If you’re a freelancer, remote worker, or IT professional earning in foreign currency — this article is critical for you. The rules changed on 1 April 2025.

What Changed?

Previously, income from services rendered to foreign clients was tax-exempt if remitted to Sri Lanka. That exemption is gone.

From 1 April 2025:

• Service export income remitted through a Sri Lankan bank → taxed at flat 15% (this is a final tax)
• Service export income NOT remitted through a bank → taxed at progressive rates up to 36%
• Foreign-sourced income follows the same rule

The key word is “remitted through a bank.” If you receive payment via Payoneer, Wise, or PayPal and transfer to your Sri Lankan bank account — that counts. If you keep it offshore or bring it in cash, you face the higher progressive rates.

How Does This Affect You Practically?

Let’s say you’re a web developer earning $3,000/month from overseas clients ($36,000/year ≈ Rs. 10,800,000 at Rs. 300 per USD):

Old rules (before April 2025): Rs. 0 tax (exempt if remitted through bank)

New rules (from April 2025):

• If remitted through bank: Rs. 10,800,000 × 15% = Rs. 1,620,000 tax
• If NOT through bank: Could pay up to Rs. 2,700,000+ (progressive rates)

That’s a significant change. But 15% is still much better than 36%.

How to Pay and File

1. Get a TIN if you don’t have one (register at ird.gov.lk)
2. File your SET by 15 August 2025
3. Pay quarterly installments (15 Aug, 15 Nov, 15 Feb, 15 May)
4. File your Return of Income by 30 November 2026

Can You Claim Deductions?

Yes. Even as a freelancer, you can deduct:

• Business expenses (equipment, software, internet, workspace)
• Qualifying charitable donations (up to limits)
• Solar panel installation costs

If you operate through a registered business, you may also be able to deduct office rent, employee salaries, and other operating costs.

What If You’re Earning in Both LKR and Foreign Currency?

Your Sri Lankan income (LKR) is taxed at normal progressive rates. Your foreign currency income remitted through banks gets the 15% flat rate. They’re calculated separately.

What If You Have a Double Tax Agreement?

If you’re paying tax in the client’s country on the same income, you may be eligible for a Foreign Tax Credit. Sri Lanka has DTAs with 46 countries. This prevents you from being taxed twice.

Calculate Your Tax Now

Use our free calculator to see exactly how much you’ll owe:

👉 Calculate Your Freelancer Tax — Free 👈

This Is Complex — Get Professional Help

The intersection of foreign income, service exports, bank remittances, and Sri Lankan tax law is complicated. One mistake can cost you lakhs in penalties.

GDP Consultants specialize in tax advisory for IT professionals and freelancers. We help you:

✅ Structure your income to legally minimize tax ✅ Set up proper invoicing and bank remittance documentation ✅ File your SET and Return of Income ✅ Claim all eligible deductions

📞 Book a Free Consultation for Freelancers | ☎️ +94 71 920 4903