Download pdf - FISCAL INCENTIVES AVAILABLE TO SRI LANKAN …€¦ · FISCAL INCENTIVES AVAILABLE TO SRI LANKAN EXPORTERS [NON-BOI] Prepared by: Export Development Board (EDB), Sri Lanka August,

FFIISSCCAALL IINNCCEENNTTIIVVEESS AAVVAAIILLAABBLLEE TTOO SSRRII LLAANNKKAANN EEXXPPOORRTTEERRSS [[NNOONN--BBOOII]]

Prepared by:

Export Development Board (EDB), Sri Lanka

August, 2014

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Important

This publication is meant to serve as a guide on fiscal incentive available to Sri Lanka’s exporters (Non BOI). For further details and clarifications, the readers are advised to refer the relevant enactments or seek professional advice.

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CCoonntteennttss

Page

AA]] Concessions / Exemptions on Income Tax to [Non-BOI] Exporters

01

BB]] Preferential Treatment to Exporters under the Value Added Tax [VAT] Regime

17

CC]] Preferential Treatment under Economic Service Charge [ESC]

26

DD]] Preferential Treatment under Social Responsibility Levy [SRL]

27

EE]] Preferential Treatment under Nation Building Tax [NBT]

28

FF]] Preferential Treatment under Ports and Airport Levy [PAL] 30

GG]] Duty Concessions on Imported Inputs for Export Processing 31

FFIISSCCAALL IINNCCEENNTTIIVVEESS AAVVAAIILLAABBLLEE TTOO SSRRII LLAANNKKAANN EEXXPPOORRTTEERR [[NNOONN--BBOOII]]

A] Concessions / Exemptions on Income Tax to [Non-BOI] Exporters under the Inland Revenue Act No. 10 of 2006 As amended by Act No. 10 of 2007, Act No. 9 of 2008, Act No. 19 of 2009, Act No. 22 of 2011, Act No. 8 of 2012, Act No. 18 of 2013 and Act No. 8 of 2014 Type of Industry / Enterprise entitled to

receive Incentives

Criteria to Qualify

Incentive Non-traditional Exports

1] Any specified undertaking(1) carried on by a company.

A specified undertaking(1) carried on by a company on or after 01.04.2006.

Profit and income exempted from income tax for 5 years reckoned from the year of assessment in which the undertaking commenced to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment in which the undertaking completes two years reckoned from the date on which the undertaking commences to carry on commercial operations whichever occurs earlier. If the period for which the exemption is applicable commences after 31.03.2008, the period for which profits and income are exempted will be 3 years. Rate of income tax for the 1st post exemption year - 5% Rate of income tax for the 2nd post exemption year - 10% Rate of income tax thereafter - 15%

i) Incorporated before 01.04.2002 with a minimum investment of Rs. 50 Mn or

ii) Incorporated on or after 01.04.2002 but prior

to 01.04.2011 with a minimum of Rs. 10 Mn. Invested not later than 31.03.2012 in such undertaking.

iii) Engaged in agriculture, agro processing, industrial and machine tool manufacture, machinery manufacture, electronics, export of non-traditional products or information technology and allied services.

[Non-traditional products mean any goods other than black tea not in packet or package form and each

(1) A specified undertaking means an undertaking engaged in agriculture, agro processing, industrial and machine tool manufacturing, machinery manufacturing, electronics,

export of non-traditional products or information technology and allied services.

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Type of Industry / Enterprise entitled to receive Incentives

Criteria to Qualify

Incentive

packet or package weighing not more than 1kg., crepe rubber, sheet rubber, scrap rubber latex and fresh coconuts including deemed exports of such goods, where not less than 80% of the total turnover of such undertaking for any year of assessment is from export or deemed export of such non-traditional goods)

{ Section 17 (2)-2006 } { Section 48 - 2006}

{ Section8 - 2007 } { Section 8 - 2008 } {Section 25 - 2008}

{ Section 7[1] - 2009} {Section 8 – 2011}

{Section 8(1) – 2012}

2] Any person other than a company engaged in export of non-traditional products*.

A specified undertaking[2] carried on by a person, which commenced on or after 10.11.1993.

That part of taxable income containing any qualified export profits for any year of assessment are taxed at a rate 1] Not exceeding 15% for any year of

assessment commencing prior to 01.04.2011. 2] Not exceeding 12% for any year of

assessment commencing on or after 01.04.2011.

{ Section 50 - 2006 } { Section 60 - 2006 }

{Section14 - 2009 {Section 53[8] - 2011}

{Section 19] - 2014

3] Any company engaged in export of non-traditional products*.

A specified undertaking[2] carried on by a company which commenced on or after 10.11.1993.

That part of taxable income containing any qualified export profits for any year of assessment are taxed at 1] 15% for any year of assessment com-mencing

prior to 01.04.2011. 2] 12% for any year of assessment com-

mencing on or after 01.04.2011.

(2) A specified undertaking means any undertaking which is engaged in export of non-traditional products manufactured, produced or purchased by such undertaking. * Non-traditional products mean goods other than black tea not in packets or package form and each packet or package weighing not more than 1kg, crepe rubber, sheet

rubber, scrap rubber, latex, or fresh coconuts or any other produce referred to in Section 16 of Act No. 10 of 2006.

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Criteria to Qualify

Incentive

{ Section 51 - 2006 } { Section 60 - 2006 } {Section14 - 2009 }

{Section 53[9] - 2011} {Section 20 - 2014}

4] Any company engaged in export of non-traditional products*.

A specified undertaking[2] carried on by a company which commenced prior to 10.11.1993.

That part of the taxable income containing qualified export profits and income for any year of assessment are taxed at the rate of 1] 15% for any year of assessment commencing

prior to 01.04.2011. 2] 12% for any year of assessment

commencing on or after 01.04.2011.

{ Section 52 - 2006 } { Section 60 - 2006 }

{Section14 - 2009 { Section 53[10]- 2011 }

{ Section 21]- 2014 }

5] Any person who supplies services to any exporter of goods or services or to any foreign principal of such exporter directly.

(i) Services should be essentially related to manufacture of goods or provision of services exported by the exporter either directly or through an export trading house .

(ii) Payment for supplies should be made in foreign currency by the exporter or foreign principal.

(iii) Supply should be covered by an international letter of credit opened in a bank in Sri Lanka on a back to back basis against an international letter of credit for the remittance of the foreign exchange value of the exports related to such supply or

(iv) Payment for such supply is made in foreign

Relevant part of the profit or income applicable to the service provided are taxed at the following rates. (i) For any year of assessment before 01/04/2011

- 15% (ii) For any year of assessment on or after

01/04/2011 but before 01/04/2014 - 12% (iii) For any year of assessment after 01/04/2014

- 12% for a company - Maximum of 12% for an individual.

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Criteria to Qualify

Incentive

currency by a draft or telegraphic transfer made in favour of such person by the exporter or foreign principal and

(v) Such other documentary evidence required by the IRD.

{Section 58 - 2006} {Section 23 - 2014} {Section 46(1) - 2014} {Section 22 of 5th schedule }

Deemed exports*

6] Any person, partnership or company carrying on an

undertaking for production and supply of any non-traditional product being deemed exports. ∗ Definition : Deemed export means the

production or manufacture and supply by any person or partnership of any commodities (other than black tea in bulk, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts) to any exporter of such goods without further production or manufacture by such exporter or the manufacture and supply of any goods to any exporter for the production, manufacture or packaging for export of any commodity which is a non-traditional product.

Documentary evidence should be provided to prove that supplies made were actually exported.

Profit and income applicable to deemed exports : a] for any year of assessment prior to

01.04.2011.

(i) taxed at a rate not exceeding 15% for individuals

(ii) taxed at a rate of 15% for companies b] for any year of assessment com-mencing on

or after 01.04.2011 [i] taxed at a rate not exceeding 12% for

individuals [ii] taxed at a rate of 12% for

companies

{ Section 56 (1) & (2) - 2006 {Section 53[42] – 2011 }

{Section 18[1] – 2013 }

7] Any manufacturer of textiles leather products, footwear or bags.

Supplies should be made to any foreign buyer who has established his headquarters in Sri Lanka for management, finance and billing.

Profits and income earned in foreign currency are exempted from income tax.

{Section 13[bb] – 2006}

{Section 6[3]-2011}

8] Any person engaged in exports (I) At least 60% of turnover should be from exports.

(II) Plant ,machinery or equipment used in the

Deduction of 50% of the cost of acquisition of such plant ,machinery or equipment will be allowed when ascertaining profit or income for

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Criteria to Qualify

Incentive

export trade or business should have been acquired on or after 01/04/2013.

income tax purposes. {Section [g] of 1st proviso to section 25 –2006}

{Section 11[2]-2013}

Gems and Jewellery

9] i. Any person engaged in export of gold, gems and jewellery.

ii. Any person engaged in cutting and

polishing of gems which are brought to Sri Lanka and exported after such cutting and polishing.

Profit and income arising from such exports are exempted from income tax.

{ Section 13[C](i) - 2006 } { Section 7[5] - 2008}

10] Any person engaged in selling gems and jewellery in Sri Lanka for payment in foreign currency.

Sales should be done in Sri Lanka. The person should be authorized to accept foreign currency for such sales by the Central Bank.

Such part of the profit and income arising from such sales are exempted from income tax.

{ Section 13(j) - 2006 }

11] Any person engaged in the business of gem cutting and polishing.

Plant or machinery used in the business should have been acquired prior to 01/04/2011

Deduction of 33 ½% of the cost of acquisition will be allowed when ascertaining profit or income for income tax purposes.

{ Section [b] under 1st proviso to section 25(1) of 2006 }

{ Section 14[1](d)(i)- 2011 } Export Production Village Companies [EPV]

12] Export Production Village Company (As defined under Section 17(3) of the Inland Revenue Act No. 38 of 2000)

The EPV should satisfy requirements specified in Section 17 of the Inland Revenue Act No. 10 of 2006.

Profit and income are exempted from tax for 5 years reckoned from the year of assessment in which the undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a period of 2 years reckoned from the date on which the undertaking commences to

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Criteria to Qualify

Incentive

carry on commercial operations whichever occurs earlier. If the period for which exemption is granted, commences after 31.03.2008 the period of exemption will be 3 years. Rate of income tax for the 1st post exemption year - 5% Rate of income tax for the 2nd post exemption year - 10% Rate of income tax thereafter - 15%

{ Section 17 [3(b)] - 2006 } { Section 8 - 2007 } {Section 8 - 2008 }

{ Section 48 - 2006} { Section 25 - 2008}

Garments/Handlooms

13]] Any person engaged in the

manufacture (locally) of handloom products .( This is a general concession not specific to exports)

A maximum income tax rate of 12% is applicable to an individual and 12% for a company.

{5th schedule to the Principal enactment item 40 }

{ Section 30(3) of 2012}

Entrepot Trade Goods brought to Sri Lanka on a consignment basis i] Profit and income for the year of assessment

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Criteria to Qualify

Incentive

14] Any consignor or consignee engaged in entrepot

trade.

and re exported without subjecting them to any process or manufacturer.

commencing on or after 01.04.2007 but prior to 01.04.2011 arising in Sri Lanka from entrepot trade are taxed at a rate of 10%.

{5th schedule to the principal enactment item 6}

{Section 42 - 2006 } { Section 15 - 2007 } {Section 19 - 2011 }

15]] Any person carrying on an undertaking approved by the Minister for the operation and maintenance of facilities for storage of goods involving entrepot trade.

Profit and income arising from the approved undertaking are taxed at a rate of 10%.

{5th schedule to the principal enactment item 7} {Section 43 - 2006 }

Professional Services

Emoluments earned in foreign currency in any year of assessment prior to 01.04.2008 are exempted from income tax.

16] Any individual resident in Sri Lanka providing a service outside Sri Lanka in the course of carrying on or exercising a vocation.

Emoluments earned in foreign currency [less allowed expenses incurred outside Sri Lanka] should be remitted to Sri Lanka.

{ Section 13(a) - 2006 }

{ Section 7[1] - 2008 }

17] Any company or a partnership resident in Sri Lanka

carrying on or exercising any trade, business or vocation.

ii) In respect of services rendered outside Sri

Lanka including in relation to the year of assessment commencing on 01.04.2006, services relating to any construction.

Profits and income earned in foreign currency in the course of carrying on or exercising the trade, business or vocation (less allowed expenses incurred outside Sri Lanka) should be remitted to Sri Lanka through a bank.

Profits and income earned in foreign currency are exempted from income tax.

iii) In respect of any off shore business that does not involve goods produced in or

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Criteria to Qualify

Incentive

imported to Sri Lanka.

iv) In respect of exporting goods which are brought to Sri Lanka on a consignment basis and re-export of such goods without further processing, other than repackaging or labeling for marketing purposes. (entrepot Trade)

{ Section 13(b) - 2006 } { Section 6(1) - 2007 {Section 6[1] - 2011} {Section 6[2] - 2011}

18] Any partnership or individual in Sri Lanka carrying on or exercising a profession.

Profits and income earned in foreign currency for services rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka in the course of carrying on or exercising a profession (less allowed expenses incurred outside Sri Lanka where the service is provided outside Sri Lanka, by an individual) should be remitted to Sri Lanka through a bank in Sri Lanka.

Profits and income earned in foreign currency in any year of assessment ending on or before 31.03.2008 are exempted from income tax.

{ Section 13(c) - 2006) } { Section 7 [2] - 2008 }

19] Any company resident in Sri Lanka carrying on or

exercising any profession. Profits and income earned in foreign currency for services rendered outside Sri Lanka to any person or partnership outside Sri Lanka in the course of carrying on or exercising the profession should be remitted to Sri Lanka through a bank in Sri Lanka.

Profit and income earned in foreign currency in any year of assessment ending on or before 31.03.2008 are exempted from income tax.

{ Section 13 (d) - 2006 } { Section 7 [3] - 2008 }

20] Any resident company, a resident individual or any partnership.

Profit and income earned in foreign currency [less expenses incurred outside Sri Lanka] for any year of assessment from services rendered outside Sri Lanka in carrying out any construction project should be

Profit and income earned in foreign currency are exempted from income tax.

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Criteria to Qualify

Incentive

remitted to Sri Lanka through a bank.

{Section 13 [dd] - 2006} {Section 6 [2] - 2007 }

21] Any resident company, any resident individual or any partnership.

Profit and income earned in foreign currency [less expenses incurred outside Sri Lanka] from services rendered inside or outside Sri Lanka to any person or partnership outside Sri Lanka other than any commission, discount or similar receipt for any such service rendered in Sri Lanka should be remitted to Sri Lanka through a bank.

Profit and income earned in foreign currency are exempted from income tax

{Section 13 [ddd]-2006} {Section 7[4] - 2008 }

{Gazette Nos. 1656/19 of 05/09/2008} 1627/27 of 13/11/2009}

{Section 6[4] - 2011}

22] Any resident company, any resident individual or any partnership.

Profit and income earned in foreign currency [less expenses incurred outside Sri Lanka] for the period from 01.04.2009 to 31.03.2011 from any service rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka should be remitted to Sri Lanka through a bank.

Profit and income earned in foreign currency are exempted from income tax.

{Section 13[dddd] - 2006 } {Section 5[1] - 2009 }

23] Any company, resident in Sri Lanka providing a service in Sri Lanka to any person or partnership outside Sri Lanka.

Profit and income earned in foreign currency by providing services in the course of carrying on or exercising any profession should be remitted to Sri Lanka through a bank in Sri Lanka.

Profit and income earned in foreign currency in any year of assessment ending on or before 31/03/2008 are taxed at 15%.

{ Section 57 - 2006 } { Section 13 - 2009 }

Royalties 24] Any person resident in Sri Lanka

Any royalty received in foreign currency by any person resident in Sri Lanka from out side Sri Lanka , if such royalty is remitted to Sri Lanka through a bank in Sri Lanka

Royalty is exempted from income tax

{ Section 13 (yyyyyy) - 2006 } { Section 5(4) - 2012 }

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Criteria to Qualify

Incentive

25] Any person resident in Sri Lanka who acquires any internationally recognized intellectual property .

(i) The intellectual property should have been acquired on or after 01/04/2014. (ii) Royalty income should be received in foreign currency and remitted to Sri Lanka through a bank.

Profit and income earned by way of royalty out of the intellectual property is exempted from income tax. {Section 13(yyyyyyyy) of 2006} {Section 7(1) of 2014}

New Undertakings 26] A new undertaking of any person or partnership

which commenced operations on or after 01.04.2011( This is a general concession and not specific to exports)

New undertaking means an undertaking 1) engaged in

I. Agriculture, animal husbandry or fishing.

II. The manufacture/processing of any article or product other than liquor or tobacco product.

III. Provision of information technology services.

IV. Software development V. Business process out sourcing

VI. Provision of cold room facilities VII. Other specified product/service

2)Sum invested in acquisition of fixed assets after 31.03.2011 but prior to 01.04.2015 should not be less than the specified limits.

For an investment not less than Rs. 25 Mn., profit and income will be exempted from income tax for a period ranging from 4 years to 6 years depending on the activity and investment.

{ Section 16 (c) - 2006 } { Section 7 - 2011 } { Section 6 - 2012 } { Section 7 - 2013 }

27] A company carrying on a new agricultural undertaking which is located in a district other than in Colombo or Gampaha districts.

[This is a general exemption and not specific to exports]

i) Undertaking should not be formed by splitting up or reconstruction or acquisition of any undertaking previously in existence.

ii) Sum invested before 01.04.2010 on plant,

machinery, furniture, building or land should not be less than Rs. 30 Mn.

i) For a new undertaking located in a district adjoining the Colombo and or Gampaha districts, profits and income arising from the new undertaking are exempted from income tax for a period ranging from 5 - 8 years depending on the amount invested.

ii) For a new undertaking located in a district

other than those mentioned under (i) above, iii) Number employed should not be less than

200 prior to 01.04.2009.

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Criteria to Qualify

Incentive

iv) Undertaking should not be located in

Colombo or Gampaha districts.

profit and income arising from the new undertaking are exempted from income tax for a period ranging from 7 - 10 years depending on the amount invested.

The exemption period commences from the year in which the undertaking commences to make profits or three years reckoned from the year in which commercial operations are commenced, which ever occurs earlier.

Rate of income tax for the 1st post exemption year - 5% Rate of income tax for the 2nd post exemption year - 10%

Rate of income tax thereafter - 15%

{ Section 20 - 2006 } { Section 11 - 2008 } { Section 48 - 2006 }

{ Section 10 - 2011 }{ Section 25 - 2008 }

28] A company carrying on a new undertaking other than an agricultural undertaking which is located in a district other than in Colombo or Gampaha districts.



ii) Sum invested before 01.04.2010 on plant,

machinery, furniture or building should not be less than Rs. 30 Mn.

iii) Number employed should not be less than

200 prior to 01.04.2009.

iv) Undertaking should not be located in Colombo or Gampaha districts.

(i) For a new undertaking located in a district adjoining the Colombo and or Gampaha districts, profits and income arising from the new undertaking are exempted from income tax for a period ranging from 5 - 8 years depending on the amount invested.

(ii) For a new undertaking located in a district other than those mentioned under (i) above, profit and income arising from the new undertaking are exempted from income tax for a period ranging from 7 - 10 years depending on the amount invested.

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Criteria to Qualify

Incentive


{ Section 20 - 2006 } { Section 11 - 2008 } { Section 25 - 2008 } { Section 48 - 2006 } { Section 10 - 2011 }

29] A company carrying on a new undertaking for

provision of information technology enabling services or printing on paper on the manufacture of packaging material which is located in a district other than Colombo or Gampaha districts.



ii) Sum invested before 01.04.2009 on plant, machinery, furniture or building should not be less than Rs. 30 Mn.

iii) Number of employees should not be less than

50 prior to 01.04.2009.

iv) Undertaking should not be located in Colombo or Gampaha districts.

i) For a new undertaking located in a district adjoining the Colombo and / or Gampaha districts, profits and income arising from the new undertaking are exempted from income tax for a period ranging from 5 - 8 years depending on the amount invested.

ii) For a new undertaking located in a district

other than those mentioned under (i) above, profit and income arising from the new undertaking are exempted from income tax for a period ranging from 7 - 10 years depending on the amount invested.


{ Section 20 - 2006 }

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Criteria to Qualify

Incentive

{ Section 48 - 2006 } { Section 11 - 2008 } {Section 25 - 2008 } { Section 10 - 2011 }

New Undertakings in the Eastern Province 30] A company carrying on a new undertaking in the

Eastern Province. [This is a general exemption and not specific to exports]

i) Undertaking should not be formed by splitting up or reconstruction or acquisition of any undertaking which was in existence before 07/11/2007.

ii) Commences commercial operations on or after

07/11/2007. iii) Located within the Eastern Province.

iv) Sum invested in the undertaking before 01/04/2010 [other than land] is not less than Rs. 30 Mn.

Profit and income are exempted from income tax for a period of 5 years. The exemption period commences from the year in which the undertaking commences to make profits or from three years reckoned from the year in which commercial operations are commenced, whichever occurs earlier.

{ Section 24c - 2006 } { Section 17 - 2008 } { Section 48 - 2006 } { Section 25 - 2008 }

31] Any Exporter Any Export Development Rebate paid by the

Export Development Board is exempted from income tax.

{ Section 13 [qqqq] - 2006 } { Section 5 - 2009 }

Agricultural Undertakings 32] Any person or partnership carrying on any

agricultural undertaking in Sri Lanka. [This is a general condition and not specific to exports]

i) Production of any agricultural, horticultural or

dairy produce.

ii) Cleaning, sizing, sorting, grading, chilling, dehydrating, packaging, cutting, canning of any

i) Profit and income within a period of 5 years

commencing on 01.04.2006 are exempted from income tax.

ii) Profits and income for any year of assessment

commencing on or after 01.04.2011 will be

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Criteria to Qualify

Incentive

produce mentioned under (i) above in preparation of such produce for the market.

iii) In the case of production of any agricultural,

horticultural or dairy produce and utilizing such produce to manufacture any product, such produce shall be deemed to have been sold for the manufacture of such product at the open market price prevailing at the time of such deemed sale.

taxed at the rates specified in the fifth schedule to the Act No. 10 of 2006.

{ Section 16 (1) - 2006 } { Section 7 - 2007 }

{ Section 16[3] - 2006 } { Section 6 - 2009 }

{ Section 48[A] - 2006 } { Section 23 - 2011}

Tea 33] Any grower or manufacturer of tea who has

established a joint venture with a tea exporter for exporting pure Sri Lankan tea in value added form with a Sri Lankan brand name .

The joint venture should purchase tea from a tea auction in Sri Lanka

Income tax rate applicable is 12%.

{5th schedule to the Principal enactment item 39 } { Section 30(3) of 2012 }

Export undertakings with high value addition

34] Any undertaking which manufactures high value added products for export or for supply to an exporter for export.

i] Domestic value addition of the product should

be in excess of 65%

ii] The product should have Sri Lankan brand name with patent rights reserved in Sri Lanka.

Profits and income for any year of assessment commencing on or after 01.04.2011 will be taxed as per 1st schedule subject to a maximum of 10% for an individual, and 10% for a company.

{Section 59A - 2006 } {Section 24 - 2011 }

{Section 53(16) - 2011 }

Undertakings with high Investment

35] A new undertaking of any company commencing on or after 01.04.2011 and engaged in specified

Specified activities are :

I. Manufacture, processing of non traditional goods for exports including deemed exports which shall constitute not less than 90% of the

For an Investment of over Rs. 300 Mn, the profit and income are exempted from income tax for a period ranging from 6 years to 12 years depending on the amount invested.

{Section 17A - 2006 }

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Criteria to Qualify

Incentive

activities ( This is a general concession not specific to exports)

total production and in the case of apparel 75% of the total production .

II. Provision of services to a person or partnership outside Sri Lanka for payment where the total amount of that payment shall not be less than 70% in convertible foreign currency.

III. Manufacture of boats, rubber based products, motor spare parts, etc.

IV. Other specified products and services

{Section 09 - 2011 } {Section 09 - 2012 } {Section 10 - 2013 }

B] Preferential Treatment to Exporters under the Value Added Tax [VAT] Regime [VAT Act No. 14 of 2002, amended by Acts No. 7 of 2003, No.

13 of 2004, No. 6 of 2005, No. 8 of 2006, No. 14 of 2007, No. 15 of 2008, No. 15 of 2009, No. 9 of 2011, No. 7 of 2012 , No. 17 of 2013 and No. 7 of 2014]

[a] Exclusions

VAT is not charged on the following:

[i] Any goods which enter into a customs bonded area or free port referred to in section 10 of the Financial Act No.12 of 2012.

{Section 2(3a) 2002} {Section 2(3)(a)(i) of 2013}

[ii] any fabric imported by any person for the purpose of manufacture of garments for export, who has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law for the manufacture of garments for export under such agreement, and the transfer of such fabric with or without value addition with the approval of the Director-General of Customs or the Board of Investment of Sri Lanka, to any other person for the purposes of such manufacture of garments for export;

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{ Section 2(3b) 2002 } { Section 2 of 2003 }

[iii] Any fabric imported by any person, who has registered with the Board of Investment of Sri Lanka as a Trading House for the purpose of manufacture

of garments for export through other garment manufacturers as approved by the Board of Investment of Sri Lanka and transfer of such fabric with the approval of the Director - General of Customs or the Board of Investment of Sri Lanka to such garment manufacture for the purposes of manufacture of garments for export;

{Section 2(3c) 2002}

[iv] any fibre, yarn, grey cloth, finished cloth, chemicals and dyes used for the manufacture of fabric imported by any Fabric manufacturer who has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, for the purpose of such manufacture;

{Section 2(3d) 2002 }

[v] Any fabric or accessories imported by any person for the purpose of manufacture of garments for export, who is registered with the SVAT scheme of

the Inland Revenue Department.

{Section 2(3f) 2002} {Section 2 (3) of 2005 w.e.f. 1/1/2005} {Section 2 (3) (a) (ii)of 2013}

[vi] Supply or import of agricultural machinery, machinery used for production of rubber or plastic products, photo sensitive semi conductor devices. (General concession not specific to exports)

{Section 5(1) of 2012} {1st schedule to the principal enactment}

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[vii] Supply of research and development services.( General concession not specific to exports) {Section 5(2) of 2012} {1st schedule to the principal enactment}

[viii] Supply or import of marine propulsion engines .(general concession not specific to exports ) {Section 12(1) of 2014} {1st schedule to the principal enactment}

[ix] Supply of locally manufactured desiccated coconut ,rubber,latex, tea including green leaf,rice,rice flour,liquid milk. (general concession not specific to exports )

{Section 12(2) of 2014} {1st schedule to the principal enactment}

[x] Any sum paid out of the Export Development Fund as export development rebate w.e.f. 08/10/2009 {Section 5(2) of 2012} {1st schedule to the principal enactment}

[xi] Supply of services which result in the improvement of quality, character or value of any fabric or garment w.e.f. 01/04/2012. (General concession not

specific to exports) {Section 5(2) of 2012} {1st schedule to the principal enactment}

[xii] Import of green houses, poly tunnels and material for construction of green houses by any grower subject to approval by relevant authorities. (General concession not specific to exports) {Section 5(3) of 2012} {1st schedule to the principal enactment}

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[b] Deferments by Commissioner-General of Inland Revenue

The Commissioner General shall defer the payment of Taxes due.

[i] On any tea supplied prior to January 1, 2005 by any manufacturer of tea, registered with the Sri Lanka Tea Board, to any registered broker for sale at

the Colombo Tea Auction and where such tea is purchased by any exporter of tea registered with the Sri Lanka Tea Board until such time such tea broker furnishes the reconciliation on the disposal of such tea, as stipulated by the Commissioner- General;

{Section 2(2) (a) of 2002} {Section 2(2) of 2005 w.e.f. 1/1/2005}

[ii] On the supply with the approval of the Textile Quota Board (TQB), of any goods manufactured in Sri Lanka by such supplier to be utilized for the purpose of manufacture of garments for export either by manufacturers registered with the TQB or through Export Trading Houses registered with the Board of Investment of Sri Lanka;

{Section 2(2) (c) (i) of 2002} {Section 2(2) of 2005 w.e.f. 1/1/2005}

[iii] On the supply of finished garments manufactured in Sri Lanka by a supplier with the approval of the TQB to be exported through Export Trading

Houses registered with the Board of Investment of Sri Lanka under section 17 of the Board of Investment Law of Sri Lanka.

{Section 2(2) (c) (ii) of 2002)} {Section 2(2) of 2005 w.e.f. 1/1/2005}

[iv] On the supply of garments by a manufacturer approval by the TQB being garments manufactured from fabric supplied by an exporter of garments

registered with the TQB who exports directly or through an Export Trading House which has entered into an agreement under section 17 of the Board of Investment of Sri Lanka Law.

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{Section 2(2) (c) (iii) of 2002} {Section 2(2) of 2006 w.e.f. 1/1/2006}

[v] On the supply of any service which results in the improvement of the quality, character or value of any garment manufactured by any manufacturer of

garments for export either directly or through any Export Trading House which has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, being a supplier approval by the TQB.

{Section 2(2) (c) (iv) of 2002} {Section 2(2) of 2006 w.e.f1/1/2006}

[vi] On the supply with the approval the Export Development Board with the concurrence of the Ministry in charge of the subject of finance

[i] Of any goods manufactured in Sri Lanka by such supplier and supply by such supplier to any manufacturer to be utilized for the purpose of manufacture of goods other than the goods referred to in Section 2 (2) (c) of VAT Act No. 14 of 2002 by such manufacturer who is registered with the Export Development Board as an exporters or

[ii] Of any service by such supplier provided to any manufacturer which results in the improvement of the quality, character or value of any goods

manufactured by such manufacturer of goods for export who are registered with the Export Development Board as exporters

{Section 2(2)(d) of 2002 } {Section 2(1) of 2009 w.e.f. 1/6/2008}

[vii] On the supply of goods or services by any registered person who is registered in the simplified value added Tax scheme (SVAT scheme) administered by the

Inland Revenue Department to,

(1) Any exporter or provider of zero rated services (2) Any manufacturer who supplies goods manufactured in Sri Lanka to any exporter. (3) Any suppliers who provides valued added service to an exporter which results in the improvement of the quality character or value of any goods

manufactured for exports

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(4) Any registered person who supplies any goods or services refered to in item (1), (2), (3) or (4) mentioned above provided that such supplies exceeds 50% of the total supplies of such registered person who supplies such goods or services.

Until such time as the activities of such registered person are carried out in accordance with the guide lines issued by the Inland Revenue Department which are specified by order published by gazette.

{Section 2(2)(e) of 2002} {Section 2(2)(c) of 2013}

Note: Deferment of VAT under sections 2[2c] and 2[2d] of the VAT Act [items from b[ii] through b[vi] above] shall be administered by the Commissioner General of Inland Revenue with effect from 01.04.2011.

Section 2[2c] – 2006 Section 2[2a] - 2011 Section 2[2d] – 2006 Section 2[2b] - 2011

[c] Deferments by Director General of Customs

Deferments by Director General of Customs for a period of sixty days or such other period not exceeding ninety days from the date of importation, receipt or purchase of such goods, as may be determined by the Minister by notification published in the Gazette;

[i] Any goods imported, including any goods received from a customs bonded area, by a registered person who imports or receives such goods to be used

by such person for the purpose of manufacture and export of the goods so manufactured {Sub section (a) (i) under 2nd Proviso to Section 2(3) of 2002 }

[ii] Any goods imported by any registered person referred to in section 22 (7) of the VAT Act No. 14 of 2002 which are project related goods during such

project implementation period;

{Sub section (a) (ii) under 2nd Proviso to Section 2(3) of 2002)} {Section 2 of 2003}

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{w.e.f. 1/8/2002 }

[iii] Any purchase of fabric, manufactured by a person who has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law for the manufacture of fabric by another person who has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law No. 4 of 1978 for the manufacture of garments for export under such agreement and utilizes such fabric for the manufacture of garments for export

{Sub section (a)(iv) under 2nd Proviso to Section 2(3) of 2002 }

[iv] Any plant or machinery imported, including any plant or machinery received from a customs bonded area, by a registered person who imports or receives such plant or machinery for the usage by such person for the manufacture of goods to be exported by such person;

(Sub section (a) (v) under 2nd Proviso to Section 2(3) of 2002) (Section 2(4) of 8 of 2006) w.e.f. 1/1/2006

[v] any goods imported, including any goods received from customs bonded area, by a person registered with the simplified value added tax scheme administrated by the IRD, who imports or receives such goods for manufacture of goods or provision of services to a manufacturer of goods for export referred to in Item (i) of paragraph (e) of section 2(2) of the VAT act No. 14 of 2002.

{Sub section (a) (VI) under 2nd Proviso to Section 2(3) of 2002} {Section 2(3)(b)(i) of 2013}

[vi] Any plant or machinery imported, including any plant or machinery received from a customs bonded area by a person registered with the simplified value added Tax scheme administrated by the IRD who import or receives such plant or machinery for usage by such person for manufacture of goods or provision of services refered toin item (i) of paragraph (e) of sub section (2) of section (2) of the VAT Act No. 14 of 2002, for the manufacture of goods to be exported. {Sub section (a) (vii) under 2nd Provision to Section 2(2) of 2002} {Section 2(3)(b)(ii) of 2013}

[vii] Any goods temporarily imported to Sri Lanka to be used as exhibition material or in technical demonstrations.

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(Sub section (b) under 2nd Proviso to Section 2(3) of 2002) (Section 2 of 2008)

[viii] The deferment of Taxes by the Director General of customs shall be subject to submission of a bank guarantee where the tax deferred is less than Rs.

10,000/= or a Treasury bill as a grantee when the tax deferred is not less than Rs. 10, 000/= or a corporate guarantee covering the amount of tax deferred and other conditions specified in the agreement in which the deferment is considered.

{2nd Proviso to section 2 (3) of 2002} {Section 2(3) (b) (iv) of 2013} [d] Important Aspects

[I] Application of zero rating:

a] Zero rate is applicable on export of goods. b] Zero rate is applicable on the following services

i] Services provided in relation to goods imported into Sri Lanka for the purpose of re-export under entrepot trade.

ii] Services related to computer software development where the software developed is for use wholly outside Sri Lanka and for which the payment is received in foreign currency through a bank and provision of satisfactory documentary evidence.

iii] Client support service provided over the internet or telephone by an enterprise exclusively establish for such purposes to persons outside Sri Lanka for which payment is received in foreign currency through a bank.

iv] Provision of services to overseas buyers by a garment buying office registered with the TQB where payment for such service is

received in foreign currency through a bank.

v] Any other service provided by a person in Sri Lanka to another person outside Sri Lanka to be consumed outside Sri Lanka provided the payment for such service is received in foreign currency from outside Sri Lanka through a bank.

{Section 7 of VAT Act No. 14 of 2002 and subsequent amendments}

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[II] Issue of VAT Refunds a] VAT [Input tax] refunds on exports will be made as follows subject to submission of a bank guarantee/insurance bonds. I]. In respect of the taxable period commencing after 1/1/2006 and ending on 31/3/2011, refunds will be made within 15 days. II]. In respect of the taxable period commencing on or after 1/4/2011, refunds will be made within 45 days.

b] VAT [Input tax] refunds to persons registered with the SVAT Scheme being a supplier of goods to exporters of goods where the value of such supplies for the taxable period was more than 50% of his total taxable supplies, will be made as follows;

I]. in respect of the taxable period commencing after 1/1/2006 and ending on 31/3/2011, refunds will be made within 15 days. II]. In respect of the taxable period commencing after 1/4/2011, refunds will be made within 45 days. {Section (c), (d), (e) of the second proviso to section 22 (5) of 2002} {Section 3(3) of 2012} {Section 11 (2)(a) of 2013}

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Preferential Treatment under Economic Service Charge [ESC] - [ESC Act No. 13 of 2006, amended by Acts No. 15 of 2007, No. 11 of 2008, No. 16 of 2009, No. 11 of 2011 ,No. 11 of 2012, No. 6 of 2013 and No. 9 of 2014 ]

1]

Item [For the period commencing on 01.04.2011 ending on 31.03.2012]

ESC Rate

1] Turnover of BOI apparel exporters 0.1%

2] Turnover of BOI trading houses 0.1%

3] Turnover of BOI textile manufacturers for supplying to exporters 0.1%

4] Turnover , the Profits from which are exempted from income tax 0.25%

5] Turnover , the profits from which are taxed at a concessionary rate

0.25%

6] Turnover from primary conversion of tea, rubber or coconuts including desiccates coconuts, coconut oil, coconut fiber, copra and sheet rubber( excluding alcoholic beverages)

0.25%

{Section 3 – 2012}

2] For the period commencing on 01.04.2012, the ESC rate applicable will be 0.25% on the liable turnover (including turnover from exports).

{Section 4 – 2012} 3] Computation of turnover for the purpose of ascertaining ESC for the following categories will be done on a value added basis i.e. [FOB value of exports

less CIF value of imported raw material.]

i] Export of cut and polished gems and diamonds processed from imported rough stones. ii] Export of garments manufactured from material imported on NFE basis. iii] Export of any article other than garments, manufactured from material imported on NFE basis.

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{ Gazette No, 1447/10 of 30.05.2006 } { Gazette No. 1502/10 of 20.06.2007 } { Gazette No. 1506/06 of 18.07.2007 } { Gazette No. 1546/09 of 22.04.2008 }

4] Turnover from exports and deemed exports in the year 2009 are exempted from ESC.

D] Preferential Treatment under Social Responsibility Levy [SRL] - [Finance Act Nos. 5 of 2005, 11 of 2006, 45 of 2007, 8 of 2008 , 15 of 2011]

1] SRL is charged at the rate of 1.5% on the following taxes and levies.

i] Income tax of companies ii] Customs duty iii] Excise duty

2] SRL is not charged on articles imported for the purpose of manufacture of goods for export. 3] SRL has been removed w.e.f 31/03/2011 { Finance (Amendment) Act, No. 15 OF 2011}

E] Preferential Treatment under Nation Building Tax [NBT] - [NBT Act No. 9 of 2009 amended by Act no. 32 of 2009,Act no. 10 of 2011 ,Act no. 9 of

2012, Act No. 11 of 2013 and Act No. 10 of 2014] The following are exempted from NBT:

1] Turnover from direct export of articles or export of articles through a trading house is exempted from NBT.

2] Turnover from deemed exports of articles are exempted from NBT.

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3] Any article not being plant, machinery or fixtures imported by a person exclusively for use in or for the manufacture of any article for export is exempted from NBT.

4] Any manufacturer can claim credit for NBT paid on articles imported by him or purchased from a registered manufacturer if such article is exclusively used in his business of manufacture.

5] Articles imported for display at exhibitions are exempted from NBT.

6] Imported articles subject to the special commodity levy are exempted from NBT.

7] Tea supplied to a manufacturer registered with the Sri Lanka Tea Board to any registered broker for sale at the Colombo Tea Auction is exempted from NBT.

8] Import of gold [w.e.f. 01.03.2010] 9] Raw materials or packaging materials imported for manufacture of Ayurvedic preparations which belong to the Ayurvedic Pharmacopeia. 10] Import of samples in relation to business which is worth not more than Rs. 25,000/=. 11] Import of yarn 12] Import of fabric which are subject to a Cess at the rate specified in gazette notifications issued under the EDB Act. 13] Turnover from the supply of locally developed software. 14] Services provided to any exporter directly related to improving quality and character of articles exported, are exempted from NBT.

15] The services of sewing garments provided to exporters of such garments are exempted from NBT.

16] Service of a computer software developer in respect of software developed for use wholly outside Sri Lanka and for which payment is received in foreign currency through a bank is exempted from NBT.

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17] Services provided by an enterprise over the internet, using custom-built software, exclusively for provision of services enabling or facilitating the sale of goods or provision of services by a person in Sri Lanka to a person outside Sri Lanka for payment in foreign currency are exempted from NBT.

18] Client support services provided over the internet or telephone by an enterprise, exclusively for provision of such service to identified clients outside Sri Lanka for payment in foreign currency are exempted from NBT.

19] Any service rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka for payment in foreign currency if such foreign currency is remitted to Sri Lanka through a bank is exempted from NBT.

20] Gems imported subjected to special service fee at the rate specified under paragraph (a) of section 6 A of the customs ordinance (chapter 235), and

any subsequent sale of such gems as processed gems. 21] Services provided in relation to ship building for the international market for payment in foreign currency. {Section 10 of NBT Act No. 9 of 2009} {Section 4 of the NBT Amendment Act No, 32 of 2009} {Section 8 of the NBT Amendment Act No. 10 of 2011} {Section 4 of the NBT Amendment Act No. 9 of 2012} {Section 3of the NBT Amendment Act No. 11 of 2013} { NBT Amendment Act No. 10 of 2014}

F] Preferential Treatment under Ports and Airport Levy [PAL]

. No levy is charged on exports.

. w.e.f. 01/01/2006 no levy is charged on any article imported into Sri Lanka for the purpose of processing and re-export or to be used for manufacture of goods for export. Section 14(2) of Finance Act No. 11 of 2006.

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G] Duty Concessions on Imported Inputs for Export Processing

Type of Industry / Enterprise entitled to receive

incentives

Criteria to Qualify

Incentive

i) TIEP-1 - Temporary Importation for Export Processing

- Direct Exporters (Manufacturers who manufacture goods for exports).

- Indirect Exporters (Manufacturers who

produce goods as inputs for other industries manufacturing goods for export).

- An operator utilizing the Scheme shall not be entitled to operate under any other Duty Drawback Scheme for manufacture and export of an identical product.

- 100% bank guarantee to be submitted to the

Customs to cover the full value of duties and taxes leviable on the imported raw materials. (In the case of an exporter/ indirect exporter with a good track record, a personal / corporate guarantee may be accepted by the DGC).

Goods can be imported conditionally relived from payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or assembling and subsequent exportation. Inputs permitted to be imported Raw materials, components and parts, which will be

incorporated in the export product. Parts for assembly of the product to be exported. Consumable such as catalysts, accelerators and

chemicals. Packaging materials in finished form such as labels,

stickers, tags etc Raw materials for the manufacture of such

packaging materials.

ii) Duty Rebate Scheme

Exporters who incur fiscal levies on imported inputs and utilize such items for manufacture of

- Exporters should not enjoy benefits under any Qualified exporters are eligible for a rebate of duty actually paid or incurred.

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incentives

Criteria to Qualify

Incentive

products and export. other scheme of exemption of fiscal levies for the same period for an identical product.

- Locally purchased (duty paid) imported items,

which had been utilized for manufacture of export products are also considered for duty rebate.

The rates of rebate are determined by the Customs and are expressed as a percentage of the FOB value of the finished products.

- Exporters may claim the duty rebate from the bank, which receives the remittances of export proceeds.

- Rebate can be claimed within 06 months from the date of export.

iii) Exemption of Fiscal Levies on Capital and Intermediate Goods (TIEP-4)

- Direct exporters

- Indirect exporters

- Security / guarantee equal to the full value of the fiscal levies payable.

Exemption of fiscal levies granted under the scheme are :

- TIEP holder should furnish a personal / corporate Bank Guarantee to the Customs as determined by the DGC.

Direct Exporters : 100% exemption in the case of exporters who export 50% or more of their output manufactured from the imported capital goods for which the concession was granted.

- New TIEP holders who import for the first time should furnish a 100% Bank Guarantee.

50% exemption for exporters who export 25% or more of their output manufactured from the imported capital goods for which the concession was granted.

- In the case of an exporter / indirect exporter with a

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incentives

Criteria to Qualify

Incentive

good track record, a personal / corporate guarantee may be accepted by the DGC

Capital and Intermediate Goods Eligible for Exemption

Indirect Exporters : - 100% exemption in the case of indirect exporters

who supply 50% or more of their output, manufactured from the imported capital goods for which the concession is granted, to direct exporters.

- 50% exemption for indirect exporters who supply

25% or more of their output, manufactured from the imported capital goods for which the concession was granted, to direct exporters.

- Supplies of products to BOI enterprises which are

entitled for duty free import of such goods are considered as deemed exports.

- Capital Goods directly involved in the production process;

Machinery Equipment Accessories etc. Appliances Devices Supporting Equipment such as Air

Conditioners, Computers, and Electricity Generators etc.

- Other essential equipment. - Spare parts of project plants - Transport equipment and handling equipment,

which are used for production exclusively in the factory premises or place of production.

- Breeding stocks for agricultural projects.

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For further information please contact:

Secretariat Branch - Department of Inland Revenue - 94 11 2338635, 2338570 Department of Inland Revenue - 94 11 3009355 Bonds Division - Department of Customs - 94 11 2446586 Policy and Strategic Planning Division - EDB - 94 11 2300730