Latest VAT Requirements for IT Outsourcing Companies in Sri Lanka

In: Tax in Sri Lanka, Uncategorized

The latest VAT requirements for IT outsourcing in Sri Lanka for 2026 bring major changes for exporters and tech firms.

Sri Lanka’s VAT regime has undergone major changes effective 1 April 2026, impacting IT outsourcing and export service providers. Here’s what you need to know:

Infographic on VAT requirements for IT outsourcing in Sri Lanka 2026

VAT Registration Threshold

Mandatory for exporters: All commercial exporters—including IT service providers—must register regardless of turnover.
(Sources: [lankabiznews.com], [kpmg.com], [ird.gov.lk], [newsfirst.lk])

Threshold reduced: Annual turnover requirement lowered from LKR 60 million to LKR 36 million.
→ Companies earning roughly LKR 3 million per month must register for VAT.

Export Services: Zero-Rated Status

Under Section 7 of the VAT Act, exported services are zero-rated if:

Services are wholly consumed outside Sri Lanka (e.g., software development, remote support).
Payments are received in convertible foreign currency, through a licensed Sri Lankan bank, within 6 months of the tax period.
(Sources: ird.gov.lk)

Covered Services include:

Computer software developed for use outside Sri Lanka.
Client-support and IT services delivered online or via telephone for foreign clients.
Other services consumed abroad, subject to payment conditions.

Cash-Flow & Refund Mechanism

SVAT abolished in October 2025.
New risk-based VAT refund system allows exporters to claim input tax refunds within 45 days of filing VAT returns.
(Sources: [ird.gov.lk], [globalvatcompliance.com])

🔍 Summary of VAT Requirements for IT Outsourcing Companies

Aspect	Details (2026)
VAT Registration	Mandatory if annual turnover ≥ LKR 36 million OR if exporting services (any turnover)
Zero-Rated Exports	Yes, for IT services (software dev, client support, etc.) provided to overseas clients
Conditions for Zero-Rating	1. Services consumed outside Sri Lanka 2. Payment in foreign currency via local bank within 6 months
Refund Mechanism	Input tax refundable via risk-based system, within 45 days

In summary:
From April 2026, IT outsourcing providers in Sri Lanka must register for VAT if turnover exceeds LKR 36 million annually or if they export services. Exported IT services remain zero-rated under strict conditions, and input tax refunds are now processed faster under the new system.