How Sri Lanka Withholding Tax works
Withholding Tax (WHT) shifts the collection point of income tax from the recipient to the payer. Instead of the recipient declaring the income at year-end and paying tax on it, the person making the payment deducts the tax up front and remits it directly to the Inland Revenue Department (IRD). The recipient takes home the net amount, along with a WHT certificate they can use to claim credit against their own tax return.
WHT applies to interest paid by banks, dividends paid by companies, service fees paid to professionals, rent paid to landlords, and most payments to non-residents. Rates and thresholds differ by payment type — the calculator above handles the lookup for you.
The LKR 100,000 monthly threshold
Two payment types have a monthly-aggregate threshold: rent to a resident landlord and service fees to a resident individual. In both cases, WHT only applies once the aggregate you pay that recipient in a single calendar month exceeds LKR 100,000. Below that, deduct nothing.
Aggregate is the operative word. If you pay a consultant LKR 60,000 on the 5th and another LKR 60,000 on the 25th, the aggregate for the month is LKR 120,000 — and 5% WHT applies on the full LKR 120,000, not just the excess above 100k. Same logic for rent paid to a landlord across multiple properties or instalments.
Interest: the 5% to 10% change
WHT on interest paid by banks and finance companies to residents doubled from 5% to 10% on 1 April 2025, under the Inland Revenue (Amendment) Act No. 02 of 2025. This is a final tax for individuals — the bank withholds 10% before crediting the interest, and you don’t include it in your tax return again.
There’s an important exemption: if your total assessable income for the year of assessment does not exceed LKR 1,800,000, you can submit a self-declaration to your bank and be exempted from the 10% WHT on interest. The declaration must be renewed each year and is only valid if you genuinely have no tax liability — the IRD can reclaim the tax with penalties if your income turns out to exceed the threshold.
Dividends
Dividends paid by a resident company to any shareholder — resident or non-resident — are subject to a 15% final WHT. The company deducts before payment; the shareholder receives the net amount and doesn’t declare the dividend again on their return. Treaty relief may reduce the rate for non-resident shareholders from certain jurisdictions — a topic our filing team handles case-by-case.
Payments to non-residents
For general payments to non-residents (goods, services, contracts), a flat 14% WHT applies. This covers the vast majority of cross-border invoices — from software subscriptions to foreign consulting fees — and is a common surprise for businesses paying overseas suppliers for the first time. Double-tax treaty relief can reduce this to 0-10% depending on the treaty, but only if you obtain a tax residency certificate from the recipient before making the payment.
When to remit and how to issue certificates
WHT deducted in a calendar month must be paid to the IRD by the 15th of the following month, along with a schedule of the deductions made. You must issue a WHT certificate to each recipient showing the gross amount, the WHT deducted, and the net paid. Recipients use these certificates to claim credit on their own returns — without one, they can’t prove the tax was already paid.
An annual WHT return covering the full year of assessment (1 April to 31 March) must be filed by 30 April each year. Missing this deadline attracts a penalty of LKR 50,000 plus 10% of the unpaid tax.
What the calculator does not cover
- Double-tax-treaty relief for non-resident payments — the calculator uses the statutory 14% / 15% and does not apply treaty reductions
- Royalties and cross-border licence fees, which have their own rate schedule
- Employment income — that’s covered by our APIT calculator instead
- WHT on financial-instrument gains such as treasury bill / bond discounts
If any of those apply to your payment, use the calculator to get a baseline and reach out for a case-specific figure.