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Freelancer & Independent Contractor Tax in Sri Lanka - 2025 Update

Frequently Asked Questions

Any expense that is directly linked to earning your income can be claimed. For IT professionals and freelancers, this often includes internet bills, software subscriptions, domain and hosting fees, hardware purchases, and other essential tools for delivering your work. You may also deduct business travel, professional consultation fees, and materials used in your services. Personal or private expenses that are not connected to your earning activities cannot be claimed.

No — costs that your company has reimbursed you are not treated as your expenses. Reimbursed amounts were paid back to you for specific costs and therefore should not be claimed as your own deductible expense here.

No — repayments or reimbursements are not your earnings. They are returns of money you spent and do not count as taxable income or business revenue in this context.

Yes, provide the exchange rate when possible. If converting to LKR, use the Central Bank of Sri Lanka (CBSL) buying rate for the date of the transaction. If an exact CBSL rate isn’t available, note which reliable source you used and the date.

No — only assets that are less than 5 years old are allowed under this guideline. If an asset is older than 5 years, it should not be added here.

Keep all original invoices and receipts safely with you. When submitting to us, provide only the expense amounts and any requested summary details — but retain the invoices in case we need to verify items later.

Overview

From April 1, 2025, freelancers and independent service providers in Sri Lanka are subject to updated income tax rules, particularly concerning foreign currency income. Whether you offer digital services, work remotely, or run a side business, understanding how the Inland Revenue Department (IRD) classifies your income is crucial for staying compliant.

Freelancer vs. Employee – Know the Difference

The IRD distinguishes between regular employees and contractors based on work structure. Employees are taxed under new APIT table No.08 with no business expense deductions. Freelancers, however, must pay quarterly self-assessment taxes and are eligible to deduct legitimate business expenses.

Foreign Income – New Tax Rules

The resident individual who earned from overseas and remitted through a licensed Sri Lankan bank is now taxed. Maximum 15% rate applies to the portion exceeding the personel tax relief allowance, provided proper remittance is done. Always retain bank records and invoices to support your declaration.

Income Tax Rates for YA 2025–26

  • Tax-free allowance: LKR 1,800,000
  • Next LKR 1,000,000: 6%
  • Balance income: 15%

Quarterly Filing & Deductions

Freelancers must file quarterly advance income tax and submit their annual return by November 30. Below are the quarterly deadlines for YA 2025–26:

Quarter Period Covered Payment Due Date
Q1 April 1 – June 30 August 15
Q2 July 1 – September 30 November 15
Q3 October 1 – December 31 February 15
Q4 January 1 – March 31 May 15

Freelancers can deduct necessary business-related expenses to minimize tax burden. Common deductions include:

  • Electricity and water bills
  • Internet and phone charges
  • Software subscriptions and domain costs
  • Professional tax consulting fees
  • Travel expenses related to assignments
  • Office or co-working space rent
  • Small equipment & stationery

Additionally, freelancers may claim capital allowances for the assets using for the freelancing activities like computers, desks, and office furniture at a rate of 20% per year, over a maximum of five years, as per Inland Revenue guidelines.

Tips for Compliance

To stay compliant: register for a TIN, remit income via banks, maintain accurate income and expense records, and file returns on time. If in doubt, consult a tax professional familiar with Sri Lankan tax law.