The government will implement a new Value Added Tax (VAT) regime targeting digital services provided by non-resident companies to Sri Lankan consumers, effective October 1, 2025, under the provisions of the VAT (Amendment) Act No. 4 of 2025.
According to the Inland Revenue Department (IRD), the revised law requires foreign digital service providers, such as streaming platforms, e-commerce sites, and software companies, to register for VAT in Sri Lanka and charge 18% VAT on services offered to local users.
The department has also issued detailed implementation guidelines via Gazette Notification No. 2443/30, outlining the scope, obligations, and enforcement mechanisms under the new tax policy.
Key services covered
Among the digital services now subject to VAT are:
Streaming platforms (video, music)
Online gaming and gaming platforms
Software as a Service (SaaS)
Cloud computing and cloud collaboration platforms
E-commerce marketplaces
Social media platforms
Digital marketing and online advertising
Hotel booking and ticketing apps
Subscription and membership websites
Blockchain and NFT platforms
FinTech services
IT support and managed services
Who is affected?
The new rules define “non-resident persons” and “electronic platforms,” placing mandatory VAT collection and remittance responsibilities on foreign companies delivering digital goods and services in Sri Lanka.
Marketplace facilitators such as platforms that enable third-party sales may also be held liable for VAT reporting in certain cases.
Foreign service providers are required to obtain a Tax Identification Number (TIN) and register for VAT if their annual turnover exceeds Rs. 60 million, or Rs. 15 million in any three-month period.
Enforcement and penalties
The IRD has warned that non-compliance with registration or payment obligations could result in penalties under the new regulations.
The move brings Sri Lanka in line with global tax practices seen in countries such as India, Australia, and members of the European Union, which have implemented digital service taxes to level the playing field between local and international service providers.
The government expects the measure to enhance tax compliance, ensure fair competition, and boost domestic revenue generation from a fast-growing digital economy.
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