulfilment services
• Digital marketing and advertising – SEO, social media marketing, PPC ads, and email marketing
• Cybersecurity services – threat detection, firewall protection, and data encryption
• IT support and managed services – remote tech support, IT consulting, and helpdesk solutions
• Streaming services – video, music, live content platforms
• Financial technology (FinTech) – online banking, payment processors (PayPal, Stripe, and cryptocurrency exchanges)
• E-commerce platforms
• Social media platforms
• On-demand service platforms
• Content sharing platforms
• Cloud collaboration platforms
• Marketplace platforms
• Gaming platforms
• Blockchain and NFT platforms
• Subscription to membership websites
• Use of apps for hotel reservation and ticket booking

VAT registration will be mandatory for non-resident suppliers whose turnover exceeds LKR 60 million in a 12-month period or LKR 15 million in a 3-month period. Upon registration, suppliers are required to obtain a Taxpayer Identification Number.

Additionally, non-resident suppliers must issue VAT-compliant invoices, file VAT returns electronically, and maintain records for a minimum of five years for audit purposes.

The framework also outlines penalties for noncompliance and provides procedures for registration cancellation. This measure brings Sri Lanka in line with other jurisdictions that have adopted digital VAT regimes.

Source – Official News