The government will introduce an 18% Value Added Tax (VAT) on digital services provided by non-resident companies to local consumers, effective October 1, 2025.

Accordingly, foreign service providers are required to register for VAT in Sri Lanka and collect the tax on their services.

The VAT law was updated through the VAT (Amendment) Act No. 4 of 2025, which implemented VAT on digital services.

The Inland Revenue Department has also published detailed guidelines through the Gazette Notification 2443/30, on this new digital tax.

Accordingly, the new VAT rules define terms such as “electronic platform” and “non-resident person,” and impose obligations on foreign digital service providers to charge and remit VAT on various services, including streaming, online gaming, and software as a service (SaaS).

Electronic marketplace facilitators may also be liable for VAT reporting on third-party sales.

According to the guidelines, the non-resident must first obtain a Tax Identification Number (TIN) before proceeding to acquire VAT registration. VAT registration is required only if the value of supply in the last 12 months exceeds Rs. 60 million per annum or Rs. 15 million in the last three months.

Non-compliance with registration requirements could also lead to penalties from the Inland Revenue Department, according to the new regulations.

With the enforcement of new regulations following services are likely to become liable to VAT collections:

• E-commerce Services
• Cloud Computing
• Software as a service (SaaS)
• Cybersecurity Services
• Digital Marketing & Advertising
• IT support & Managed Services
• Streaming Services
• Fin Tech
• Subscription & Membership Website
• E-commerce Platforms
• Social Media Platforms
• On Demand Service Platforms
• Content Sharing Platforms
• Cloud Collaboration Platforms
• Market Place Platforms
• Gaming Platforms
• Blockchain & NFT Platforms
• Apps for hotel bookings and ticket reservations