Withholding Tax (WHT) in Sri Lanka: Rates & How It Works

Withholding tax (WHT) in Sri Lanka is tax that a payer deducts from certain payments, such as interest, rent, dividends and service fees, and pays straight to the Inland Revenue Department (IRD). Rates in 2026 range from 2% to 15%, depending on the type of payment and whether the receiver is a resident or a non-resident. The payer must deduct the tax, pay it to the IRD by the 15th of the next month, and give the receiver a certificate.

Whether you are a business owner, a freelancer or a landlord, getting WHT wrong can lead to penalties or lost tax credits. This guide covers the current rates, who must deduct, exemptions, due dates and recent changes in 2026. Read on for a simple step-by-step process, calculation examples and a compliance checklist. 

What Is Withholding Tax (WHT) in Sri Lanka?

Withholding tax (WHT) in Sri Lanka is a tax that the payer deducts from certain payments before passing the money to the person receiving it. The payer, called the withholding agent, then pays that deducted amount to the Inland Revenue Department (IRD) on the receiver’s behalf.

For example, when a company pays rent, interest or a service fee that falls under WHT rules, it does not pay the full amount. It keeps a set percentage as tax, pays the balance to the receiver, and sends the tax to the IRD.

WHT is governed by the Inland Revenue Act No. 24 of 2017, which came into effect on 1 April 2018, along with later amendments. It applies both to payments made within Sri Lanka and to payments sent to people and companies overseas.

The main purpose of WHT is to collect tax early and make sure income is not left untaxed. For the receiver, the tax deducted is either a final tax or a credit they can claim against their annual income tax. 

Key Terms You Should Know

Before looking at rates, it helps to know the common terms used in WHT rules:

• Withholding agent: The person or business making the payment. They deduct the tax and pay it to the IRD.
• Withholdee: The person or business receiving the payment, after tax has been deducted.
• Final WHT: Tax that fully settles the receiver’s tax on that income. They do not need to pay more or include it in a tax return for that income.
• Non-final WHT: Tax treated as an advance payment. The receiver reports the income in their tax return and claims the deducted amount as a credit.
• Advance Income Tax (AIT): Tax deducted in advance, mainly from interest paid to residents. It is credited against the receiver’s final income tax.
• APIT (Advance Personal Income Tax): Tax employers deduct from employees’ salaries. It works like WHT but applies only to employment income.
• WHT certificate: A document the withholding agent gives the receiver, showing the payment made and the tax deducted.
• TIN (Taxpayer Identification Number): The number the IRD uses to identify each taxpayer and withholding agent. 

Who Must Deduct WHT?

Any person or organisation that makes a payment covered by WHT rules must deduct the tax. This includes:

• Companies and partnerships
• Trusts, clubs and non-governmental organisations
• Public corporations, state-owned entities and universities
• Individuals who make payments in the course of running a business

There are two main groups that do not need to deduct WHT. The first is the Sri Lankan Government itself, though public corporations, universities and other state-owned bodies must still deduct it. The second is individuals making personal payments that have nothing to do with a business. For example, a person renting a house to live in does not need to deduct WHT from the rent.

Anyone who must deduct WHT is called a withholding agent. A withholding agent must register with the Commissioner General of Inland Revenue at least 30 days before starting to deduct tax. From then on, they are responsible for deducting the right amount, paying it to the IRD on time, and issuing certificates to the people they pay.  

Payments Subject to WHT in Sri Lanka

WHT applies only to certain types of payments that have a source in Sri Lanka. The main ones are:

• Interest and discounts: Interest paid on deposits, loans and similar arrangements, including payments to individuals and companies.
• Dividends: Profits that companies share with their shareholders.
• Rent: Rent paid to resident persons when the total monthly amount is more than LKR 100,000, and rent paid to non-residents.
• Service fees: Fees paid to resident professionals and service providers when monthly payments are more than LKR 100,000, and service fees paid to non-residents.
• Royalties: Payments for using intellectual property such as patents, trademarks, copyrights or software.
• Natural resource payments: Payments for taking or using natural resources.
• Insurance premiums: Premiums paid to non-resident insurers.
• Transport and telecom services: Payments to non-residents for land, sea, air transport or telecommunication services.
• Lottery, betting and gaming winnings: Prizes and rewards above the set limits.
• Gem auction sales: Sales made at National Gem and Jewellery Authority auctions.

Each of these payments has its own rate, explained in the next section. 

WHT Rates in Sri Lanka for 2026

The current WHT rates are set out in IRD Circular No. SEC/2026/E/04, which took effect in June 2026. The rate depends on the type of payment and whether the receiver is a resident or non-resident.

Type of Payment	Receiver	WHT Rate
Land, sea, air transport or telecom services	Non-resident	2%
Gem sales at NGJA auctions	Any	2.5%
Service fees (above LKR 100,000 per month)	Resident individual	5%
Interest and discounts	Any	10%
Rent (above LKR 100,000 per month)	Resident	10%
Rent, royalties, service fees, insurance premiums, natural resource payments	Non-resident	14%
Lottery, betting and gaming winnings	Any	14%
Dividends	Any	15%

Where a monthly threshold applies, WHT is deducted from the full amount once the limit is crossed, not just the part above it.

For payments to non-residents, a lower rate may apply if Sri Lanka has a Double Tax Avoidance Agreement (DTA) with the receiver’s country. 

WHT on Service Fees for Professionals

When a business pays a resident individual for professional services, it must deduct 5% WHT if the total paid to that person in a month is more than LKR 100,000. Once this limit is crossed, the 5% applies to the full monthly amount, not just the part above LKR 100,000.

This rule first covered professions such as doctors, engineers, accountants, lawyers, lecturers and IT specialists. From 3 June 2026, the Inland Revenue (Amendment) Act No. 11 of 2026 widened it to cover many more service providers, including:

• Auditors, valuers, advisors and translators
• Artists, actors, dancers, singers and musicians
• Photographers, videographers and social media specialists
• Personal trainers, coaches, beauticians and counsellors
• Dentists, veterinarians and electricians
• Event organisers, writers and sports persons

This WHT is not a final tax. Professionals should report the full fee in their annual income tax return and claim the 5% deducted as a credit. Keeping every WHT certificate from clients makes this much easier. 

WHT on Payments to Non-Residents

When a Sri Lankan business pays a non-resident person or company for income that has a source in Sri Lanka, it must usually deduct WHT before sending the money abroad. The common rates are:

• 14% on service fees, royalties, rent, insurance premiums and natural resource payments
• 2% on land, sea, air transport and telecom services
• 15% on dividends
• 10% on interest

For most non-residents, this WHT is a final tax. This means they do not need to file a Sri Lankan tax return for that income.

These rates can be lower if Sri Lanka has a Double Tax Avoidance Agreement (DTA) with the receiver’s country. Sri Lanka has DTAs with over 40 countries. To apply a lower treaty rate, the payer should get proof that the receiver is a tax resident of that country, usually a certificate of residence.

Banks also check WHT before sending money overseas. Under IRD rules, businesses may need to show that WHT has been paid, or get a tax clearance, before the bank processes the transfer. 

WHT Exemptions

Not every payment needs WHT deducted. Under the current IRD guidelines, WHT does not apply in these cases:

• Government payments: Payments made by the Sri Lankan Government. Public corporations, universities and state-owned entities must still deduct WHT.
• Personal payments by individuals: Payments made by individuals who are not running a business.
• Interest to financial institutions: Interest paid to banks and financial institutions on ordinary loans or advances.
• Treasury bills and bonds: Interest or discounts paid on Treasury bills, Treasury bonds and other government securities.
• Foreign currency sovereign bonds: Interest on bonds such as Sri Lanka Development Bonds.
• Certain dividends: Dividends paid by resident companies in specific BOI-approved businesses, such as entrepôt trade, offshore business and logistics, and dividends paid out of dividends the company itself received.
• Small lottery winnings: Winnings where the gross amount is LKR 500,000 or less.
• Diplomatic immunity: Income covered by diplomatic privileges.

Resident individuals with no taxable income for the year can also submit a self-declaration to their bank to avoid WHT on deposit interest. False declarations can lead to penalties of up to LKR 200,000. 

How WHT Works: Step-by-Step Process

The WHT process involves two sides: the payer who deducts the tax and the receiver who gets the balance. Here’s how it works from the payer’s side:

1. Register with the IRD: Before deducting any WHT, register as a withholding agent with the Commissioner General of Inland Revenue. This must be done at least 30 days before your first deduction.
2. Check if WHT applies: Look at the type of payment, whether the receiver is a resident or non-resident, and whether an exemption or monthly threshold applies. For non-residents, check if a tax treaty allows a lower rate.
3. Work out the amount: Apply the correct rate to the gross payment, leaving out VAT.
4. Deduct and pay the balance: Deduct the tax when you pay or credit the amount, then pay the rest to the receiver.
5. Send the tax to the IRD: Pay all tax deducted in a month within 15 days after that month ends, either online or through People’s Bank.
6. Give a WHT certificate: Issue a free certificate to the receiver within 30 days after the end of the month, showing the payment and tax deducted.
7. File the annual statement: After the year of assessment ends, submit a statement listing all payments and deductions for the year.

On the receiver’s side, the process is simple. They keep their WHT certificates and, where the tax is not final, claim the amount as a credit in their annual income tax return. 

How to Calculate WHT (With Examples)

The basic formula is simple:

WHT = Gross payment (excluding VAT) × WHT rate

The receiver gets the gross payment minus the WHT. If the payment is in a foreign currency, convert it to rupees using the Central Bank’s selling exchange rate on the payment date.

Example 1: Rent

A company pays a resident landlord LKR 150,000 a month in rent. This is above the LKR 100,000 limit, so 10% WHT applies to the full amount.

• WHT: 150,000 × 10% = LKR 15,000
• Paid to the landlord: LKR 135,000
• Paid to the IRD: LKR 15,000

Example 2: Service fee to a resident professional

A business pays a photographer LKR 120,000 for a month, plus VAT. WHT is worked out on LKR 120,000 only.

• WHT: 120,000 × 5% = LKR 6,000
• Paid to the photographer: LKR 114,000 (plus VAT, if charged)

If the full invoice is paid without deducting WHT

The invoice amount is treated as the net amount, and the payer must work out the gross figure:

Gross = Net ÷ (1 − WHT rate)

For example, if LKR 135,000 is paid as net rent at 10%, the gross is 135,000 ÷ 0.90 = LKR 150,000, and the WHT is LKR 15,000. 

WHT Payment Due Dates and Methods

WHT deducted in a month must reach the IRD within 15 days after the end of that month. Payments received after the due date are treated as late, even if made by bank draft or pay order.

Item	Details
Payment deadline	15th of the following month
Example	WHT deducted in August 2026 is due by 15 September 2026
Online payment	IRD Online Tax Payments Platform (OTPP)
Bank payment	People’s Bank, using the IRD payment slip
Tax code 43	WHT/AIT on interest
Tax code 44	WHT on other payments
WHT certificate	Within 30 days after the end of the month
Annual statement	After the year of assessment ends, filed electronically

Use the correct tax code when paying. Mixing up codes can cause the payment to be recorded against the wrong tax type.

Late payment brings interest and penalties, which the IRD does not normally waive. If you are unsure of a deadline, check the IRD notices page, as the department posts monthly reminders. You can also call the IRD hotline on 1944. 

WHT Certificates

A WHT certificate is a document that proves tax was deducted from a payment. The withholding agent must give one to every person they deducted WHT from.

When to Issue It? 

The certificate must be issued free of charge within 30 days after the end of the month in which the tax was deducted. Employers follow a separate timeline for APIT certificates, which cover the full year of assessment.

What It Should Show?

• Name and TIN of the withholding agent and the receiver
• Type and amount of each payment
• Rate and amount of tax deducted
• The period the certificate covers

Why the Receiver Needs It? 

Where WHT is not a final tax, the receiver uses the certificate to claim the deducted amount as a credit against their annual income tax. Without it, they may struggle to prove the tax was paid. The certificate also helps if the IRD asks questions about their income.

If you are a receiver and have not been given a certificate, ask the payer for it before filing your tax return. Withholding agents who fail to issue certificates or follow the correct format may face penalties. 

Penalties for Not Following WHT Rules

Withholding agents who do not follow WHT rules can face several penalties:

• Interest on late payment: Tax that is not paid by the due date attracts interest from the original due date until it is settled. The IRD has recently quoted a rate of 1.5% per month on unpaid tax.
• Late payment penalties: A further penalty can apply if the tax is still unpaid 14 days after the due date. Recent IRD guidance mentions penalties of 10% to 20% on unpaid tax, depending on the case.
• Liability for the tax itself: If you fail to deduct WHT, the IRD can recover the tax from you as the payer, even if you already paid the full amount to the receiver.
• Reporting penalties: Failing to follow the required procedures, formats or schedules, or to submit annual statements, can lead to penalties of up to LKR 200,000 per year of assessment.
• Prosecution: Failing to register, file returns, submit annual statements or respond to the Commissioner General’s requests can lead to court action. A conviction can mean a fine of up to LKR 400,000, up to six months in prison, or both.

Penalties for late payment are normally not waived, so paying on time is the safest approach. 

Recent Changes to WHT in Sri Lanka (2025–2026)

Sri Lanka has updated its WHT rules several times in the last two years. The main changes are:

• Interest rate increase (April 2025): WHT on interest income went up from 5% to 10%.
• Self-declaration for interest (from 1 April 2025): Resident individuals with no taxable income can give their bank a self-declaration to avoid WHT on deposit interest. False declarations can lead to penalties of up to LKR 200,000.
• Inland Revenue (Amendment) Act No. 11 of 2026: Certified on 3 June 2026, this Act made many changes to the tax law, including WHT.
• Wider 5% service fee rule (from 3 June 2026): The 5% WHT on service fees to resident individuals now covers many more professions, such as trainers, artists, photographers, counsellors and IT specialists.
• Gem authority returns (from 1 April 2026): The National Gem and Jewellery Authority must submit monthly tax returns to the IRD.
• New IRD Circular SEC/2026/E/04 (June 2026): This replaced the 2022 circular and sets out current rates, exemptions, payment dates and certificate rules.
• Stronger TIN rules: TINs are becoming mandatory for more activities, such as opening bank accounts and registering businesses or vehicles.

Check the IRD website before applying any rate, as rules may change again.  

Tips to Stay Compliant with WHT

Most WHT problems come from late payments, wrong rates and missing paperwork. This checklist covers the basics:

✔	Task	When
☐	Register as a withholding agent with the IRD	At least 30 days before your first deduction
☐	Check the payment type, receiver status and any threshold before each payment	Every payment
☐	Use the current rate from IRD Circular SEC/2026/E/04	Every payment
☐	Get proof of tax residence before applying a treaty rate	Before paying a non-resident
☐	Calculate WHT on the amount excluding VAT	Every payment
☐	Pay the tax using the correct code (43 or 44)	By the 15th of the next month
☐	Issue a free WHT certificate to each receiver	Within 30 days after month end
☐	Keep invoices, payment slips and certificate copies	Throughout the year
☐	Submit the annual WHT statement electronically	After the year of assessment ends
☐	Check IRD notices for rule changes	Every month

Setting a monthly calendar reminder for the 15th is a simple way to avoid late payments. If your business has many suppliers or non-resident payments, ask a tax advisor to review your process once a year.

Need a Registered Business Before You Start Deducting WHT?

Now that you know how WHT works, you can check the tax on any payment with our free WHT Calculator. If you also run payroll or charge VAT, our APIT Calculator and VAT Calculator can help.

But WHT rules only apply once you run a registered business. To pay rent, service fees or interest, and to deal with the IRD, you first need a registered company and a TIN.

If you haven’t registered yet, BR.LK can do it for you, fully online. We register your private limited company in 3 to 5 days. The Business Ready package includes your TIN certificate and the full bank account document set, so you can start trading with your paperwork ready. ROC fees and stamp duty are included.  

If you are not sure which package fits, talk to us first and we will point you to the right one.

Conclusion

WHT in Sri Lanka is simple once you know the basics. The payer deducts tax from certain payments, such as interest, rent, dividends and service fees, and pays it to the IRD. Rates in 2026 range from 2% to 15%, depending on the payment type and whether the receiver is a resident or non-resident.

To stay safe, register as a withholding agent, use the current rate, deduct the tax at the time of payment, and pay the IRD by the 15th of the next month. Then give the receiver a certificate within 30 days after the month ends.

Rules have changed in 2025 and 2026, so check the IRD website before you apply a rate. For complex cases, such as payments to non-residents, speak to a tax advisor.  

Key Takeaways

• WHT in Sri Lanka is tax that the payer deducts from certain payments and pays directly to the IRD.
• The 2026 WHT rates range from 2% to 15%, depending on the type of payment and whether the receiver is a resident or non-resident.
• Companies, partnerships, trusts, public corporations and individuals running a business must deduct WHT, while the Government and individuals making personal payments do not.
• Withholding agents must register with the Commissioner General of Inland Revenue at least 30 days before they start deducting tax.
• Resident professionals paid more than LKR 100,000 a month face 5% WHT on the full amount, and since 3 June 2026 this covers many more service providers.
• Payments to non-residents mostly attract a 14% rate, which can be lower if a Double Tax Avoidance Agreement applies.
• Exemptions include government payments, interest on Treasury bills and bonds, interest to financial institutions, and lottery winnings of LKR 500,000 or less.
• WHT is calculated on the gross payment excluding VAT, and the payer must gross up the amount if the full invoice is paid without deduction.
• Deducted tax must reach the IRD by the 15th of the following month, and a free certificate must go to the receiver within 30 days after month end.
• Late payment, missing statements and failure to deduct can lead to interest, penalties of up to LKR 200,000 and even prosecution. 

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