• 1. Freight tax

Freight tax

Income tax comprising of corporate tax and remittance tax is levied against taxable income, which is considered to be 6% of the gross outward freight derived from international transport activities of non-residential shipowners and/or operators [Inland Revenue Act, No. 10 of 2006 Art. 87(1)].

From 2018, for the corporate tax rate, the standard tax rate is 28% but the tax rates of 14% -  40% also apply to profits of specific business. For more comprehensive corporate tax rate information, please check the PDF attachment by PwC [PwC WWTS 2018/2019 - Sri Lanka] 

The current remittance tax rate is 14% (2019)

Exemption Agreements

Residents of the following countries may benefit from double taxation agreements which reduce or waive the income tax as indicated.

The agreements do not allow for exemption on earnings derived from coastal operations.

        Gazette
Country Reduction Date of entry into force Date of effect No. Date
Australia 50% 21/10/1991 01/01/1992 657/2 08/04/1991
Bahrain
50% 11/07/2014
01/01/2015 1847/51 31/01/2014
Bangladesh 1 0% 07/06/1988 01/01/1989 448/13 07/04/1987
Belgium 50% 28/05/1985 01/01/1984 292/6 09/04/1984
Canada 50% 30/05/1986 01/01/1986 253/8 13/07/1983
China 2 50% 22/05/2005 01/01/2006 1374/20 06/01/2005
Czech Republic 3 50% 19/06/1979 01/01/1980 24/19 23/02/1979
Denmark 50% 28/02/1983 01/01/1980 228/15 20/01/1983
Finland 50% 27/02/1984 01/01/1981 253/8 13/07/1983
France 50% 26/11/1982 01/01/1982 210/17 17/09/1982
Germany 50% 21/10/1982 01/01/1982 113 31/10/1980
India 50% 24/03/1983 01/01/1980 210/17 17/09/1982
India (Renegotiated) 4
 50% 22/10/2013 01/04/2014 1828/9 17/09/2013
Indonesia 50% 21/06/1994 01/01/1995 789/10 21/10/1993
Iran 50% 26/12/2001 01/01/2002 1187/16 06/01/2001
Italy 50% 09/05/1991 01/01/1978 322/4 05/11/1984
Japan 50% 22/09/1968 01/01/1969 14803/5 29/05/1986
Korea, Republic of 50% 20/06/1986 01/01/1980 342/11 29/03/1985
Kuwait 50% 23/02/2004 01/01/2002 1245/19 18/07/2002
Luxembourg

11/04/2014 01/01/2015 1838/9 26/11/2013 
Malaysia 50% 14/10/1998 01/01/1999 1028/21 22/05/1998
Mauritius 50% 02/05/1997 01/01/1998 958/10 15/01/1997
Nepal 50% 31/05/2000 01/01/2001 1116/6 26/01/2000
The Netherlands 50% 24/01/1985 01/01/1979 281/13 26/01/1984
Norway 50% 08/03/1988 01/01/1989 464/4 27/07/1987
Pakistan 50% 18/06/1983 01/01/1983 210/17 17/09/1982
Philippines   08/12/2009 01/01/2010 1237/7
1256/27
21/05/2002
02/10/2002
Poland 100% 21/10/1983 01/01/1984 130 27/02/1981
Qatar 50% 03/05/2007 01/01/2008 1422/10 05/12/2005
Romania 50% 28/02/1986 01/01/1986 371/9 15/10/1985
Russia 50% 28/12/2002 01/01/2003 1101/22 15/10/1999
Serbia 5 50%   01/01/1987    
Singapore 50% 05/01/1980 01/01/1977 57/11 10/10/1979
Slovakia 3 50% 19/06/1979 01/01/1980    
Sweden 50% 30/07/1984 01/01/1985 297/28 18/05/1984
Switzerland 50% 14/09/1984 01/01/1981 292/6 09/04/1984
Thailand 50% 27/02/1990 01/01/1990 571/16 18/08/1989
United Arab Emirates 50% 11/10/2004 01/01/2004 1346/1 21/06/2004
United Kingdom 100% 21/05/1980 01/01/1977 60/23 02/11/1979
United States 50% 12/07/2004 01/01/2004 398/4
1298/8
22/04/1986
21/07/2003
Vietnam 50% 28/09/2006 01/01/2007 1455/9 24/07/2006
Limited Treaties (Air and/or Sea)
Air and sea transportation          
China 6 50% 29/03/2005 01/01/2005 1374/21 06/01/2005
 Air transportation only          
Oman 0% 23/10/1995 01/01/1979 881/7 26/07/1995
Saudi Arabia 0% 11/05/2000 01/01/1983 1101/23 15/10/1999
United Arab Emirates 0% 08/08/1994 01/01/1979 824/13 23/06/1994
Double taxation agreements signed but not ratified
Belarus   Signed 26/08/2013    
Poland (Renegotiated)
  Signed 06/10/2015    
Seychelles   Signed 07/11/2011    
Singapore (Renegotiated)

Signed 03/04/2014    
Double taxation agreements under negotiation or finalised but not signed
Kenya          
Oman          
Saudi Arabia          
Ukraine          

Notes

  1. The treaty does not cover maritime transportation.
  2. The treaty does not apply to residents of Hong Kong, SAR; Macao, SAR or the province of Taiwan. 
  3. Covered under the former Czechoslovak Socialist Republic agreement.
  4. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident. 
  5. Covered under the former Socialist Federal Republic of Yugoslavia agreement 
  6. The treaty applies only to residents of Hong Kong, SAR

Remarks

Payment of the tax must be made when the freight is remitted. Payment of the tax is waived when a tax exemption agreement applies.

Sources advise that a reduced rate for casual callers may be granted if prior representations are made to the Commissioner General of Inland Revenue and he is satisfied as to the status of the casual caller, with the proviso that the vessel has not called before and loaded cargo under the same owner/charterer. However, if the vessel is treated as a casual caller on the first occasion, but later calls again at any Sri Lankan port under the same owner/charterer, the tax liability will then accrue also for the first call [Inland Revenue Act, No. 10 of 2006 Art. 87(2)].

Year of Assessment: The tax year running from 1 April to 31 March

Extract from Inland Revenue Act, No. 10 of 2006

G – SHIPPING AND OPERATION OF AIRCRAFT

Profits of non-resident ship-owners or charterers.

87. (1) Where a non-resident person carries on the business of ship-owner or charterer and any ship owned or chartered by him calls at a port in Sri Lanka, an amount equal to six per centum of the entire sum receivable on account of the carrying of passengers, mails, livestock and goods shipped in Sri Lanka (other than goods brought to Sri Lanka solely for transhipment) shall, notwithstanding anything to the contrary in any other provision of this Act, be deemed to be his full profits arising from the carriage of such passengers, mails, livestock or goods, and such profits shall be deemed to arise in Sri Lanka.

(2) Where the call of a ship owned or chartered by a non-resident person at a port in Sri Lanka is casual and further calls by that ship or others owned or chartered by that person are unlikely, the provisions of this section shall not apply to the profits of such ship, and no income tax shall be charged thereon.

Master of ship to be an agent.

88. The master of any ship owned or chartered by a non-resident person who is chargeable under the provisions of section 87 shall, (though not to the exclusion of any other agent) be deemed to be the agent of such non-resident person for all the purposes of this Act.

Refusal of clearance for ship where income tax is in arrears.

89. (1) In addition to exercising any other powers of collection and recovery provided for in this Act, the Commissioner-General may, where the income tax charged on the income of any person who carried on the business of ship owner or charterer has been in default for more than three months (whether such person is assessed directly or in the name of some other person), issue to the Director-General of Customs or other authority by whom clearance may be granted to that ship, a certificate containing the name of such person and particulars of the income tax in default. On receipt of such certificate, the Director-General of Customs or other authority shall be empowered and is hereby required to refuse clearance from any port in Sri Lanka to any ship owned wholly or partly or chartered by such person, until the tax in default has been paid.

(2) No civil or criminal proceedings shall be instituted or maintained against the Director-General of Customs or other authority in respect of a refusal of clearance under this section, nor shall the fact that a ship is detained under this section affect the liability of the owner, charterer, or agent to pay harbour dues and charges for the period of detention.

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