Sri Lankan migrant workers employed abroad will not be subject to taxation on remittances sent to Sri Lanka, according to Senior Deputy Commissioner General of Inland Revenue, Nihal Wijewardena. He emphasized that Sri Lankans working in countries such as the Middle East, South Korea, Japan, Israel, and Europe, or any other nation, are completely exempt from taxation on money they remit back home.
Foreign Currency Accounts & Interest Earnings
Migrant workers maintaining foreign currency accounts (Dollar Accounts) in Sri Lankan banks or fixed deposits in foreign currency will also not be taxed on interest earnings, Wijewardena clarified. Since these individuals are considered non-residents earning income from foreign sources, they are not liable for Sri Lankan taxes.
However, if a migrant worker deposits money in a Sri Lankan bank account in local currency (LKR), the situation differs. If the annual interest income remains below LKR 1.8 million, there is no withholding tax (WHT). However, under the prevailing tax laws, any Sri Lankan earning over LKR 150,000 per month or LKR 1.8 million annually in interest income will be subject to withholding tax. Thus, only those earning more than LKR 1.5 million per month in interest from remittances may be taxed.
While remittances themselves are tax-free, if a migrant worker’s family members invest these funds in a business, the business income will be taxed based on Sri Lanka’s standard tax regulations. The taxation rate will depend on the income generated from the business.
Wijewardena further emphasized a clear distinction between Sri Lankan residents providing online services to foreign clients and migrant workers. While migrant workers are exempt from taxation, Sri Lankans residing in the country but earning income from freelancing, remote work, or online services for foreign companies must pay taxes.
Even if an online service provider temporarily leaves Sri Lanka for work, they do not qualify for tax exemptions unless they permanently relocate. Such individuals will be subject to a maximum service export tax rate of 15%.
Under proposed amendments to the Inland Revenue Act, the first LKR 1.8 million earned annually via online services will be tax-free. Beyond this threshold:
- The next LKR 1 million will be taxed at 6%
- Any earnings above LKR 2.8 million will be taxed at 15%
The Inland Revenue Department has reassured that this tax structure does not apply to migrant workers, whose foreign remittances and foreign currency account interest remain completely tax-free.
Experts suggest that this policy aims to encourage foreign exchange inflows and recognize the significant contribution of Sri Lankan migrant workers to the national economy. Meanwhile, Sri Lankan residents earning from online services will fall under a structured tax regime to ensure fair revenue collection.