VAT Registration Threshold Sri Lanka — What Actually Happened in July 2026

Correction: This post originally said the VAT and SSCL registration threshold would drop from LKR 60 million to LKR 36 million per year from 1 July 2026. That proposal, part of the original VAT Amendment Bill, was dropped by Parliament on 23 June 2026. The Value Added Tax (Amendment) Act No. 14 of 2026 — certified 30 June 2026 and gazetted 3 July 2026 — retains the threshold at LKR 60 million per year. If your turnover is below that, you are not required to register for VAT, though voluntary registration remains available.

Use our free VAT Registration Threshold Checker (click the 📝 VAT Threshold tab) to check your business’s registration status against the current rules.

VAT Threshold — Current Position

The reduction to LKR 36 million / LKR 9 million was proposed in the 2026 Budget and the April 2026 VAT Amendment Bill, but was withdrawn before enactment. Businesses that began registering, or budgeted, on the assumption the lower threshold was going ahead do not need to register on that basis alone.

What Did Go Ahead From 1 July 2026

• VAT on financial services rose to a composite 20.5% rate (18% VAT + 2.5% SSCL consolidated) for banks and financial institutions.
• VAT on nonresident digital services is now in effect. Non-resident digital service providers must register if their supplies to Sri Lankan consumers exceed LKR 60 million in 12 months or LKR 15 million in a quarter — the same general thresholds as domestic registration, not the lower LKR 36m/9m figures floated earlier in the year.
• The new mandatory VAT tax invoice format (Gazette No. 2481/22) is now fully binding for all VAT-registered persons.

Who Needs to Register for VAT?

You must register if your annual taxable turnover exceeds LKR 60 million, or LKR 15 million in any taxable quarter, or there are reasonable grounds to believe you will exceed either threshold in the near future. This is unchanged from the position before July 2026.

What Happens After VAT Registration?

• Must charge 18% VAT on all taxable supplies (20.5% if you’re a bank or financial institution)
• Must file monthly VAT returns by the last day of the following month
• Can claim input tax on business purchases
• Must issue VAT-compliant tax invoices to customers, in the new mandatory format
• Must maintain VAT records for 5 years

FAQs

Did the VAT registration threshold actually drop to LKR 36 million?

No. That change was proposed but withdrawn by Parliament on 23 June 2026 before the final Act was certified. The threshold remains LKR 60 million per year.

What if I exceed the VAT threshold but don’t register?

Failure to register for VAT when required carries significant penalties under the VAT Act, including backdated VAT liability, penalties and interest. The IRD can also assess VAT on all unregistered supplies retroactively.

Can I voluntarily register for VAT below the threshold?

Yes. Voluntary VAT registration is available for businesses below the threshold. This can be beneficial if you have significant input VAT on purchases that you want to claim back.

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